Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2020

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

4. Fair Value of Financial Instruments

The following tables summarize the fair value of the Company’s financial instruments (in thousands):

			Fair Value Measurements Using
	December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents:
Money market funds	$	94,631	$	94,631	$	—	$	—
Short-term investments:
Corporate debt securities	$	48,614	$	—	$	48,614	$	—
Commercial paper		63,445		—		63,445		—
U.S. Government securities		106,162		—		106,162		—
Total short-term investments	$	218,221	$	—	$	218,221	$	—
Total	$	312,852	$	94,631	$	218,221	$	—

			Fair Value Measurements Using
	December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents:
Commercial paper	$	2,395	$	—	$	2,395	$	—
Short-term investments:
Corporate debt securities	$	6,027	$	—	$	6,027	$	—
Commercial paper		10,357		—		10,357		—
Total short-term investments		16,384		—		16,384		—
Total	$	18,779	$	—	$	18,779	$	—
Liabilities:
Preferred stock purchase right liability	$	1,478	$	—	$	—	$	1,478

Cash Equivalents and Short-Term Investments

Financial assets measured at fair value on a recurring basis consist of the Company’s cash equivalents and short-term investments. Cash equivalents consisted of money market funds and short-term investments consisted of commercial paper, corporate debt securities and U.S. Government securities. The Company obtains pricing information from its investment manager and generally determines the fair value of investment securities using standard observable inputs, including reported trades, broker/dealer quotes, and bids and/or offers.

Investments are classified as Level 1 within the fair value hierarchy if their quoted prices are available in active markets for identical securities. Investments in money market funds of $94.6 million included in cash equivalents as of December 31, 2020 were classified as Level 1 instruments.

Investments in corporate debt securities, commercial paper and U.S. Government securities included in short-term investments are valued using Level 2 inputs. Level 2 securities are initially valued at the transaction price and subsequently valued and reported upon utilizing inputs other than quoted prices that are observable either directly or indirectly, such as quotes from third-party pricing vendors. Fair values determined by Level 2 inputs, which utilize data points that are observable such as quoted prices, interest rates and yield curves, require the exercise of judgment and use of estimates, that if changed, could significantly affect the Company’s financial position and results of operations.

The following tables summarize the Company’s short-term investments as of December 31, 2020 and December 31, 2019 (in thousands):

		December 31, 2020
	Maturity (in years)	Amortized Cost		Unrealized Losses			Unrealized Gains		Estimated Fair Value
Corporate debt securities	1 year or less	$	48,616	$	(6	)	$	4	$	48,614
Commercial paper	1 year or less		63,445		—			—		63,445
U.S. Government securities	1 year or less		106,157		(7	)		12		106,162
Total		$	218,218	$	(13	)	$	16	$	218,221

		December 31, 2019
	Maturity (in years)	Amortized Cost		Unrealized Losses			Unrealized Gains		Estimated Fair Value
Corporate debt securities	1 year or less	$	6,029	$	(2	)	$	—	$	6,027
Commercial paper	1 year or less		10,357		—			—		10,357
Total		$	16,386	$	(2	)	$	—	$	16,384

Prior to 2020, the Company followed the guidance in ASC 320 Investments—Debt and Equity Securities in determining whether unrealized losses were other than temporary. The Company adopted Topic 326 on January 1, 2020, and now considers whether unrealized losses have resulted from a credit loss or other factors. The unrealized losses on the Company’s available-for-sale securities as of December 31, 2020 and December 31, 2019 were caused by fluctuations in market value and interest rates as a result of the economic environment. The Company concluded that an allowance for credit losses was unnecessary as of December 31, 2020 and that there were no impairments as of December 31, 2019 considered as other-than-temporary because the decline in the market value was attributable to changes in market conditions and not credit quality, and that it is neither management’s intention to sell nor is it more likely than not that the Company will be required to sell these investments prior to recovery of their cost basis or recovery of fair value. There was no realized gain or loss on available-for-sale securities in the periods presented.

The Company elected the practical expedient to exclude accrued interest from both the fair value and the amortized cost basis of the available-for-sale debt securities for the purposes of identifying and measuring an impairment and to not measure an allowance for expected credit losses for accrued interest receivables. Accrued interest receivable is written off through net realized investment gains (losses) at the time the issuer of the bond defaults or is expected to default on payment. The Company made an accounting policy election to present the accrued interest receivable balance as part of prepaid expenses and other current assets in the balance sheets. Accrued interest receivable related to short-term investments was $1.1 million and $41,000 as of December 31, 2020 and 2019, respectively.

Preferred Stock Purchase Right Liability

In August 2019, the Company entered into a Series B Preferred Stock Purchase Agreement (see Note 10) that contained future purchase rights that were required to be accounted for as liabilities and remeasured to fair value at each reporting date, with any change in the fair value reported as a component of other expense, net. On July 1, 2020, the Company completed the Series B Milestone Closing and issued 27,066,206 shares of its Series B convertible preferred stock for aggregate gross proceeds of $64.4 million. Upon the exercise of the preferred stock purchase right on July 1, 2020, the preferred stock purchase right liability was revalued at an estimated fair value of $41.6 million and was reclassified to additional paid-in capital in the balance sheets. See Note 10 for further details on preferred stock purchase right liability.

The estimated fair value of the preferred stock purchase right liability at July 1, 2020 and December 31, 2019 was determined using a valuation model that incorporated the probability of the occurrence of the Series B Milestone Closing in addition to the factors considered at issuance. To determine the fair value of preferred stock purchase right as of July 1, 2020, an intrinsic value model was used. The assumptions used to determine the fair value of the preferred stock purchase right liability as of December 31, 2019 and upon its issuance in August 2019 included an estimated probability of occurrence of the Series B Milestone Closing of 90%, an assumed discount rates of 1.6% and 1.8%, respectively, and an estimated time period the preferred stock purchase right liability would be outstanding of 0.8 years and 1.1 years, respectively. As certain of these inputs are not observable in the market, the preferred stock purchase right liability is classified as a Level 3 instrument.

The following table provides the change in preferred stock purchase right liability for the year ended December 31, 2020 (in thousands):

	Preferred Stock Purchase Right Liability
Balance, December 31, 2019	$	1,478
Change in fair value of preferred stock purchase right		40,163
Reclassification of preferred stock purchase right liability    to equity upon issuance of convertible preferred stock		(41,641	)
Balance, December 31, 2020	$	—