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Financial Instruments and Fair Value Measurements | 6 Months Ended
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Jun. 30, 2022
Fair Value Disclosures [Abstract] |
Financial Instruments and Fair Value Measurements | Financial Instruments and Fair Value Measurements Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is determined based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect certain market assumptions. As a basis for considering such assumptions, GAAP establishes a three-tier value hierarchy, which prioritizes the inputs used to develop the assumptions and for measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets for identical assets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The Company’s financial instruments that are measured at fair value on a recurring basis consist of cash equivalents and a success payment liability pursuant to an amended and restated loan and security agreement (the “Loan Agreement”) with Pacific Western Bank (“PWB”) (see Note 9, Term Loan). The Company measures the fair value of money market funds based on quoted prices in active markets for identical securities. The carrying amounts reflected in the condensed consolidated balance sheets for cash, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values, due to their short-term nature. Assets and liabilities measured at fair value on a recurring basis as of June 30, 2022 were as follows (in thousands):
| Quoted Price in Active Markets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total
Assets: |  |  |  |  |  |  |
Money market funds | $ | 145,712 |  |  | $ | — |  |  | $ | — |  |  | $ | 145,712 |
Total assets | $ | 145,712 |  |  | $ | — |  |  | $ | — |  |  | $ | 145,712 |
Liabilities |  |  |  |  |  |  |
Success payment liability | $ | — |  |  | $ | — |  |  | $ | 863 |  |  | $ | 863 |
Total liabilities | $ | — |  |  | $ | — |  |  | $ | 863 |  |  | $ | 863 |
Assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 were as follows (in thousands):
| Quoted Price in Active Markets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total
Assets: |  |  |  |  |  |  |
Money market funds | $ | 157,531 |  |  | $ | — |  |  | $ | — |  |  | $ | 157,531 |
Total assets | $ | 157,531 |  |  | $ | — |  |  | $ | — |  |  | $ | 157,531 |
Liabilities |  |  |  |  |  |  |
Success payment liability | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Total liabilities | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
There were no changes in valuation techniques during the three or six months ended June 30, 2022. There were no liabilities measured at fair value on a recurring basis as of December 31, 2021. Success Payment Liability The Company is obligated to pay to PWB a one-time success payment upon the occurrence of the Company achieving certain conditions defined in the Loan Agreement. The maximum aggregate success payment that could be payable by the Company is $1.6 million. The following table reconciles the change in fair value of the success payment liability during the six months ended June 30, 2022 based on Level 3 inputs (in thousands):
| Six Months Ended June 30, 2022
Balance at December 31, 2021 | $ | — |
Additions | 1,125 |
Change in fair value | (262) |
Balance at June 30, 2022 | $ | 863 |
The success payment liability is stated at fair value and is considered Level 3 because its fair value measurement is based, in part, on significant inputs not observed in the market. The Company models the value of the liability based on several key variables, including probability of event occurrence and timing of event occurrence. The fair value of the success payment liability was determined using a probability weighted expected return method, in which the probability and timing of potential future events is considered in order to estimate the fair value of the success payment liability as of each valuation date. Management determined the fair value of the success payment liability as of June 30, 2022 using the following significant unobservable inputs:
| June 30, 2022
Probability of Success Fee Event | 80 | %
Expected term (in years) | 0.83 - 1.25
Discount rate | 6.7 | %
The Company remeasured the liability at fair value with a corresponding decrease of $0.3 million recorded to other income (expense), net for the six months ended June 30, 2022.

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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=123874694&loc=d3e19207-110258 + Details
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