Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

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, 2020		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	$	186,308	$	186,308	$	—	$	—
Short-term investments:
Corporate debt securities	$	41,957		—	$	41,957		—
Commercial paper		53,922		—		53,922		—
U.S. treasury bills		45,312		—		45,312		—
Total short-term investments		141,191		—		141,191		—
Total	$	327,499	$	186,308	$	141,191	$	—

			Fair Value Measurements Using
	December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents:
Commercial paper	$	2,395	$	—	$	2,395	$	—
Short-term investments:
Corporate debt securities	$	6,027		—	$	6,027		—
Commercial paper		10,357		—		10,357		—
Total short-term investments		16,384		—		16,384		—
Total	$	18,779	$	—	$	18,779	$	—
Liabilities:
Preferred stock purchase right liability	$	1,478	$	—	$	—	$	1,478

There were no transfers in or out of Level 1 or Level 2 during the three and nine months ended September 30, 2020.

Cash Equivalents and Short-Term Investments

Financial assets measured at fair value on a recurring basis consist of the Company’s cash equivalents and short-term investments. Cash equivalents consisted of money market funds and short-term investments consisted of commercial paper 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 $186.3 million as of September 30, 2020 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 $141.2 million as of September 30, 2020 were classified as Level 2 instruments and were included in short-term investments. Accrued interest receivable related to short-term investments were $0.3 million and nil as of September 30, 2020 and 2019, respectively, and included as part of prepaid expenses and other current assets in the balance sheets.

The following tables summarize the Company’s short-term investments accounted for as available-for-sale securities as of September 30, 2020 and December 31, 2019 (in thousands):

		September 30, 2020
	Maturity (in years)	Amortized Cost		Unrealized Losses			Unrealized Gains		Estimated Fair Value
Corporate debt securities	1 year or less	$	41,959	$	(6	)	$	4	$	41,957
Commercial paper	1 year or less		53,922		—			—		53,922
U.S. treasury bills	1 year or less		45,307		(1	)		6		45,312
Total		$	141,188	$	(7	)	$	10	$	141,191

		December 31, 2019
	Maturity (in years)	Amortized Cost		Unrealized Losses			Unrealized Gains		Estimated Fair Value
Corporate debt securities	1 year or less	$	6,029	$	(2	)	$	—	$	6,027
Commercial paper	1 year or less		10,357		—			—		10,357
Total		$	16,386	$	(2	)	$	—	$	16,384

The Company has classified all of its available-for-sale investment securities as current assets on the balance sheet based on the highly liquid nature of these investment securities and because these investment securities are considered available for use in current operations.

Prior to 2020, the Company followed the guidance in ASC 320 Investments—Debt and Equity Securities in determining whether unrealized losses were other than temporary. The Company adopted Topic 326 on January 1, 2020, and now considers whether unrealized losses have resulted from a credit loss or other factors. The unrealized losses on our available-for-sale securities as of September 30, 2020 and December 31, 2019 were caused by fluctuations in market value and interest rates as a result of the economic environment. The Company concluded that an allowance for credit losses was unnecessary as of September 30, 2020 and that there were no impairments as of December 31, 2019 considered other-than-temporary because the decline in the market value was attributable to changes in market conditions and not credit quality, and that 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.

There was no realized gain or loss on available-for-sale securities in the periods presented. The Company uses the specific identification method to determine the cost basis of investments sold.

Preferred Stock Purchase Right Liability

On July 1, 2020, the Company completed the Series B Milestone Closing and issued 27,066,206 shares of its Series B convertible preferred stock for aggregate gross proceeds of $64.4 million. Accordingly, the preferred stock purchase right liability was revalued at an estimated fair value of $41.6 million and was reclassified to additional paid-in capital on July 1, 2020. See Note 9 for further details on preferred stock purchase right liability.

The estimated fair value of the preferred stock purchase right liability at July 1, 2020 and December 31, 2019 was determined using a valuation model that incorporated the probability of the occurrence of the Series B Milestone Closing in addition to the factors considered at issuance. To determine the fair value of preferred stock purchase right as of July 1, 2020, an intrinsic value model was used. The assumptions used to determine the fair value of the preferred stock purchase right liability as of December 31, 2019 and upon its issuance in August 2019 included an estimated probability of occurrence of the Series B Milestone Closing of 90%, an assumed discount rates of 1.6% and 1.8%, respectively, and an estimated time period the preferred stock purchase right liability would be outstanding of 0.8 years and 1.1 years, respectively. As certain of these inputs are not observable in the market, the preferred stock purchase right liability is classified as a Level 3 instrument.

The following table provides the change in preferred stock purchase right liability for the nine months ended September 30, 2020 (in thousands):

	Preferred Stock Purchase Right Liability
Balance, December 31, 2019	$	1,478
Change in fair value of preferred stock purchase right		40,163
Reclassification of preferred stock purchase right liability    to equity upon issuance of convertible preferred stock		(41,641	)
Balance, September 30, 2020	$	—