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Fair Value Measurements and Short-Term Investments | 3 Months Ended
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Mar. 31, 2019
Fair Value Disclosures [Abstract] |
Fair Value Measurements and Short-Term Investments | Fair Value Measurements and Short-Term Investments The Company’s financial instruments consist primarily of cash and cash equivalents, short-term available-for-sale securities, accounts payable, accrued expenses, lease liabilities, and long-term debt. The carrying amount of cash and cash equivalents, accounts payable and accrued expenses approximates their fair value because of the short-term maturity of such instruments, which are considered Level 1 assets under the fair value hierarchy. The Company did not have any short-term investments for the year ended December 31, 2018. As of March 31, 2019, all of the Company’s investments had remaining maturities less than 12 months. The following is a summary of the Company’s short-term investments, considered available-for-sale, as of March 31, 2019 (in thousands):
| Amortized |  | Gross Unrealized |  | Estimated
| Cost |  | Gains |  | Losses |  | Fair Value
Available-for-sale securities |  |  |  |  |  |  |
U.S treasury securities | $ | 79,321 |  |  | $ | — |  |  | $ | (8 | ) |  | $ | 79,313 |
Unrealized gains or losses on short-term investments are included in accumulated other comprehensive loss. As of March 31, 2019, no investments had been in continuous unrealized loss position for more than 12 months, and the Company had no other-than-temporary impairments on these securities. The Company measures and reports certain financial instruments as assets and liabilities at fair value on a recurring basis. The fair value of these instruments was as follows (in thousands):
| As of March 31, 2019
| Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Available-for-sale securities |  |  |  |  |  |  |
U.S treasury securities | $ | 79,313 |  |  | $ | 79,313 |  |  | $ | — |  |  | $ | — |
Liabilities |  |  |  |  |  |  |
Contingent royalty obligation payable to Evolus Founders, a related party | $ | 45,900 |  |  | $ | — |  |  | $ | — |  |  | $ | 45,900 |
| As of December 31, 2018
| Fair Value |  | Level 1 |  | Level 2 |  | Level 3
Liabilities |  |  |  |  |  |  |
Contingent royalty obligation payable to Evolus Founders, a related party | $ | 50,200 |  |  | $ | — |  |  | $ | — |  |  | $ | 50,200 |
The Company did not transfer any assets or liabilities measured at fair value on a recurring basis between levels during the three months ended March 31, 2019. The Company determines the fair value of the contingent royalty obligation payable to a related party based on Level 3 inputs using a discounted cash flow method. Changes in the fair value of this contingent royalty obligation are determined each period end and recorded in the operating expenses in the accompanying statements of operations and comprehensive loss and in non-current liabilities in the balance sheets. The significant unobservable input assumptions that can significantly change the fair value include (i) timing of regulatory approvals of the Product, (ii) projected and timing of net revenues during the payment period, which will terminate for the quarter following the 10 year anniversary of the first commercial sale of the Product in the United States, (iii) the discount rate, and (iv) the timing of payments. During the three months ended March 31, 2019 and 2018, the Company utilized discount rates of 16.0% and 25.0%, respectively, reflecting changes in the Company’s risk profile. Net revenue projections were also updated to reflect changes in the timing of regulatory approval and expected commercialization. The following table (in thousands) shows a reconciliation of the beginning and ending fair value measurements of the contingent royalty obligation payable to a related party for the three months ended March 31, 2019:
| March 31, 2019
Fair value, beginning of period | $ | 50,200 |
FDA milestone payment | (9,213 | )
Change in fair value recorded in operating expenses | 4,913 |
Fair value, end of period | $ | 45,900 |
In addition, the Company measures the fair value of the contingent promissory note payable to Evolus Founders at present value based on Level 2 inputs, using a discount rate for similar rated debt securities and 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. As of March 31, 2019, the fair value of the promissory note was estimated to be $14.8 million. The carrying amount for the Oxford Term Loans as of March 31, 2019 approximated fair value based on market activity for other debt instruments with similar characteristics and comparable risk, which were considered Level 2 liabilities under the fair value hierarchy. The Company believes the fair value of its operating lease liabilities at March 31, 2019 approximated its carrying value, based on the borrowing rates that were available for loans with similar terms.

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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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