Fair Value Measurements

9 Months Ended

Sep. 30, 2022

4. FAIR VALUE MEASUREMENTS

Investment Securities

The Company holds investment securities that consist of highly liquid, investment grade debt securities. The Company determines the fair value of its investment securities based upon one or more valuations reported by its investment accounting and reporting service provider. The investment service provider values the securities using a hierarchical security pricing model that relies primarily on valuations provided by an industry-recognized valuation service. Such valuations may be based on trade prices in active markets for identical assets or liabilities (Level 1 inputs) or valuation models using inputs that are observable either directly or indirectly (Level 2 inputs), such as quoted prices for similar assets or liabilities, yield curves, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, and broker and dealer quotes, as well as other relevant economic measures.

Derivative Asset

On October 15, 2021, the Company received the Radionetics Warrant to purchase the greater of 3,407,285 additional shares of common stock or the number of additional shares of common stock that would all the Company to maintain an aggregate equity interest of 22% of the fully diluted capitalization of Radionetics. The valuation method and primary inputs used in valuing the Radionetics Warrant are discussed in Note 8. Such valuation is based on valuations provided by a third-party valuation specialist using unobservable inputs due to little to no market data (Level 3 inputs). During the nine months ended September 30, 2022, the Company recorded $31,000 of income in the accompanying condensed consolidated statements of operations and comprehensive loss related to the change in value of the Radionetics Warrant. There were no material changes in the inputs or the total valuation of the Radionetics Warrant during the three months ended September 30, 2022.

Financial assets measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 were as follows (in thousands):


	As of September 30, 2022
	Level 1		Level 2		Level 3		Total
Investment securities:
U.S. government and agency obligations	$	132,374	$	43,285	$	—	$	175,659
Certificates of deposit		—		5,702		—		5,702
Corporate debt securities		—		153,100		—		153,100
Asset-backed securities		—		2,989		—		2,989
Total Investment securities		132,374		205,076		—		337,450
Derivative Assets:
Radionetics Warrant		—		—		99		99
Total assets measured at fair value	$	132,374	$	205,076	$	99	$	337,549


	As of December 31, 2021
	Level 1		Level 2		Level 3		Total
Investment securities:
U.S. government and agency obligations	$	44,984	$	9,473	$	—	$	54,457
Certificates of deposit		—		5,732		—		5,732
Corporate debt securities		—		70,402		—		70,402
Asset-backed securities		—		2,421		—		2,421
Total Investment securities		44,984		88,028		—		133,012
Derivative Assets:
Radionetics Warrant		—		—		68		68
Total assets measured at fair value	$	44,984	$	88,028	$	68	$	133,080

The Company’s policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of Level 3 during the nine months ended September 30, 2022 or year ended December 31, 2021.

- 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.

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