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Fair Value Measurements
 12 Months Ended
Dec. 31, 2016
Fair Value Disclosures [Abstract]  
Fair Value Measurements

3. Fair Value Measurements

Financial assets and liabilities are recorded at fair value. The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2—Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

In determining fair value, the Company utilizes quoted market prices, broker or dealer quotation, or valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

The following table presents the fair value of the Company’s financial assets and liabilities determined using the inputs defined above (amounts in thousands).

 

     December 31, 2016  
     Level 1      Level 2      Level 3      Total  

Assets:

            

Money market funds

    $ 11,270      $ —      $ —      $ 11,270  

Corporate bonds

      —        21,841        —        21,841  

Commercial paper

      —        10,769        —        10,769  

Governmental bonds

      —        41,289        —        41,289  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total financial assets

    $ 11,270      $ 73,899      $ —      $ 85,169  
  

 

 

     

 

 

     

 

 

     

 

 

  
     December 31, 2015  
     Level 1      Level 2      Level 3      Total  

Assets:

            

Money market funds

    $ 2,136      $ —      $ —      $ 2,136  

Corporate bonds

      —        7,368        —        7,368  

Commercial paper

      —        500        —        500  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total financial assets

    $ 2,136      $ 7,868      $ —      $ 10,004  
  

 

 

     

 

 

     

 

 

     

 

 

  

Liabilities:

            

Redeemable convertible preferred stock tranche liability

    $ —      $ —      $ 1,643      $ 1,643  

Redeemable convertible preferred stock warrant liability

      —        —        480        480  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total financial liabilities

    $ —      $ —      $ 2,123      $ 2,123  
  

 

 

     

 

 

     

 

 

     

 

 

  

The corporate bonds, commercial paper and government bonds are classified as Level 2 as they were valued based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets.

Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect the Company’s assumptions in measuring fair value. The fair value measurements of the redeemable convertible preferred stock tranche liability and the redeemable convertible preferred stock warrant liability were based on significant inputs not observed in the market and thus represent a Level 3 measurement.

The redeemable convertible preferred stock tranche liability stems from the initial sale of the Company’s Series C redeemable convertible preferred stock wherein the Company was obligated to sell additional shares in subsequent closings contingent upon a majority of the stockholders of the outstanding redeemable convertible preferred stock and/or the achievement of certain development milestones. The subsequent closings were deemed to be freestanding financial instruments that were at the option of the holders. The Company estimated the fair value of this liability using a one-step binomial lattice model in combination with the Option Pricing Model. The change in fair value was recognized as a gain or loss in the consolidated statements of operations. See Note 10 for further discussion on the redeemable convertible preferred stock tranche liability and related valuations.

The determination of the fair value of the redeemable convertible preferred stock warrant liability is discussed in Note 8. Generally, increases or decreases in the fair value of the underlying redeemable convertible preferred stock would result in a directionally similar impact in the fair value measurement of the warrant liability.

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial instruments as follows (in thousands):

 

     Year Ended
December 31,		  
     2016     2015  

Redeemable Convertible Preferred Stock Tranche Liability:

     

Beginning balance

    $ 1,643     $ —    

Issuance of Series C redeemable convertible preferred stock tranche liability

      —         1,017  

Change in fair value upon revaluation

      4,194       626  

Settlement of redeemable convertible preferred stock tranche liability due to the issuance of Series C redeemable convertible preferred stock

      (5,837 )      —  
  

 

 

    

 

 

  

Ending balance

    $ —       $ 1,643  
  

 

 

    

 

 

  
     Year Ended
December 31,		  
     2016     2015  

Redeemable Convertible Preferred Stock Warrant Liability:

     

Beginning balance

    $ 480     $ 1,023  

Change in fair value upon revaluation

      525       (543 ) 

Reclassification of redeemable convertible preferred stock warrant liability to redeemable convertible preferred stock

      (1,005 )      —  
  

 

 

    

 

 

  

Ending balance

    $ —     $ 480