Fair Value Measurements

12 Months Ended

Dec. 31, 2022

Fair Value Disclosures [Abstract]

Fair Value Disclosures

3. Fair Value Measurements

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2—Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3—Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

No transfers between levels have occurred during the periods presented.

The Company measures the fair value of money market funds and U.S. Treasury securities based on quoted prices in active markets for identical securities. The Company measures the fair value of U.S. Agency securities, corporate debt securities and commercial paper based on recent trades of securities in inactive markets or based on quoted prices of similar instruments in active markets and other significant inputs derived from or corroborated by observable market data.

The following table summarizes, by major security type, the Company's cash, cash equivalents, and investments that are measured at fair value on a recurring basis by level within the fair value hierarchy as of December 31, 2022 (in thousands):

		December 31, 2022
	Fair Value Hierarchy Level	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Assets:
Cash and cash equivalents:
Cash	Level 1	$	23,376	$	—	$	—		$	23,376
Money market funds	Level 1		35,470		—		—			35,470
Total cash and cash equivalents			58,846		—		—			58,846
Investments:
U.S. Treasury securities	Level 1		82,277		3		(331	)		81,949
U.S. Agency securities	Level 2		14,044		28		—			14,072
Corporate debt securities and commercial paper	Level 2		63,543		—		(103	)		63,440
Total investments			159,864		31		(434	)		159,461
Total assets measured at fair value on a recurring basis		$	218,710	$	31	$	(434	)	$	218,307

As of December 31, 2021, the Company considered the carrying amounts of cash and cash equivalents to be representative of their respective fair values due to their short maturities.

All investments held as of December 31, 2022 were classified as available-for-sale debt securities and had contractual maturities within one year. There were no realized gains or losses on these securities for the year ended December 31, 2022. The aggregate fair value of available-for-sale debt securities in an unrealized loss position as of December 31, 2022 was $90.3 million. The Company evaluated its investments for other-than-temporary impairment and considered the decline in market value for the securities to be temporary in nature. It is not more likely than not that the Company will be required to sell the investments, and the Company does not intend to do so prior to recovery of the amortized cost basis.

As further described in Note 7, the Company issued a convertible promissory note in August 2020. The convertible promissory note contained certain features that met the definition of a derivative and were required to be bifurcated. The Company accounted for these as a single derivative comprising all the features requiring bifurcation. The fair value of the derivative liability was estimated using a scenario-based analysis comparing the probability-weighted present value of the convertible promissory note payoff at maturity with and without the bifurcated features. The Company considered possible outcomes available to the noteholders, including various financing dissolution scenarios. In addition, the probabilities applied to various scenarios, the key unobservable inputs are the time to liquidity for each scenario, and the discount rate.

The following table summarizes information about the significant unobservable inputs used in the fair value measurements for the derivative liability:

	March 19, 2021
Probability of financing		100	%
Probability of dissolution		—
Time to liquidity (years)		—
Discount rate		7.6	%

The Company adjusted the carrying value of the derivative liability within the convertible promissory note to the estimated fair value at each reporting date, with any related increases or decreases in the fair value recorded as change in fair value of derivative liability in the statements of operations and comprehensive loss. For the year ended December 31, 2021, the Company recognized $0.2 million of other income in the statements of operations and comprehensive loss related to increases in the fair value of the embedded derivative liability.

On March 19, 2021, in connection with the closing of the Series B convertible preferred stock financing, the convertible promissory note (including accrued interest) and derivative liability converted into 2,805,850 shares of Series B-2 convertible preferred stock. As a result of the conversion, the Company recorded a loss on extinguishment of convertible promissory note of $0.8 million of other expense in the statements of operations and comprehensive loss for the year ended December 31, 2021, which included the derecognition of unamortized debt issuance costs.

The following table provides a reconciliation of the fair value of the derivative liability using Level 3 significant unobservable inputs (in thousands):

	Derivative Liability
Fair value at December 31, 2020	$	(1,604	)
Change in fair value of embedded derivative liability		(205	)
Reclassification of derivative liability into convertible preferred stock resulting from conversion of convertible promissory note		1,809
Fair value at December 31, 2021	$	—