Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2023

4. Fair Value of Financial Instruments

The following tables summarize the fair value of the Company’s financial instruments (in thousands):


			Fair Value Measurements Using
	September 30, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents:
Money market funds	$	17,437	$	17,437	$	—	$	—
Short-term investments:
Corporate debt securities	$	47,423	$	—	$	47,423	$	—
Commercial paper		37,546		—		37,546		—
U.S. Government securities		152,382		—		152,382		—
Total short-term investments		237,351		—		237,351		—
Total	$	254,788	$	17,437	$	237,351	$	—


			Fair Value Measurements Using
	December 31, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents:
Money market funds	$	36,494	$	36,494	$	—	$	—
Short-term investments:
Corporate debt securities	$	88,681	$	—	$	88,681	$	—
Commercial paper		65,409		—		65,409		—
Government securities		160,559		—		160,559		—
Total short-term investments		314,649		—		314,649		—
Total	$	351,143	$	36,494	$	314,649	$	—

Cash Equivalents and Investments

Financial assets measured at fair value on a recurring basis consist of the Company’s cash equivalents and short-term and long-term investments. Cash equivalents consisted of money market funds and short-term and long-term investments consisted of commercial paper, government securities and corporate bonds. The Company obtains pricing information from its investment manager and generally determines the fair value of investment securities using standard observable inputs, including reported trades, broker/dealer quotes, and bids and/or offers.

Investments are classified as Level 1 within the fair value hierarchy if their quoted prices are available in active markets for identical securities. Investments in money market funds of $17.4 million and $36.5 million as of September 30, 2023 and December 31, 2022, respectively, were classified as Level 1 instruments and were included in cash and cash equivalents.

Investments in marketable securities are valued using Level 2 inputs. Level 2 securities are initially valued at the transaction price and subsequently valued and reported upon utilizing inputs other than quoted prices that are observable either directly or indirectly, such as quotes from third-party pricing vendors. Fair values determined by Level 2 inputs, which utilize data points that are observable such as quoted prices, interest rates and yield curves, require the exercise of judgment and use of estimates, that if changed, could significantly affect the Company’s financial position and results of operations. The marketable securities of $237.4 million and $314.6 million as of September 30, 2023 and December 31, 2022, respectively, were classified as Level 2 instruments and included in short-term investments. Accrued interest receivable related to investments was $0.9 million and $0.8 million as of September 30, 2023 and December 31, 2022, respectively, and included as part of prepaid expenses and other current assets in the condensed balance sheets.

The following tables summarize the Company’s investments accounted for as available-for-sale securities as of September 30, 2023 and December 31, 2022 (in thousands):


		September 30, 2023
	Maturity (in years)	Amortized Cost		Unrealized Losses			Unrealized Gains		Estimated Fair Value
Corporate debt securities	1 year or less	$	47,507	$	(84	)	$	—	$	47,423
Commercial paper	1 year or less		37,663		(117	)				37,546
U.S. Government securities	1 year or less		152,590		(210	)		2		152,382
Total		$	237,760	$	(411	)	$	2	$	237,351


		December 31, 2022
	Maturity (in years)	Amortized Cost		Unrealized Losses			Unrealized Gains		Estimated Fair Value
Corporate debt securities	1 year or less	$	88,995	$	(320	)	$	6	$	88,681
Commercial paper	1 year or less		65,532		(123	)		—		65,409
Government securities	1 year or less		160,801		(319	)		77		160,559
Total		$	315,328	$	(762	)	$	83	$	314,649

The Company has classified its investment securities as current and non-current assets on the condensed balance sheets based on each security's contractual maturity date, and all investment securities are accounted for as available-for-sale because these investment securities are considered available for use in current operations.

The Company considers whether unrealized losses have resulted from a credit loss or other factors. The unrealized losses on the Company’s available-for-sale securities as of September 30, 2023 and December 31, 2022 were caused by fluctuations in market value and interest rates as a result of the economic environment and not credit risk. The Company concluded that an allowance for credit losses was unnecessary as of September 30, 2023 and December 31, 2022. It is neither management’s intention to sell nor is it more likely than not that the Company will be required to sell these investments prior to recovery of their cost basis or recovery of fair value. Unrealized gains and losses are included in accumulated other comprehensive loss.

During the nine months ended September 30, 2023, there were immaterial realized gains recognized on available-for-sale securities sold in the period. There was no realized gain or loss on available-for-sale securities for the nine months ended September 30, 2022. The Company uses the specific identification method to determine the cost basis of investments sold.

- 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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