Fair Value of Financial Assets and Liabilities

3 Months Ended

Mar. 31, 2023

Fair Value Disclosures [Abstract]

Fair Value of Financial Assets and Liabilities

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values:

	Fair Value Measurements as of March 31, 2023 Using:
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents—money market funds	$	70,959	$	14	$	—	$	70,973
	$	70,959	$	14	$	—	$	70,973
Liabilities:
Embedded derivative liability	$	—	$	—	$	10	$	10
Class C warrant liability	—		—		17,692		17,692
	$	—	$	—	$	17,702	$	17,702

	Fair Value Measurements as of December 31, 2022 Using:
(in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents—money market funds	$	70,170	$	2,858	$	—	$	73,028
	$	70,170	$	2,858	$	—	$	73,028
Liabilities:
Embedded derivative liability	$	—	$	—	$	10	$	10
Class C warrant liability	—		—		23,131		23,131
	$	—	$	—	$	23,141	$	23,141

The Company’s cash equivalents consisted of money market funds invested primarily in short term commercial paper, asset- backed securities, certificate of deposits and repurchase agreements. The money market funds were valued based on reported market pricing for the identical assets, which represents a Level 1 measurement, or by using inputs observable in active markets for similar securities, which represents a Level 2 measurement.

The following table provides a roll-forward of the aggregate fair values financial instruments for which fair values are determined using Level 3 inputs:

(in thousands)	Embedded Derivative Liability		Class C Warrant Liability		Total
Balance as of December 31, 2022	$	10	$	23,131	$	23,141
Change in fair value	—		(5,439)		(5,439)
Balance as of March 31, 2023	$	10	$	17,692	$	17,702

Embedded Derivative Liability— The fair value of the embedded derivative liability recognized in connection with the Company’s loan agreement with Hercules (see Note 7), which is associated with additional fees due to Hercules upon events of default, was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of this embedded derivative liability, which is reported within other non-current liabilities on the condensed consolidated balance sheets, is estimated by the Company at each reporting date based, in part, on the results of third party valuations, which are prepared based on a discounted cash flow model that considers the timing and probability of occurrence of a redemption upon an event of default, the potential amount of prepayment fees or contingent interest upon an event of default and the Company’s risk-adjusted discount rate of 14%.

Class C Warrant Liability— In December 2022, the Company issued Class C Warrants for the purchase of shares of its common stock in a public offering of common stock. The Class C Warrants are accounted for as a liability on the condensed consolidated balance sheet and are adjusted to fair value at period end through “other income (expense)” in the condensed, consolidated statements of operations and comprehensive loss.

The Company calculated the fair value of the Class C Warrants using the Black-Scholes option pricing model, which represents a Level 3 measurement within the fair value hierarchy, with the following inputs:

	March 31, 2023		December 31, 2022
Common stock price	$0.87		$0.99
Risk-free interest rate	3.9	%	4.0	%
Expected term (in years)	4.7 years		4.9 years
Expected volatility	91.9	%	101.7	%
Expected dividend yield	—	%	—	%