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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2018
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements The carrying amounts of cash, accounts payable, and accrued liabilities are considered to be representative of their respective fair values because of the short term nature of those instruments. Financial Instruments Not Recorded at Fair Value on a Recurring Basis At September 30, 2018, the Company had a $20.0 million contingent promissory note payable under the Amended Purchase Agreement, a Level 2 liability, to the representative of the Evolus Founders, that will mature 2.5 years after the anniversary date of the first commercial sale of DWP-450 in the United States. Accretion related to the contingent promissory note is recorded in interest expense of the accompanying condensed statements of operations and comprehensive loss with a corresponding increase to the non-current liabilities section of the accompanying condensed balance sheets. The Company measures the fair value of this contingent promissory note at present value using a discount rate for similar rated debt securities and is based on an estimated date that the Company believes the contingent promissory note will mature. The fair value of the contingent promissory note could be impacted by changes such as: (i) changes in the discount rate assumed, or (ii) a delay in the first commercial sale of the Product in the United States. The Company assumed the liability concurrent with the IPO in February 2018 and therefore, did not carry a contingent promissory note payable balance at December 31, 2017.
|  | September 30, 2018
|  | Carrying Balance |  | Fair Value
Contingent promissory note payable to Evolus Founders, a related party |  | $ | 16,791 |  |  | $ | 17,339 |
Financial Instruments Recorded at Fair Value on a Recurring Basis The following table (in thousands) presents the major security types the Company held at September 30, 2018, that are measured at fair value on a recurring basis. The Company did not hold any major security types that required a fair value measurement on a recurring basis at December 31, 2017.
|  |  |  | Three Months Ended September 30, 2018
|  | Fair Value Hierarchy |  | July 1, 2018 |  | Change in Fair Value |  | September 30, 2018
Contingent royalty obligation payable to Evolus Founders, a related party |  | Level 3 Liability |  | $ | 48,800 |  |  | $ | 2,300 |  |  | $ | 51,100 |
|  |  |  | Nine Months Ended September 30, 2018
|  | Fair Value Hierarchy |  | February 12, 2018 (Note 4) |  | Change in Fair Value |  | September 30, 2018
Contingent royalty obligation payable to Evolus Founders, a related party |  | Level 3 Liability |  | $ | 39,700 |  |  | $ | 11,400 |  |  | $ | 51,100 |
The Company determines the fair value of the contingent royalty obligation payable to a related party using a discounted cash flow method approach based on projected net sales of the Product and the discount rate. Changes in the fair value of this contingent royalty obligation are determined each period end and recorded in the operating expenses section of the condensed statements of operations and comprehensive loss and the non-current liabilities section of the condensed balance sheets, increasing the value of the promissory note. The significant unobservable input assumptions included in the calculations were the contingent period payment probabilities, based on low single digit percentage of net sales, a discount rate reflective from rates related development stage companies, and the timing of payments. The fair value of the expected payments considers the time at which the obligations are expected to be settled and a discount rate that reflects the risk associated with the performance payments. The fair value of the contingent royalty obligation could be impacted by changes such as: (i) changes in the discount rate assumed, or (ii) the amount and timing of sales of the Product, or (iii) a delay in FDA approval of the Product.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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