FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2019

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 at December 31, 2019 using:
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	24,157	$	—	$	—	$	24,157
Total	$	24,157	$	—	$	—	$	24,157
Liabilities:
Derivative liabilities	$	—	$	—	$	16	$	16
Total	$	—	$	—	$	16	$	16


	Fair value measurements at December 31, 2018 using:
	Level 1		Level 2		Level 3		Total
Liabilities:
Derivative liabilities	$	—	$	—	$	4,023	$	4,023
Total	$	—	$	—	$	4,023	$	4,023

The Company did not hold any cash equivalents as of December 31, 2018. Money market funds were valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy. During the years ended December 31, 2018 and 2019, there were no transfers between Level 1, Level 2 and Level 3.

Valuation of derivative liabilities

The fair value of the derivative liabilities related to the the series B tranche right and warrants to purchase series A convertible preferred stock (see Note 6) is based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.

Tranche rights

The Company’s issuance of series A and series B convertible preferred stock (see Note 6) provided investors the right to participate in subsequent offerings of series A and series B convertible preferred stock, respectively, in the event specified developmental and regulatory milestones were achieved. The Company classifies the tranche rights as derivative liabilities on its consolidated balance sheet as it was determined that the tranche rights met the definition of a freestanding financial instrument since they are legally detachable. It was also determined that such instruments represent forward sale contracts on redeemable shares and, accordingly, the instruments should be accounted for as a liability separate from the convertible preferred stock. The Company remeasured the derivative liabilities associated with tranche rights to fair value at each reporting date, and recognized changes in the fair value of the derivative liabilities in the consolidated statements of operations.

The fair value of the derivative liabilities was determined using a back solve approach based on the price paid for the underlying series A and B convertible preferred stock and the derivative liability. The derivative liabilities were valued as forward contracts which considered inputs including, but not limited to, the probability of attaining milestones, market-based assumptions for expected term and the risk free rate.

Series B tranche right

The fair value of the tranche right related to the Company’s series B convertible preferred stock (see Note 6) upon issuance in December 2018 was $4,000. The change in fair value between the issuance date of December 21, 2018 and December 31, 2018 was not material. In August 2019, the Company executed a waiver of the developmental milestone whereby the tranche right was executed and an additional 11,294,902 series B preferred shares were issued, resulting in the extinguishment of the related derivative liability. The change in the fair value of the tranche right between December 2018 and the date of extinguishment was $6,393.

Warrants to purchase series A convertible preferred stock

In March 2017, the Company issued warrants to purchase 32,442 shares of series A convertible preferred stock. The Company accounts for the warrants to purchase series A convertible preferred stock as a liability as these warrants are freestanding financial instruments that may require the Company to transfer assets upon exercise. Such liability is not material to the consolidated financial statements, and is included in derivative liabilities.

The following table presents the key inputs of the tranche rights derivative liabilities, which were extinguished in August 2019:


	December 31,
	2019		2018
Risk-free interest rate	0.0	%	2.6	%
Expected term (in years)	0.0		2.0
Expected volatility	0.0	%	65.0	%
Expected dividend yield	0.0	%	0.0	%


	Derivative liabilities
Balance - December 31, 2017	$	8
Issuance of series B preferred stock tranche right	4,000
Change in fair value	15
Balance - December 31, 2018	4,023
Change in fair value	6,393
Exercise of series B preferred stock tranche right	(10,400)
Balance - December 31, 2019	$	16

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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