UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to

Commission File Number: 001-36721

Coherus BioSciences, Inc.

(Exact name of registrant as specified in its charter)

Delaware	27-3615821
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

333 Twin Dolphin Drive, Suite 600

Redwood City, California 94065

(650) 649-3530

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	CHRS	The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit).   Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ☐    No  ☒

As of November 5, 2021, 76,785,431 shares of the registrant’s common stock were outstanding.

COHERUS BIOSCIENCES, INC.

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2021

INDEX

		Page
	CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS	3
PART I	FINANCIAL INFORMATION	5
ITEM 1	Unaudited Condensed Consolidated Financial Statements	5
	Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	5
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020	6
	Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2021 and 2020	7
	Condensed Consolidated Statement of Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020	8
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020	10
	Notes to Condensed Consolidated Financial Statements	11
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
ITEM 3	Quantitative and Qualitative Disclosure About Market Risk	44
ITEM 4	Controls and Procedures	44
PART II	OTHER INFORMATION	46
ITEM 1.	Legal Proceedings	46
ITEM 1A.	Risk Factors	46
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	98
ITEM 3	Defaults Upon Senior Securities	98
ITEM 4	Mine Safety Disclosures	98
ITEM 5	Other Information	98
ITEM 6.	Exhibits	98
Exhibit Index		99
Signatures		101

2

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve substantial risks and uncertainties concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts contained in this Quarterly Report on Form 10-Q may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by words such as “aim,” “anticipate,” “assume,” “attempt,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “seek,” “should,” “strive,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

● whether we will be able to continue to maintain or increase sales for UDENYCA® (pegfilgrastim-cbqv) in the United States;

● our expectations regarding our ability to develop and commercialize our toripalimab drug candidate in the United States and Canada (for the initial indication of nasopharyngeal carcinoma or any potential future indications), including whether the trial results, data package or biologics license application (“BLA”) will be sufficient to support regulatory approval, as well as the timing of the April 2022 target action date for the United States Food and Drug Administration’s (“FDA”) review of the BLA;

● our expectations regarding our ability to develop and commercialize our bevacizumab (Avastin®) biosimilar candidate in the United States and Canada, including the anticipated three-way pharmacokinetic study, the planned additional analytical similarity characterizations and our plans to submit a 351(k) BLA to the FDA;

● whether our CHS-1420 (our adalimumab (Humira®) biosimilar candidate) trial results, data package or BLA will be sufficient to support domestic or global regulatory approvals;

● whether our ranibizumab (Lucentis®) biosimilar candidate partner, Bioeq AG (“Bioeq”), will be able to obtain regulatory approval in the United States or if we will be able successfully to initiate sales of Bioeq’s biosimilar candidate upon such approval;

● our ability to receive marketing authorization for the on-body injector presentation of UDENYCA®, including the timing of receiving such marketing authorization, if approved;

● our ability to maintain regulatory approval for UDENYCA® and our ability to obtain and maintain regulatory approval of our product candidates, if and when approved;

● our expectations regarding government and third-party payer coverage and reimbursement;

● our ability to manufacture our product candidates in conformity with regulatory requirements and to scale up manufacturing capacity of these products for commercial supply;

● our reliance on third-party contract manufacturers to supply our product candidates for us;

● our expectations regarding the potential market size and the size of the patient populations for our product candidates, if approved for commercial use;

3

● our financial performance, including, but not limited to, future performance of our gross margins, research and development expenses and selling and general administrative expenses;

● the implementation of strategic plans for our business and products;

● the initiation, timing, progress and results of future preclinical and clinical studies and our research and development programs;

● the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates;

● our expectations regarding the scope or enforceability of third-party intellectual property rights, or the applicability of such rights to our product candidates;

● the cost, timing and outcomes of litigation involving our product candidates;

● our reliance on third-party contract research organizations to conduct clinical trials of our product candidates;

● the benefits of the use of our product candidates;

● the rate and degree of market acceptance of our current or any future product candidates;

● our ability to compete with companies currently producing the reference products, including Neulasta®, Avastin®, Humira® and Lucentis®;

● developments and projections relating to our competitors and our industry; and

● the potential impact of COVID-19 on our business and prospects.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. Risk Factors and discussed elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

4

PART I. FINANCIAL INFORMATION

ITEM 1.              Unaudited Condensed Consolidated Financial Statements

Coherus BioSciences, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

	September 30,		December 31,
	2021		2020
Assets
Current assets:
Cash and cash equivalents	$	360,540	$	541,158
Investments in marketable securities		108,167		—
Trade receivables, net		136,346		157,046
Inventory		37,583		44,233
Prepaid manufacturing		20,378		19,429
Other prepaid and other assets		10,025		5,613
Total current assets		673,039		767,479
Property and equipment, net		8,505		10,108
Inventory, non-current		46,357		47,956
Intangible assets		2,620		2,620
Goodwill		943		943
Other assets, non-current		10,262		12,543
Total assets	$	741,726	$	841,649
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	45,707	$	15,201
Accrued rebates, fees and reserves		84,744		81,529
Accrued compensation		18,793		22,244
Accrued and other current liabilities		45,826		26,679
Convertible notes due 2022 - current		80,978		—
Convertible notes due 2022 - related parties, current		26,992		—
Term Loan - current portion		17,308		—
Total current liabilities		320,348		145,653
Convertible notes due 2022		—		79,885
Convertible notes due 2022 - related parties		—		26,628
Convertible notes due 2026		223,971		223,029
Term loan - non-current portion		57,924		74,481
Lease liabilities, non-current		7,973		9,948
Other liabilities, non-current		750		1,051
Total liabilities		610,966		560,675
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock ($0.0001 par value; Shares authorized: 5,000,000; No shares issued and outstanding as of September 30, 2021 and December 31, 2020)		—		—
Common stock ($0.0001 par value; shares authorized: 300,000,000; shares issued and outstanding: 76,583,279 and 72,513,348 at September 30, 2021 and December 31, 2020, respectively)		7		7
Additional paid-in capital		1,135,155		1,043,991
Accumulated other comprehensive loss		(273)		(270)
Accumulated deficit		(1,004,129)		(762,754)
Total stockholders' equity		130,760		280,974
Total liabilities and stockholders’ equity	$	741,726	$	841,649

See accompanying notes.

5

Coherus BioSciences, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Revenue:
Net product revenue	$	82,503	$	113,551	$	253,180	$	365,405
Cost and expenses:
Cost of goods sold		21,280		9,000		45,487		25,994
Research and development		54,085		38,851		312,343		98,131
Selling, general and administrative		39,925		31,984		119,661		101,386
Total cost and expenses		115,290		79,835		477,491		225,511
(Loss) income from operations		(32,787)		33,716		(224,311)		139,894
Interest expense (includes related party expense of $637 and $625 for the three months ended September 30, 2021 and 2020, respectively; and $1,902 and $1,867 for the nine months ended September 30, 2021 and 2020, respectively)		(5,771)		(5,656)		(17,166)		(15,495)
Other income, net		30		56		102		548
Net (loss) income before income taxes		(38,528)		28,116		(241,375)		124,947
Income tax provision		—		183		—		2,411
Net (loss) income	$	(38,528)	$	27,933	$	(241,375)	$	122,536
Net (loss) income per share:
Basic	$	(0.49)	$	0.39	$	(3.22)	$	1.72
Diluted	$	(0.49)	$	0.33	$	(3.22)	$	1.52
Weighted-average number of shares used in computing net (loss) income per share:
Basic		79,013,240		71,649,350		74,984,811		71,138,973
Diluted		79,013,240		87,470,337		74,984,811		82,043,469

See accompanying notes.

6

Coherus BioSciences, Inc.

Condensed Consolidated Statements of Comprehensive (Loss) Income

(in thousands)

(unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Net (loss) income	$	(38,528)	$	27,933	$	(241,375)	$	122,536
Other comprehensive (loss) income:
Unrealized (loss) gain on available-for-sale securities, net of tax		(6)		6		(3)		18
Foreign currency translation adjustments, net of tax		—		(4)		—		285
Comprehensive (loss) income	$	(38,534)	$	27,935	$	(241,378)	$	122,839

See accompanying notes.

7

Coherus BioSciences, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share and per share data)

(unaudited)

						Accumulated
				Additional		Other				Total
	Common Stock			Paid-In		Comprehensive		Accumulated		Stockholders'
	Shares		Amount	Capital		Income (Loss)		Deficit		Equity
Balances at December 31, 2020	72,513,348	$	7	$	1,043,991	$	(270)	$	(762,754)	$	280,974
Issuance of common stock upon exercise of stock options	451,883		—		4,429		—		—		4,429
Issuance of common stock upon vesting of restricted stock units (RSUs)	252,846		—		—		—		—		—
Taxes paid related to net share settlement of RSUs	(95,169)		—		(1,730)		—		—		(1,730)
Stock-based compensation expense	—		—		16,982		—		—		16,982
Unrealized loss on marketable securities	—		—		—		(37)		—		(37)
Cumulative translation adjustment	—		—		—		—		—		—
Net loss	—		—		—		—		(172,947)		(172,947)
Balances at March 31, 2021	73,122,908		7		1,063,672		(307)		(935,701)		127,671
Issuance of common stock upon exercise of stock options	686,145		—		4,009		—		—		4,009
Issuance of common stock upon vesting of restricted stock units (RSUs)	9,334		—		—		—		—		—
Issuance of common stock to Shanghai Junshi Biosciences Co., Ltd. ("Junshi Biosciences"), net of issuance costs	2,491,988		—		40,903		—		—		40,903
Issuance of common stock under the employee stock purchase plan ("ESPP")	154,325		—		1,985		—		—		1,985
Stock-based compensation expense	—		—		11,512		—		—		11,512
Unrealized gain in marketable securities	—		—		—		40		—		40
Cumulative translation adjustment	—		—		—		—		—		—
Net loss	—		—		—		—		(29,900)		(29,900)
Balances at June 30, 2021	76,464,700		7		1,122,081		(267)		(965,601)		156,220
Issuance of common stock upon exercise of stock options	116,246		—		1,288		—		—		1,288
Issuance of common stock upon vesting of restricted stock units (RSUs)	2,333		—		—		—		—		—
Stock-based compensation expense	—		—		11,786		—		—		11,786
Unrealized loss in marketable securities	—		—		—		(6)		—		(6)
Cumulative translation adjustment	—		—		—		—		—		—
Net loss	—		—		—		—		(38,528)		(38,528)
Balances at September 30, 2021	76,583,279	$	7	$	1,135,155	$	(273)	$	(1,004,129)	$	130,760

See accompanying notes.

8

Coherus BioSciences, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share and per share data)

(unaudited)

						Accumulated
				Additional		Other				Total
	Common Stock			Paid-In		Comprehensive		Accumulated		Stockholders'
	Shares		Amount	Capital		Income (Loss)		Deficit		Equity
Balances at December 31, 2019	70,366,661	$	7	$	1,000,763	$	(558)	$	(894,998)	$	105,214
Issuance of common stock upon exercise of stock options	421,850		—		4,438		—		—		4,438
Issuance of common stock upon vesting of RSUs	10,000		—		—		—		—		—
Issuance of common stock upon 2019 bonus payout	134,099		—		2,378		—		—		2,378
Taxes paid related to net share settlement of bonus payout in RSUs	(49,616)		—		(880)		—		—		(880)
Stock-based compensation expense	—		—		9,945		—		—		9,945
Cumulative translation adjustment	—		—		—		608		—		608
Net income	—		—		—		—		35,572		35,572
Balances at March 31, 2020	70,882,994		7		1,016,644		50		(859,426)		157,275
Issuance of common stock upon exercise of stock options	289,241		—		3,305		—		—		3,305
Issuance of common stock under the ESPP	180,970		—		2,557		—		—		2,557
Stock-based compensation expense	—		—		9,686		—		—		9,686
Purchase of capped call options related to convertible notes due 2026	—		—		(18,170)		—		—		(18,170)
Unrealized gain in marketable securities	—		—		—		12		—		12
Cumulative translation adjustment	—		—		—		(319)		—		(319)
Net income	—		—		—		—		59,031		59,031
Balances at June 30, 2020	71,353,205		7		1,014,022		(257)		(800,395)		213,377
Issuance of common stock upon exercise of stock options	598,577		—		4,962		—		—		4,962
Issuance of common stock upon vesting of RSUs	72,584		—		—		—		—		—
Stock-based compensation expense	—		—		9,457		—		—		9,457
Unrealized gain in marketable securities	—		—		—		6		—		6
Cumulative translation adjustment	—		—		—		(4)		—		(4)
Net income	—		—		—		—		27,933		27,933
Balances at September 30, 2020	72,024,366	$	7	$	1,028,441	$	(255)	$	(772,462)	$	255,731

See accompanying notes.

9

Coherus BioSciences, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine Months Ended
	September 30,
	2021		2020
Operating activities
Net (loss) income	$	(241,375)	$	122,536
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		2,618		2,048
Stock-based compensation expense		40,418		28,287
Write-off of prepaid manufacturing services related to the termination of CHS-2020		3,210		—
Write-off of inventory that did not meet acceptance criteria		5,192		—
Non-cash accretion of discount on marketable securities		909		(103)
Non-cash interest expense from amortization of debt discount		3,150		2,492
Non-cash operating lease expense		1,618		1,567
Upfront license fee payment to Junshi Biosciences		136,000		—
Upfront and milestone based license fee payments to Innovent		—		7,500
Other non-cash adjustments		181		422
Changes in operating assets and liabilities:
Trade receivables, net		20,722		(18,885)
Inventory		2,936		(30,053)
Prepaid manufacturing		(2,884)		(13,350)
Other prepaid, current and non-current assets		(4,590)		(785)
Accounts payable		30,495		(13,108)
Accrued rebates, fees and reserves		3,215		24,841
Accrued compensation		(3,451)		1,380
Accrued and other current and non-current liabilities		16,526		6,232
Net cash provided by operating activities		14,890		121,021
Investing activities
Purchases of property and equipment		(821)		(6,279)
Proceeds from disposal of property and equipment		—		167
Purchases of investments in marketable securities		(171,779)		(273,845)
Proceeds from maturities of investments in marketable securities		62,700		63,000
Upfront license fee payment to Junshi Biosciences		(136,000)		—
Upfront and milestone based license fee payments to Innovent		—		(7,500)
Net cash used in investing activities		(245,900)		(224,457)
Financing activities
Proceeds from issuance of Convertible Notes due 2026, net of issuance costs		—		222,156
Purchase of capped call options related to Convertible Notes due 2026		—		(18,170)
Proceeds from issuance of common stock to Junshi Biosciences, net of issuance costs		40,903		—
Proceeds from issuance of common stock upon exercise of stock options		9,726		13,014
Proceeds from purchase under the employee stock purchase plan		1,985		2,557
Taxes paid related to net share settlement of RSUs		(1,730)		(880)
Other immaterial financing activities		(492)		(244)
Net cash provided by financing activities		50,392		218,433
Net (decrease) increase in cash, cash equivalents and restricted cash		(180,618)		114,997
Cash, cash equivalents and restricted cash at beginning of period		541,598		177,908
Cash, cash equivalents and restricted cash at end of period	$	360,980	$	292,905
Supplemental disclosure of cash flow information
Non-cash bonus payment settled in common stock	$	—	$	1,498
Right-of-use assets obtained in exchange for lease obligations related to operating leases	$	434	$	1,388
Right-of-use assets obtained in exchange for lease obligations related to finance leases	$	477	$	1,771

See accompanying notes.

10

Coherus BioSciences, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1.       Organization and Summary of Significant Accounting Policies

Organization

Coherus BioSciences, Inc. (the “Company” or “Coherus”) is a commercial-stage biotherapeutics company focused on the biosimilar and immuno-oncology market primarily in the United States. The Company’s headquarters and laboratories are located in Redwood City, California and in Camarillo, California, respectively. The Company commercializes UDENYCA® (pegfilgrastim-cbqv), a biosimilar to Neulasta, a long-acting granulocyte-colony stimulating factor, in the United States.

The Company’s product pipeline comprises four drugs, CHS-1420 (an adalimumab (Humira) biosimilar), a ranibizumab (Lucentis) biosimilar in-licensed for U.S. and Canadian commercial rights from Bioeq AG, a bevacizumab (Avastin) biosimilar in-licensed for U.S. commercial rights from Innovent Biologics (Suzhou) Co., Ltd. and toripalimab, an anti-PD-1 antibody being developed in collaboration with Junshi Biosciences.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Coherus and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities Act of 1933, as amended (the “Securities Act”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring accruals, that the Company believes are necessary to fairly state the financial position and the results of the Company’s operations and cash flows for interim periods in accordance with U.S. GAAP. Interim-period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”) filed with the Securities and Exchange Commission (“SEC”).

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities when these values are not readily apparent from other sources. Accounting estimates and judgements are inherently uncertain and the actual results could differ from these estimates.

11

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets which, in aggregate, represent the amount reported in the condensed consolidated statements of cash flows (in thousands):

	Nine Months Ended
	September 30,
	2021		2020
At beginning of period:
Cash and cash equivalents	$	541,158	$	177,668
Restricted cash - non-current		440		240
Total cash, cash equivalents and restricted cash	$	541,598	$	177,908
At end of period:
Cash and cash equivalents	$	360,540	$	292,465
Restricted cash - non-current		440		440
Total cash, cash equivalents and restricted cash	$	360,980	$	292,905

Restricted cash – non-current consists of deposits for letter of credits that the Company has provided to secure its obligations under certain leases.

Investments in Marketable Securities

Investments in marketable securities primarily consist of corporate debt obligations and commercial paper. Management determines the appropriate classification of investments in marketable securities at the time of purchase based upon management’s intent with regards to such investment and reevaluates such designation as of each balance sheet date. The Company’s investment policy requires that it only invests in highly rated securities and limit its exposure to any single issuer. All investments in debt marketable securities are held as “available-for-sale” and are carried at the estimated fair value as determined based upon quoted market prices or pricing models for similar securities.

The Company classifies investments in marketable securities as short-term when they have remaining contractual maturities of one year or less from the balance sheet date. Unrealized gains and losses on available-for-sale securities are reported as a component of accumulated comprehensive income (loss), with the exception of unrealized losses believed to be related to credit losses, if any, which are recognized in earnings in the period the impairment occurs. Impairment assessments are made at the individual security level each reporting period. When the fair value of an investment is less than its cost at the balance sheet date, a determination is made as to whether the impairment is related to a credit loss and, if it is, the portion of the impairment relating to credit loss is recorded as an allowance through net income. Realized gains and losses and declines in value, if any, on available-for-sale securities are included in other income, net, based on the specific identification method.

Trade Receivables

Trade receivables are recorded net of allowances for chargebacks, chargeback prepayments, cash discounts for prompt payment and credit losses. The Company estimates an allowance for expected credit losses by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. The corresponding expense for the credit loss allowance is reflected in selling, general and administrative expenses. The credit loss allowance was immaterial as of September 30, 2021 and December 31, 2020.

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Recent Accounting Pronouncements

The following are the recent accounting pronouncements adopted by the Company in 2021:

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new guidance removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. It also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The Company adopted this guidance as of January 1, 2021. The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations. The Company adopted this guidance as of January 1, 2021. The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

The Company has reviewed other recent accounting pronouncements and concluded they are either not applicable to the business or that no material effect is expected on the condensed consolidated financial statements as a result of future adoption.

2.       Fair Value Measurements

Financial assets and liabilities are recorded at fair value. The carrying amounts of certain of the Company’s financial instruments, including cash, cash equivalents, restricted cash, investments in marketable securities, accounts receivable, accounts payable and other current liabilities approximate their fair values due to their short maturities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The accounting guidance describes a fair value hierarchy based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last is considered unobservable. These levels of inputs are the following:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s financial instruments consist of Level 1 and Level 2 assets, and Level 3 liabilities. Where quoted prices are available in an active market, securities are classified as Level 1. Level 1 assets consist of highly liquid money market funds that are included in cash and cash equivalents, and restricted cash. The unrealized gains and losses in the Company’s investments in these money market funds were immaterial.

When quoted market prices are not available for the specific security, then the Company estimates the fair value by using quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third-party data

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