Fair Value Measurements

9 Months Ended

Sep. 30, 2021

Fair Value Measurements

Fair Value Measurements

Note 3. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company applies the guidance in ASC Topic 820, Fair Value Measurement, to account for financial assets and liabilities measured on a recurring basis.  Fair value is measured at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability.

The Company uses a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity's own assumptions (unobservable inputs). The guidance requires that fair value measurements be classified and disclosed in one of the following three categories:

● 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 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, or

● 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).

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each reporting period. There were no transfers between Level 1, 2, and 3 during the nine months ended September 30, 2021.

Note 3. Fair Value Measurements (Continued)

The table below presents the assets and liabilities measured and recorded in the financial statements at fair value on a recurring basis at September 30, 2021 and December 31, 2020 categorized by the level of inputs used in the valuation of each asset and liability.

	September 30, 2021
(In thousands)	Total		Level 1		Level 2		Level 3
Assets
Cash	$	250	$	250	$	—	$	—
Cash equivalents – money market funds		36,352		36,352		—		—
Total assets	$	36,602	$	36,602	$	—	$	—
	December 31, 2020
(In thousands)	Total		Level 1		Level 2		Level 3
Assets
Cash	$	250	$	250	$	—	$	—
Cash equivalents – money market funds		32,979		32,979		—		—
Short-term investments – commercial paper		3,499		—		3,499		—
Short-term investments – US treasury bills		1,000		—		1,000		—
Total assets	$	37,728	$	33,229	$	4,499	$	—
Liabilities
Warrant liability	$	6,983	$	—	$	—	$	6,983
Future tranche right liability		118,803		—		—		118,803
Total liabilities	$	125,786	$	—	$	—	$	125,786

The Level 1 assets consist of money market funds, which are actively traded daily. The Level 2 assets consist of commercial paper and U.S. treasury bills whose fair value may not represent actual transactions of identical securities. The fair value of commercial paper is generally determined based on the relationship between the investment’s discount rate and the discount rates of the same issuer’s commercial paper available in the market which may not be actively traded daily. Since these fair values may not be based upon actual transactions of identical securities, they are classified as Level 2.

Changes in Level 3 Liabilities Measured at Fair Value on a Recurring Basis

Warrant Liability and Future Tranche Right Liability

The reconciliation of the Company's warrant and future tranche right liability measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:

			Future
	Warrant		Tranche Right
(In thousands)	Liability		Liability
Balance, December 31, 2020	$	6,983	$	118,803
Change in the fair value of liability (1)		(6,983)		(118,803)
Balance, September 30, 2021	$	—	$	—

(1) During the nine months ended September 30, 2021, the Company’s liability-classified warrants and future tranche rights terminated, and accordingly, the liabilities were derecognized.