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Fair Value Measurements and Short-Term Investments
 12 Months Ended
Dec. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements and Short-Term Investments
Fair Value Measurements and Short-Term Investments
Short-Term Investments
The Company did not have any short-term investments for the year ended December 31, 2018. As of December 31, 2019, all of the Company’s investments had remaining maturities of less than 12 months. The following is a summary of the Company’s short-term investments, considered available-for-sale, as of December 31, 2019:
 
Amortized
 
Gross Unrealized
 
Estimated
 
Cost
 
Gains
 
Losses
 
Fair Value
Available-for-sale securities
 
 
 
 
 
 
 
U.S treasury securities
$
19,905

 
$
6

 
$
—

 
$
19,911


As of December 31, 2019, no investments had been in a continuous unrealized loss position for more than 12 months, and the Company did not record any other-than-temporary impairments on these securities.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
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:
 
As of December 31, 2019
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Available-for-sale debt securities
 
 
 
 
 
 
 
U.S treasury securities
$
19,911

 
$
19,911

 
$
—

 
$
—

Liabilities
 
 
 
 
 
 
 
Contingent royalty obligation payable to Evolus Founders
$
44,683

 
$
—

 
$
—

 
$
44,683

 
As of December 31, 2018
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Liabilities
 
 
 
 
 
 
 
Contingent royalty obligation payable to Evolus Founders
$
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 year ended December 31, 2019.
The Company determines the fair value of the contingent royalty obligation payable based on Level 3 inputs using a discounted cash flow method. The significant unobservable input assumptions that can significantly change the fair value include (i) timing of regulatory approvals of Jeuveau®, (ii) projected and timing of net revenues during the payment period, which terminates in the quarter following the 10-year anniversary of the first commercial sale of Jeuveau® in the United States, (iii) the discount rate and (iv) the timing of payments. During the years ended December 31, 2019 and 2018, the Company utilized discount rates between 16.0% and 25.0%, 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 sales.  Significant increases (decreases) in discount rate would result in a significantly lower (higher) fair value measurement, which could impact materially the fair value reported on the balance sheet.
The following table shows a reconciliation of the beginning and ending fair value measurements of the contingent royalty obligation payable:
 
Year Ended December 31,
 
2019
 
2018
Fair value, beginning of period
$
50,200

 
$
—

Payments
(9,677
)
 
—

Assumption of the royalty obligation payable to Evolus Founders
—

 
39,700

Change in fair value recorded in operating expenses
4,160

 
10,500

Fair value, end of period
$
44,683

 
$
50,200


Other Financial Assets and Liabilities
The Company’s financial instruments consist primarily of cash and cash equivalents, short-term available-for-sale debt securities, accounts receivable, accounts payable, accrued expenses, lease liabilities, and long-term debt. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates their fair value because of the short-term maturity of such instruments.
The Company estimates the fair value of contingent promissory note payable to the Evolus Founders, long-term debt and operating lease liabilities using the discounted cash flow analysis based on the interest rates for similar rated debt securities (Level 2). As of December 31, 2019, the fair value of contingent promissory note and long-term debt was estimated to be $16,696 and $76,203, respectively. The fair value of operating lease liabilities at December 31, 2019 approximated their carrying value. As of December 31, 2018, the fair value of contingent promissory note was $17,181.