Financial Instruments

9 Months Ended

Sep. 30, 2021

Financial Instruments

Financial Instruments

4.     Financial Instruments

The tables below present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020 and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize observable inputs such as quoted prices in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are either directly or indirectly observable, such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points for which there is little or no market data, which require the Company to develop its own assumptions for the asset or liability. There were no transfers between fair value measurement levels during the three and nine months ended September 30, 2021 or 2020.

The Company’s investment portfolio may include fixed income securities that do not always trade on a daily basis. As a result, the pricing services used by the Company apply other available information as applicable through processes such as benchmark yields, benchmarking of like securities, sector groupings and matrix pricing to prepare valuations. The Company validates the prices provided by its third party pricing services by obtaining market values from other pricing sources and analyzing pricing data in certain instances. The Company has from time to time invested in certain reverse repurchase agreements which are collateralized by deposits in the form of U.S. Government Securities and Obligations for an amount no less than 102% of their value. The Company has not recorded an asset or liability for the collateral as the Company was not permitted to sell or re-pledge the collateral. The collateral had at least the prevailing credit rating of U.S. Government Treasuries and Agencies. The Company utilized a third-party custodian to manage the exchange of funds and ensure that collateral received is maintained at 102% of the value of the reverse repurchase agreements on a daily basis.

The Company accounted for warrants to purchase its stock pursuant to Accounting Standards Codification (“ASC”) Topic 470, Debt, and ASC Topic 480, Distinguishing Liabilities from Equity, and classifies warrants for common stock and preferred stock as liabilities or equity. The warrants classified as liabilities are reported at their estimated fair value and any changes in fair value are reflected in research and development expense. The warrants classified as equity are reported at their estimated fair value with no subsequent remeasurement.

Below is a summary of assets and liabilities measured at fair value on a recurring basis (in thousands):

	As of September 30, 2021
	Quoted Prices		Significant		Significant
	in Active		Observable		Unobservable
	Markets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Cash and cash equivalents:
Money market funds	$	1,847	$	—	$	—	$	1,847
Reverse repurchase agreements		—		39,000		—		39,000
Total assets	$	1,847	$	39,000	$	—	$	40,847

	As of December 31, 2020
	Quoted Prices		Significant		Significant
	in Active		Observable		Unobservable
	Markets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Cash and cash equivalents:
Money market funds	$	22,999	$	—	$	—	$	22,999
Short-term investments:
Reverse repurchase agreements		—		20,000		—		20,000
Total assets	$	22,999	$	20,000	$	—	$	42,999

At September 30, 2021 and December 31, 2020, cash equivalents approximated their fair value due to their short-term nature.

In connection with the Quellis Acquisition, the Company issued a warrant to purchase 2,805 shares of Series X Preferred Stock at an exercise price of $341.70 per share. Upon stockholder approval of the Conversion Proposal, and reflecting the reverse stock split, the warrant became a warrant to purchase 467,500 shares of common stock at a purchase price of $2.10. This was originally accounted for as a liability until stockholder approval of the Conversion Proposal on June 2, 2021, at which point the warrant was reclassified to permanent equity. The warrant liability was valued based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The Company estimated the fair value of the warrant liability using Black-Scholes option-pricing models and assumptions that are based on the individual characteristics of the warrants on the valuation date, as well as assumptions including the fair value per share of the underlying security, the remaining contractual term of the warrant, risk-free interest rate, expected dividend yield and expected volatility of the price of the underlying security (in thousands).

	September 30, 2021
Balance at beginning of year	$	—
Issuance of warrant		4,332
Decrease in the fair value of the warrant		(864)
Reclassification of warrant liability to additional paid in-capital		(3,468)
Ending balance	$	—