Fair Value of Financial Assets and Liabilities

9 Months Ended

Sep. 30, 2019

Fair Value Disclosures [Abstract]

Fair Value of Financial Assets and Liabilities

3. Fair Value of Financial Assets and Liabilities

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values as of September 30, 2019 and December 31, 2018:

	Fair Value Measurements as of September 30, 2019 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	206,121	$	—	$	—	$	206,121
Restricted cash		492		—		—		492
	$	206,613	$	—	$	—	$	206,613

	Fair Value Measurements as of December 31, 2018 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	126,047	$	—	$	—	$	126,047
Restricted cash		492		—		—		492
	$	126,539	$	—	$	—	$	126,539

There were no transfers within the hierarchy during the nine months ended September 30, 2019 or the year ended December 31, 2018.

Valuation of the Warrant to Purchase Preferred Stock

At June 30, 2018, the Company had outstanding a warrant to purchase shares of common stock that was issued to a lender in connection with a loan and security agreement entered into in 2017. The warrant was originally issued as a warrant to purchase shares of Series A Preferred Stock prior to the IPO.  The fair value of the warrant to purchase preferred stock was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.

Prior to the IPO, the Company classified the warrant as a liability on its consolidated balance sheets as the warrant is a free-standing financial instrument that may require the Company to transfer assets upon exercise. The preferred stock warrant liability was initially recorded at fair value upon the date of issuance and was subsequently remeasured to fair value at each reporting date. Changes in the fair value of the warrant to purchase preferred stock were recognized as a component of other income (expense), net in the consolidated statements of operations and comprehensive loss.

The Company utilized the Black-Scholes option-pricing model, which incorporates assumptions and estimates, to value the warrant. The Company assessed these assumptions and estimates on a quarterly basis as additional information impacting the assumptions was obtained. Estimates and assumptions impacting the fair value measurement included the fair value per share of the underlying redeemable convertible preferred stock issuable upon exercise of the warrant, the remaining contractual term of the warrant, the risk-free interest rate, the expected dividend yield and the expected volatility of the price of the underlying redeemable convertible preferred stock. Upon the IPO, the warrant to purchase preferred stock was converted to a warrant to purchase common stock. The carrying amount of the warrant to purchase preferred stock as of the date of IPO was transferred to additional paid in capital.

The Company recognized a loss of $0 and$162 in the condensed consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2019 and 2018, related to the change in fair value of the warrant. The Company did not recognize any gain or loss for the three months ended September 30, 2019 and 2018.

Valuation of Derivative

In January 2016, in connection with a license agreement entered into with University Health Network (“UHN”), and as part of the initial consideration for the license, the Company issued 1,161,665 shares of common stock to UHN pursuant to a stock purchase agreement (the “Stock Purchase Agreement”). The Stock Purchase Agreement contained a provision requiring the Company to make a cash payment to UHN of up to $2,000 if UHN’s fully diluted ownership was reduced within specified percentages as part of an IPO by the Company. The Company concluded the anti-dilution feature represented a derivative instrument and should be measured at fair value, with changes in fair value recognized as a gain or loss to other income (expense), net in the consolidated statements of operations and comprehensive loss. The initial fair value of the derivative was recorded as research and development expense in January 2016.

On June 21, 2018, in connection with the Company’s IPO, the Company remeasured the fair value of the derivative to $2,000 as the Company was required to pay the dilution payment as mentioned above, which the Company paid in July 2018. An increase in fair value of $0 and $1,629 was recorded in other expense in the accompanying condensed consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2019 and 2018, respectively. The Company did not recognize any expense for the three months ended September 30, 2019 and 2018.