Fair Value Measurements and Marketable Securities

3 Months Ended

Mar. 31, 2022

Fair Value Disclosures [Abstract]

Fair Value Measurements and Marketable Securities

3. Fair Value Measurements and Marketable Securities

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis (in thousands):

	Fair Value Measurements at March 31, 2022 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	—	$	37,803	$	—	$	37,803
Corporate bonds		—		2,718		—		2,718
U.S. government securities		—		5,998		—		5,998
Total cash equivalents		—		46,519		—		46,519
Marketable securities:
Corporate bonds				7,928				7,928
Commercial paper		—		14,944		—		14,944
U.S. government securities		—		26,983		—		26,983
Total marketable securities		—		49,855		—		49,855
Total cash equivalents and marketable securities		—		96,374		—		96,374
Liabilities:
Derivative liability	$	—	$	—	$	995	$	995
	$	—	$	—	$	995	$	995

	Fair Value Measurements at December 31, 2021 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	—	$	109,316	$	—	$	109,316
Corporate bonds		—		2,701		—		2,701
Total cash equivalents		—		112,017		—		112,017
Marketable securities:
Corporate bonds		—		11,479		—		11,479
Commercial paper		—		22,339		—		22,339
Total marketable securities		—		33,818		—		33,818
Total cash equivalents and marketable securities	$	—	$	145,835	$	—	$	145,835
Liabilities:
Derivative liability	$	—	$	—	$	802	$	802
	$	—	$	—	$	802	$	802

Excluded from the tables above is cash of $25.6 million and $0.6 million as of March 31, 2022, and December 31, 2021, respectively. During the three months ended March 31, 2022, there were no transfers between Level 1, Level 2 and Level 3 categories.

Marketable Securities

The Company’s marketable securities are classified as Level 2 assets under the fair value hierarchy as these assets were primarily determined from independent pricing sources, which generally derive security prices from recently reported trades for identical or similar securities. The Company evaluated debt securities with unrealized losses for any expected credit losses and determined unrealized losses on these securities were related to non-credit factors. Additionally, the Company currently does not intend to and is not required to sell these investments prior to an anticipated recovery in value.

The following table summarizes the gross unrealized gains and losses of the Company’s marketable securities as of March 31, 2022, and December 31, 2021 (in thousands):

	March 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Assets:
Corporate bonds	$	7,934	$	—	$	(6	)	$	7,928
Commercial paper		14,944		—		—			14,944
U.S. government securities		26,981		2		—			26,983
	$	49,859	$	2	$	(6	)	$	49,855

	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Assets:
Corporate bonds	$	11,481	$	—	$	(2	)	$	11,479
Commercial paper		22,339		—		—			22,339
	$	33,820	$	—	$	(2	)	$	33,818

As of March 31, 2022, and December 31, 2021, all of the Company’s marketable securities had remaining contractual maturity dates of one year or less from the respective consolidated balance sheet date.

Embedded Derivative

In connection with the liability related to the sale of future royalties (see Note 10), the Company classified $1.0 million at inception of its Revenue Interest Agreement (as defined below) as a derivative liability on its consolidated balance sheet because there were embedded instruments that represent a conditional obligation to pay HCR the final payment, which is 250% of the Investment Amount (as defined below), upon an event of default or change of control. The Company will remeasure the derivative liability to fair value at each reporting date, and recognize changes in the fair value of the derivative liability as a component of other income (expense) in the consolidated statement of operations and comprehensive loss. The Company valued its change of control provision under the Revenue Interest Agreement using a Monte Carlo Simulation Method, assuming a lognormal distribution for revenue. The assumptions used in the valuation model include (1) our estimates of the probability and timing of related events, (2) our estimates of future revenues subject to the Revenue Interest Agreement, (3) volatility, (4) the risk-adjusted discount rate and (5) the probability of a change in control occurring during the term of the instrument.

The fair value of the derivative liability upon issuance in October 2021 was $1.0 million, and is classified as Level 3 liability under the fair value hierarchy.

The fair value of the derivative liability increased from $0.8 million as of December 31, 2021 to $1.0 million as of March 31, 2022, primarily due to the passage of time and changes in the market volatility and underlying credit risk inputs.

Liability related to the sale of future royalties

The fair value for the liability related to the sale of future royalties at the time of the transaction was based on the Company's current estimates of future royalties expected to be paid to HCR over the remaining patent life of the product, which are considered Level 3 inputs (see Note 10).