Financial Instruments

12 Months Ended

Dec. 31, 2020

Financial Instruments [Abstract]

Financial Instruments

NOTE 4. FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments

The fair value hierarchy established under U.S. GAAP requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are as follows:

Level 1: 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 in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities 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.

 We consider an active market as one in which transactions for the asset or liability occurs with sufficient frequency and volume to provide pricing information on an ongoing basis. Conversely, we view an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Where appropriate, our non-performance risk, or that of our counterparty, is considered in determining the fair values of liabilities and assets, respectively.

We classify our cash deposits and money market funds within Level 1 of the fair value hierarchy because they are valued using bank balances or quoted market prices. We classify our investments as Level 2 instruments based on market pricing and other observable inputs. We did not classify any of our investments within Level 3 of the fair value hierarchy.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the entire fair value measurement requires management to make judgments and consider factors specific to the asset or liability.

The carrying amount of our accounts receivable, prepaid expenses, other current assets, accounts payable, accrued expenses and other liabilities, current, approximate fair value due to their short maturities.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table sets forth the fair value of our financial assets and liabilities that were measured on a recurring basis as of December 31, 2020 and 2019, respectively (in thousands):

	December 31, 2020								December 31, 2019
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents:
Cash and money market funds	$	43,040	$	—	$	—	$	43,040	$	18,644	$	—	$	—	$	18,644
Commercial paper		—		32,537		—		32,537		—		10,983		—		10,983
U.S. government & agency securities		—		170		—		170		—		—		—		—
U.S. Treasury security		—		5,864		—		5,864		—		—		—		—
Total cash and cash equivalents		43,040		38,571		—		81,611		18,644		10,983		—		29,627
Investments:
Commercial paper		—		112,644		—		112,644		—		16,971		—		16,971
Corporate debt securities		—		17,456		—		17,456		—		2,501		—		2,501
U.S. government & agency securities		—		107,103		—		107,103		—		—		—		—
Total investments		—		237,203		—		237,203		—		19,472		—		19,472
Short-term restricted cash:
Cash		836		—		—		836		300		—		—		300
Long-term restricted cash:
Cash		3,500		—		—		3,500		4,000		—		—		4,000
Total assets measured at fair value	$	47,376	$	275,774	$	—	$	323,150	$	22,944	$	30,455	$	—	$	53,399
Liabilities
Financing Derivative	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Continuation Advances		—		—		—		—		—		—		—		—
Total liabilities measured at fair value	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Estimated fair value of the Financing Derivative liability

The estimated fair value of the Financing Derivative liability (as defined in the “Notes payable, current” section in “Note 5. Balance Sheet Components”) was determined using Level 3 inputs, or significant unobservable inputs. Changes to the estimated fair value of the Financing Derivative are recorded in “Other income, net” in the consolidated statements of operations and comprehensive loss.

The estimated fair value of the Financing Derivative was determined by comparing the difference between the fair value of the promissory notes from the debt facility that we entered into during the first quarter of 2013 with and without the Financing Derivative by calculating the respective present values from future cash flows using a 6.5% discount rate at December 31, 2019. The estimated fair value of the Financing Derivative as of December 31, 2019 was $0.

In February 2020, upon maturity of the promissory notes, the Financing Derivative was extinguished. Refer to the “Notes payable, current” section in “Note 5. Balance Sheet Components” for a detailed description and valuation approach.

Estimated fair value of the Continuation Advances liability

In accordance with the terms of the Merger Agreement, we received Continuation Advances of $34.0 million and $18.0 million from Illumina during the year ended December 31, 2020 and 2019, respectively.

We determined that the Continuation Advances, which are subject to repayment under certain circumstances as discussed below, constitute a financial liability.

The fair value option was elected for the financial liability because management believes that among all measurement methods allowed by Accounting Standards Codification, or ASC, 825, Financial Instruments, the fair value option would most fairly represent the value of such a financial liability. Management applied the income approach to estimate the fair value of this financial liability. The estimated fair value of the liability related to the Continuation Advances was determined using Level 3 inputs, or significant unobservable inputs. Management estimated that there would be no future cash outflows associated with this financial instrument because the probabilities of either of the following events occurring and requiring repayment to Illumina were evaluated as being remote as of December 31, 2020 and December 31, 2019:

we enter into a Change of Control Transaction within two years following March 31, 2020; or

we raise $100 million or more in a single equity or debt financing (that may have multiple closings) within two years following March 31, 2020.

As a result, the estimated fair value of the liability associated with the contingent repayment of the Continuation Advances received was assessed to be zero as of December 31, 2020 and 2019, respectively, with a resulting non-operating gain of $34.0 million and $18.0 million recorded as “Gain from Continuation Advances from Illumina” for the year ended December 31, 2020 and 2019, respectively.

For the year ended December 31, 2020, there were no transfers between Level 1, Level 2, or Level 3 assets or liabilities reported at fair value on a recurring basis and our valuation techniques did not change compared to the prior year.

Cash, Cash Equivalents and Investments

The following table summarizes our cash, cash equivalents and investments as of December 31, 2020 and 2019 (in thousands):

	As of December 31, 2020
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
	Cost		gains		losses		Value
Cash and cash equivalents:
Cash and money market funds	$	43,040	$	—	$	—	$	43,040
Commercial paper		32,538		—		(1)		32,537
U.S. government & agency securities		170		—		—		170
U.S. Treasury security		5,864		—		—		5,864
Total cash and cash equivalents		81,612		—		(1)		81,611
Investments:
Commercial paper		112,648		4		(8)		112,644
Corporate debt securities		17,360		96		—		17,456
U.S. government & agency securities		107,109		6		(12)		107,103
Total investments		237,117		106		(20)		237,203
Total cash, cash equivalents and investments	$	318,729	$	106	$	(21)	$	318,814
Short-term restricted cash:
Cash	$	836	$	—	$	—	$	836
Long-term restricted cash:
Cash	$	3,500	$	—	$	—	$	3,500
	As of December 31, 2019
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
	Cost		gains		losses		Value
Cash and cash equivalents:
Cash and money market funds	$	18,644	$	—	$	—	$	18,644
Commercial paper		10,983		—		—		10,983
Total cash and cash equivalents		29,627		—		—		29,627
Investments:
Commercial paper		16,971		1		(1)		16,971
Corporate debt securities		2,496		5		—		2,501
Total investments		19,467		6		(1)		19,472
Total cash, cash equivalents and investments	$	49,094	$	6	$	(1)	$	49,099
Short-term restricted cash:
Cash	$	300	$	—	$	—	$	300
Long-term restricted cash:
Cash	$	4,000	$	—	$	—	$	4,000

The following table summarizes the contractual maturities of our cash equivalents and available-for-sale investments, excluding money market funds, as of December 31, 2020:

	Fair Value
Due in one year or less	$	255,207
Due after one year through 5 years		20,567
Total investments	$	275,774

Our marketable debt investments are classified as current based on the nature of the investments and their availability for use in current operations.

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.