Fair Value Measurements

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements

4. Fair Value Measurements

The Company determines the fair value of financial and non-financial assets and liabilities using the fair value hierarchy which establishes three level of inputs that may be used to measure fair value, as follows:

Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities.

Level 2— Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3— Unobservable inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):

	September 30, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	10	$	—	$	—	$	10
Cash equivalents(1)		10		—		—		10
Asset-backed securities		—		14,689		—		14,689
Corporate debt securities		—		5,722		—		5,722
Commercial paper		—		2,749		—		2,749
Marketable debt securities		—		23,160		—		23,160
Total fair value of assets	$	10	$	23,160	$	—	$	23,170
Liabilities:
Contingent consideration	$	—	$	—	$	2,880		2,880
Total fair value of liabilities	$	—	$	—	$	2,880	$	2,880

	December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	7,232	$	—	$	—	$	7,232
Cash equivalents(1)		7,232		—		—		7,232
Asset-backed securities		—		19,598		—		19,598
Corporate debt securities		—		19,394		—		19,394
Commercial paper		—		17,892		—		17,892
U.S. Government agency bonds		—		5,497		—		5,497
Marketable debt securities		—		62,381		—		62,381
Total fair value of assets	$	7,232	$	62,381	$	—	$	69,613
Liabilities:
Redeemable convertible preferred stock warrant    liability	$	—	$	—	$	1,881		1,881
Total fair value of liabilities	$	—	$	—	$	1,881	$	1,881

(1) Included in cash and cash equivalents in the condensed consolidated balance sheets

The following tables presents a summary of the changes in the fair value of the Company’s Level 3 financial instruments (in thousands):

	Redeemable Convertible Preferred Stock Tranche Liability			TRDF Liability			Redeemable Convertible Preferred Stock Warrant Liability
Fair value as of December 31, 2018	$	3,113		$	142		$	—
Recognition of preferred stock warrant liabilities		—			—			2,131
Change in the fair value included in other income, net		(1,970	)		(54	)		(62	)
Settlement		—			(88	)		—
Termination		(1,143	)		—			—
Fair value as of September 30, 2019	$	—		$	—		$	2,069

	Redeemable Convertible Preferred Stock Warrant Liability
Fair value as of December 31, 2019	$	1,881
Recognition of preferred stock warrant liability		144
Change in the fair value included in other income, net		897
Conversion of convertible preferred stock warrant into common stock warrant    in connection with Merger		(2,922	)
Fair value as of September 30, 2020	$	—

The fair value of the redeemable convertible preferred stock tranche liability, TRDF Liability and the redeemable convertible preferred stock warrant liability is based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. In determining the fair value of the redeemable convertible preferred stock tranche liability and the redeemable convertible preferred stock warrants, the Company used the Black-Scholes option-pricing model to estimate the fair value using unobservable inputs including the expected term, expected volatility, risk-free interest rate and dividend yield (see Note 14). There were no warrants outstanding for the purchase of redeemable convertible preferred stock as of September 30, 2020, as all such warrants were converted to warrants for the purchase of shares of common stock upon the Merger. The fair value of the TRDF Liability was determined based on fair value of the Company’s Series A redeemable convertible preferred stock.

As part of the acquisition of resTORbio, the Company entered into a CVR Agreement and recorded the fair value of the CVR as part of consideration transferred. The Company considers the contingent consideration liability a Level 3 instrument (one with significant unobservable inputs) in the fair value hierarchy (see Note 3).