FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2022

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

3. FAIR VALUE MEASUREMENTS

The following tables summarize, as of September 30, 2022, the Company’s financial assets and liabilities that are measured at fair value on a recurring basis, according to the fair value hierarchy described in the significant accounting policies in the Company’s audited financial statements as of and for the year ended December 31, 2021, and the notes thereto, which are included in the Annual Report.

	As of September 30, 2022
(in thousands)	Level 1		Level 2		Level 3		Total
Cash	$	7,880	$	—	$	—	$	7,880
Money market funds		32,508		—		—		32,508
Total cash and cash equivalents	$	40,388	$	—	$	—	$	40,388
U.S. government agency debt securities		—		6,990		—		6,990
Total marketable securities	$	—	$	6,990	$	—	$	6,990
Total financial assets measured at fair value on a recurring basis	$	40,388	$	6,990	$	—	$	47,378
Warrant liabilities - Common Warrants		—		—		24,739		24,739
Total financial liabilities measured at fair value on a recurring basis	$	—	$	—	$	24,739	$	24,739

Investments in U.S. government agency debt securities have been classified as Level 2 as they are valued using quoted prices in less active markets or other directly or indirectly observable inputs. Fair values of U.S. government agency debt securities were derived from a consensus or weighted average price based on input of market prices from multiple sources at each reporting period. During the period ended September 30, 2022, there were no transfers of financial assets between Level 1 and Level 2.

On June 27, 2022 the Company issued Common Warrants exercisable for 30,000,000 shares of common stock and Pre-Funded Warrants exercisable for 10,000,000 shares of common stock in connection with the June Offering (see note 1 and note 8 for more information on the June Offering). The Common Warrants were accounted for as liabilities under ASC 815-40, Derivatives and Hedging, Contracts in Entity’s Own Equity (“ASC 815-40”), as these warrants provide for a settlement provision that does not meet the requirements of the indexation guidance under ASC 815-40. The Pre-Funded Warrants were recorded at fair value as a liability as the Company could be required to settle the Pre-Funded Warrants in cash under certain circumstances. These warrant liabilities were measured at fair value at inception and are then subsequently measured on a recurring basis, with changes in fair value recognized in other income (expense) within the Company’s statement of operations.

The Company uses a Black-Scholes option pricing model to estimate the fair value of the Common and Pre-Funded Warrants, which utilizes certain unobservable inputs and is therefore considered a Level 3 fair value measurement. Certain inputs used in this Black-Scholes pricing model may fluctuate in future periods based upon factors that are outside of the Company’s control, including a potential change in control outside of the Company’s control. A significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of the Company’s warrant liabilities, which could also result in material non-cash gains or losses being reported in the Company’s consolidated statement of operations.

The Common and Pre-Funded Warrants were initially valued and remeasured using a Black-Scholes option pricing model with a range of assumptions as follows:

Expected term (in years)	3.7
Volatility	91.53	%
Risk-free interest rate	4.11	%
Dividend yield	0.00	%

The Company utilized a probability-weighted approach that considered the probability of a change in control at the Company in the Black-Scholes option pricing model, whereby a 10% probability of change in control was used for each of the five years in the term of the agreements.

The following table provides a roll forward of the aggregate fair values of the Company’s warrant liability, for which fair value is determined using Level 3 inputs (in thousands):

	Warrant Liability
	Common Warrant		Pre-Funded Warrant
Balance as of January 1, 2022	$	—	$	—
Initial fair value of Warrant Liability		13,734		8,101
Warrants exercised		—		(1,417)
Change in fair value		3,331		990
Balance as of September 30, 2022	$	17,065	$	7,674

The inputs utilized by management to value the warrant liability for Common and Pre-Funded Warrants are highly subjective. The assumptions used in calculating the fair value of the warrant liability for Common and Pre-Funded Warrants represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the fair value of the warrant liability for Common and Pre-Funded Warrants may be materially different in the future.