Fair Value Measurements

12 Months Ended

Dec. 31, 2016

Fair Value Disclosures [Abstract]

Fair Value Measurements

11.Fair Value Measurements

The Company measures and reports certain financial instruments as assets and liabilities at fair value on a recurring basis. The following tables sets forth the fair value of the Company’s financial assets and liabilities at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):

	December 31, 2016
	Level 1		Level 2		Level 3		Total
Financial Assets
Money market funds	$	4,584	$	—	$	—	$	4,584
Reverse repurchase agreements		—		39,250		—		39,250
US government and agency securities		—		15,754		—		15,754
Total financial assets	$	4,584	$	55,004	$	—	$	59,588

	December 31, 2015
	Level 1		Level 2		Level 3		Total
Financial Assets
Money market funds	$	3,988	$	—	$	—	$	3,988
Reverse repurchase agreements		—		16,250		—		16,250
US government and agency securities		—		3,768		—		3,768
Total financial assets	$	3,988	$	20,018	$	—	$	24,006

The Company measures the fair value of money market funds on quoted prices in active markets for identical asset or liabilities. The Level 2 assets include reverse repurchase agreements and U.S. government and agency securities and are valued based on quoted prices for similar assets in active markets and inputs other than quoted prices that are derived from observable market data.

The Company evaluates transfers between levels at the end of each reporting period. There were no transfers between Level 1 and Level 2 during the periods presented.

The liability for the forward sale contract is considered a Level 3 instrument. The forward sale contract was settled on July 15, 2014 when the Company issued and received payment for additional Series A convertible preferred shares, and the fair value of the financial instrument of $1.9 million was reclassified to Series A convertible preferred shares.

Valuation Approach for the Company’s Shares and Related Instruments

Prior to the IPO, the Company valued its common stock and common shares by taking into consideration, among other things, its most recent valuation of common stock and common shares prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Given the absence of a public trading market for the Company’s capital stock, the Company exercised reasonable judgment and considered a number of objective and subjective factors, including changes since the date of the most recent contemporaneous valuation through the date of grant. The Company estimated the fair value of each class of common shares, preferred shares, and common stock by utilizing either a hybrid of the Probability-Weighted Expected Return Method (“PWERM”) and the Option Pricing Method (“OPM”) or the OPM, both valuation methodologies are based on the Backsolve Method, a form of the market approach. The hybrid valuation methodology applied the PWERM utilizing the probability of going public scenarios and a liquidation scenario. The OPM valuation methodology included estimates and assumptions that require the Company’s judgment. Inputs used to determine estimated fair value of the shares include the equity value of the Company, probabilities of going public by term (from 12.5% to 80% with terms from 0.55 to 0.13 years), risk-adjusted discount rate (30%), discount for lack of marketability (from 30% to 7.5%), expected timing of the liquidity event (from 2.8 to 3.0 years), a risk-free interest rate (from 0.8% to 1.1%) and the expected volatility (70%). Generally, increases or decreases in these unobservable inputs would result in a directionally similar impact to the fair value measurement of the Company’s shares. Following the IPO, the Company utilizes the closing sale price per share of its common stock as quoted on the NASDAQ Global Market on the date of grant for purposes of determining the fair value of its common stock.

The fair value of the forward sale contract for Series A convertible preferred shares was measured using a probability-weighted discount approach. Inputs used to determine estimated fair value of the forward sale contract include the estimated present and future fair values of the Series A convertible preferred shares, the estimated probability of the milestone being achieved (initially 90%), the discount rate (20%), and an estimated time to the milestone event (initially estimated to be ten months). Increases or decreases in the discount rate generally would result in a directionally opposite impact to the fair value measurement of this forward sale contract. Changes in the estimated fair value of the Series A convertible preferred shares generally would result in a directionally similar impact on the fair value measurement of the forward sale contract.