Risks and Fair Value

12 Months Ended

Dec. 31, 2022

Risks and Fair Value

Risks and Fair Value

11. Risks and Fair Value

Concentration of Credit Risk and of Significant Suppliers and Customers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company has all cash and cash equivalents balances at one accredited financial institution, in amounts that exceed federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

The Company is dependent on a small number of third-party manufacturers to supply products for research and development activities in its preclinical and clinical programs and for sales of its products. The Company’s development programs as well as revenue from future sales of its product sales could be adversely affected by a significant interruption in the supply of any of the components of these products.

For the year ended December 31, 2022, three specialty distributor customers accounted for 44%, 25% and 17% of the Company’s total revenue, and at December 31, 2022, three specialty distributor customers accounted for 52%, 24% and 15% of the Company’s total accounts receivable. No other customer accounted for more than 10% of total revenue for the year ended December 31, 2022, or accounts receivable at December 31, 2022.

For the year ended December 31, 2021, three specialty distributor customers accounted for 42%, 26% and 17% of the Company’s total revenue, and at December 31, 2021 and three specialty distributor customers accounted for 42%, 26% and 21% of the Company’s total accounts receivable. No other customer accounted for more than 10% of total revenue for the year ended December 31, 2022, or accounts receivable at December 31, 2021.

For the year ended December 31, 2020, three specialty distributor customers accounted for 42%, 29% and 12% of the Company’s total revenue.

Fair Value of Financial Assets and Liabilities

The following tables present information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2022 and 2021 and indicate the level of the fair value hierarchy utilized to determine such fair value:

	Fair Value Measurements as of
	December 31, 2022 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	30,188	$	—	$	—	$	30,188
Liability:
Derivative liability (Note 10)	$	—	$	—	$	6,351	$	6,351

	Fair Value Measurements as of
	December 31, 2021 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	62,392	$	—	$	—	$	62,392
Liability:
Derivative liability (Note 10)	$	—	$	—	$	20,192	$	20,192

During the year ended December 31, 2022 and 2021, there were no transfers between Level 1 and 2.

The carrying value of accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair value due to the short-term nature of these assets and liabilities. The carrying value of the Company’s variable interest rate notes payable are recorded at amortized costs, which approximates fair value due to the variable interest rate.

At December 31, 2022, the 2026 Convertible Notes, net of the Derivative Liability, were carried at amortized cost totaling $37,505, comprised of the $28,749 non-current liability (Note 9) and $8,756 accrued interest (Note 8). At December 31, 2021, the 2026 Convertible Notes, net of the Derivative Liability, were carried at amortized cost totaling $32,910, comprised of the $26,435 non-current liability (Note 9) and $6,475 accrued interest (Note 8). The estimated fair value of the 2026 Convertible Notes, without the Derivative Liability, was $33,177 and $32,598 at December 31, 2022 and 2021, respectively.

The fair value of the 2026 Convertible Notes with and without the conversion option is estimated using a binomial lattice approach. The use of this approach requires the use of Level 3 unobservable inputs. The main input when determining the fair value of the 2026 Convertible Notes is the bond yield that pertains to the host instrument without the conversion option. The significant assumption used in determining the bond yield is the market yield movements of a comparable instrument issued as of the valuation date, which is assessed and updated each period. The main input when determining the fair value for disclosure purposes is the bond yield which is updated each period to reflect the yield of a comparable instrument issued as of the valuation date. The estimated fair value presented is not necessarily indicative of an amount that could be realized in a current market exchange. The use of alternative inputs and estimation methodologies could have a material effect on these estimates of fair value.

The main inputs to valuing the 2026 Convertible Notes with the conversion option are as follows:

		As of
	December 31,			December 31,
	2022			2021
Company's stock price	$	2.81		$	6.97
Volatility		93.8	%		82.6	%
Bond yield		16.2	%		12.6	%

The bond yield was derived by making the fair value of the 2026 Convertible Notes equal to the face value on the issuance date. Fair value measurements are highly sensitive to changes in these inputs and significant changes in these inputs would result in a significantly higher or lower fair value.