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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2020
Fair Value Disclosures [Abstract] |
Fair Value Measurements | 2. Fair Value Measurements We measure fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The accounting standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
| • | Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities;
| • | Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
| • | Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities; therefore, requiring an entity to develop its own valuation techniques and assumptions.
Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. We review the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain assets or liabilities within the fair value hierarchy. There were no transfers between Level 1, 2 and 3 during the nine months ended September 30, 2020. The carrying amounts of cash equivalents, accounts and other receivables, accounts payable and accrued liabilities are considered reasonable estimates of their respective fair value because of their short-term nature. Recurring Fair Value Measurements The following table represents the fair value hierarchy for our financial assets (cash equivalents and marketable securities) and liabilities measured at fair value on a recurring basis (in thousands):
| Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
September 30, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Money market funds | $ | 25,138 |  |  | $ | - |  |  | $ | - |  |  | $ | 25,138 |
U.S. treasuries |  | - |  |  |  | 30,673 |  |  |  | - |  |  |  | 30,673 |
U.S. government agency securities |  | - |  |  |  | 48,417 |  |  |  | - |  |  |  | 48,417 |
Corporate debt securities |  | - |  |  |  | 69,935 |  |  |  | - |  |  |  | 69,935 |
Total assets | $ | 25,138 |  |  | $ | 149,025 |  |  | $ | - |  |  | $ | 174,163 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Warrant liability | $ | - |  |  | $ | - |  |  | $ | 10,660 |  |  | $ | 10,660 |
| Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
December 31, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Money market funds | $ | 27,854 |  |  | $ | - |  |  | $ | - |  |  | $ | 27,854 |
U.S. treasuries |  | - |  |  |  | 6,517 |  |  |  | - |  |  |  | 6,517 |
U.S. government agency securities |  | - |  |  |  | 51,273 |  |  |  | - |  |  |  | 51,273 |
Corporate debt securities |  | - |  |  |  | 61,373 |  |  |  | - |  |  |  | 61,373 |
Total assets | $ | 27,854 |  |  | $ | 119,163 |  |  | $ | - |  |  | $ | 147,017 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Warrant liability | $ | - |  |  | $ | - |  |  | $ | 14,860 |  |  | $ | 14,860 |
Sublicense liability |  | - |  |  |  | - |  |  |  | 6,948 |  |  |  | 6,948 |
Total liabilities | $ | - |  |  | $ | - |  |  | $ | 21,808 |  |  | $ | 21,808 |
Money market funds are highly liquid investments and are actively traded. The pricing information on these investment instruments is readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy. U.S. treasuries, U.S. government agency securities and corporate debt securities are measured at fair value using Level 2 inputs. We review trading activity and pricing for these investments as of each measurement date. When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from various third-party data providers. These inputs represent quoted prices for similar assets in active markets or these inputs have been derived from observable market data. This approach results in the classification of these securities as Level 2 of the fair value hierarchy. Warrants were issued in connection with the underwritten public offering in August 2019 and are accounted for as a derivative liability at fair value. See Note 11. The fair value of the warrant liability is estimated using the Black-Scholes model which requires assumptions such as expected term, expected volatility and risk-free interest rate. These assumptions are subjective and require judgement to develop. Expected term is estimated using the full remaining contractual term of the warrants. We determine expected volatility based on our historical common stock price volatility. The warrant liability is classified as a Level 3 instrument as its value is based on unobservable inputs that are supported by little or no market activity. As of September 30, 2020, we used the following key assumptions to estimate the fair value of warrant liability:
Number of shares |  |  | 5,841,250 |
Expected term |  | 1.4 years |
Expected volatility |  |  | 1.0 |
Risk-free interest rate |  |  | 0.1 | %
Dividend yield |  |  | 0 | %
The following table provides a summary of changes in the fair value warrant liability for the nine months ended September 30, 2020 (in thousands):
Balance at December 31, 2019 |  | $ | 14,860 |
Decrease in the estimated fair value of warrant liability upon revaluation |  |  | (4,200 | )
Balance at September 30, 2020 |  | $ | 10,660 |

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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