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FAIR VALUE MEASUREMENTS
9 Months Ended
Sep. 30, 2020
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS

2. FAIR VALUE MEASUREMENTS

Cash Equivalents and Marketable Securities

Cash equivalents, restricted cash and marketable securities by security type at September 30, 2020 were as follows:

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

(In thousands)

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Included in cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

41,608

 

 

$

 

 

$

 

 

$

41,608

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

92

 

 

$

 

 

$

 

 

$

92

 

Certificate of deposit

 

 

271

 

 

 

 

 

 

 

 

 

271

 

 

 

$

363

 

 

$

 

 

$

 

 

$

363

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

   (due in one to two years)

 

$

5,635

 

 

$

1

 

 

$

 

 

$

5,636

 

Government-sponsored enterprise

   securities (due in less than one year)

 

 

3,000

 

 

 

 

 

 

 

 

 

3,000

 

Government-sponsored enterprise

   securities (due in one to two years)

 

 

11,000

 

 

 

1

 

 

 

(1

)

 

 

11,000

 

Commercial paper (due in less than one year)

 

 

88,047

 

 

 

49

 

 

 

(2

)

 

 

88,094

 

Corporate notes (due in less than one year)

 

 

91,471

 

 

 

107

 

 

 

(5

)

 

 

91,573

 

Corporate notes (due in one to two years)

 

 

29,112

 

 

 

25

 

 

 

(5

)

 

 

29,132

 

 

 

$

228,265

 

 

$

183

 

 

$

(13

)

 

$

228,435

 

Cash equivalents, restricted cash and marketable securities by security type at December 31, 2019 were as follows:

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

(In thousands)

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Included in cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

6,671

 

 

$

 

 

$

 

 

$

6,671

 

Commercial paper

 

 

3,990

 

 

 

 

 

 

 

 

 

3,990

 

 

 

$

10,661

 

 

$

 

 

$

 

 

$

10,661

 

Restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificate of deposit

 

$

270

 

 

$

 

 

$

 

 

$

270

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government-sponsored enterprise

   securities (due in less than one year)

 

$

6,506

 

 

$

6

 

 

$

 

 

$

6,512

 

Government-sponsored enterprise

   securities (due in one to two years)

 

 

6,999

 

 

 

1

 

 

 

 

 

 

7,000

 

Commercial paper (due in less than one year)

 

 

40,110

 

 

 

33

 

 

 

(3

)

 

 

40,140

 

Corporate notes (due in less than one year)

 

 

78,926

 

 

 

116

 

 

 

(13

)

 

 

79,029

 

Corporate notes (due in one to two years)

 

 

12,659

 

 

 

1

 

 

 

(9

)

 

 

12,651

 

 

 

$

145,200

 

 

$

157

 

 

$

(25

)

 

$

145,332

 

Cash equivalents and marketable securities with unrealized losses that have been in a continuous unrealized loss position for less than 12 months and 12 months or longer at September 30, 2020 and December 31, 2019 were as follows:

 

 

 

Less Than 12 Months

 

 

12 Months or Longer

 

 

Total

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

Gross

 

 

 

 

 

 

Gross

 

 

 

Estimated

 

 

Unrealized

 

 

Estimated

 

 

Unrealized

 

 

Estimated

 

 

Unrealized

 

(In thousands)

 

Fair Value

 

 

Losses

 

 

Fair Value

 

 

Losses

 

 

Fair Value

 

 

Losses

 

As of September 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government-sponsored

   enterprise securities (due in

   one to two years)

 

$

5,999

 

 

$

(1

)

 

$

 

 

$

 

 

$

5,999

 

 

$

(1

)

Commercial paper (due in

   less than one year)

 

 

16,981

 

 

 

(2

)

 

 

 

 

 

 

 

 

16,981

 

 

 

(2

)

Corporate notes (due in

   less than one year)

 

 

20,096

 

 

 

(5

)

 

 

 

 

 

 

 

 

20,096

 

 

 

(5

)

Corporate notes (due in one

  to two years)

 

 

10,519

 

 

 

(5

)

 

 

 

 

 

 

 

 

10,519

 

 

 

(5

)

 

 

$

53,595

 

 

$

(13

)

 

$

 

 

$

 

 

$

53,595

 

 

$

(13

)

As of December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper (due in

   less than one year)

 

$

8,571

 

 

$

(3

)

 

$

 

 

$

 

 

$

8,571

 

 

$

(3

)

Corporate notes (due in

   less than one year)

 

 

26,082

 

 

 

(13

)

 

 

 

 

 

 

 

 

26,082

 

 

 

(13

)

Corporate notes (due in one

    to two years)

 

 

11,624

 

 

 

(9

)

 

 

 

 

 

 

 

 

11,624

 

 

 

(9

)

 

 

$

46,277

 

 

$

(25

)

 

$

 

 

$

 

 

$

46,277

 

 

$

(25

)

The gross unrealized losses related to government-sponsored enterprise securities, commercial paper and corporate notes as of September 30, 2020 and December 31, 2019 were due to changes in interest rates and not credit risk. We determined that the gross unrealized losses on our marketable securities as of September 30, 2020 and December 31, 2019 were temporary in nature. Our exposure to unrealized losses may increase in the future due to the economic pressures or uncertainties associated with local or global economic recessions as a result of the current COVID-19 pandemic. We review our investments quarterly to identify and evaluate whether any investments have indications of possible other-than-temporary impairment. Factors considered in determining whether a loss is temporary include the length of time and extent to which the fair value has been less than the amortized cost basis and whether we intend to sell the security or whether it is more likely than not that we would be required to sell the security before recovery of the amortized cost basis. We currently do not intend to sell these securities before recovery of their amortized cost bases.

Fair Value on a Recurring Basis

We categorize financial instruments recorded at fair value on our condensed balance sheets based upon the level of judgment associated with inputs used to measure their fair value. The categories are as follows:

 

 

Level 1

Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

 

Level 2

Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

 

Level 3

Inputs 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.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Below is a description of the valuation methodologies used for financial instruments measured at fair value on our condensed balance sheets, including the category for such financial instruments.

Money market funds are categorized as Level 1 within the fair value hierarchy as their fair values are based on quoted prices available in active markets. Commercial paper, government-sponsored enterprise securities, U.S. Treasury notes, corporate notes and equity investments are categorized as Level 2 within the fair value hierarchy as their fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.

The following table presents information about our financial instruments that are measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019 and indicates the fair value category assigned.

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

Quoted Prices in

 

 

 

 

 

 

Significant

 

 

 

 

 

 

 

Active Markets for

 

 

Significant Other

 

 

Unobservable

 

 

 

 

 

 

 

Identical Assets

 

 

Observable Inputs

 

 

Inputs

 

 

 

 

 

(In thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

As of September 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

41,608

 

 

$

 

 

$

 

 

$

41,608

 

U.S. Treasury notes(3)

 

 

 

 

 

5,636

 

 

 

 

 

 

5,636

 

Government-sponsored enterprise

   securities(2)(3)

 

 

 

 

 

14,000

 

 

 

 

 

 

14,000

 

Commercial paper(2)

 

 

 

 

 

88,094

 

 

 

 

 

 

88,094

 

Corporate notes(2)(3)

 

 

 

 

 

120,705

 

 

 

 

 

 

120,705

 

Equity investment(4)

 

 

 

 

 

385

 

 

 

 

 

 

385

 

Total

 

$

41,608

 

 

$

228,820

 

 

$

 

 

$

270,428

 

As of December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

6,671

 

 

$

 

 

$

 

 

$

6,671

 

Government-sponsored enterprise

   securities (2)(3)

 

 

 

 

 

13,512

 

 

 

 

 

 

13,512

 

Commercial paper(1)(2)

 

 

 

 

 

44,130

 

 

 

 

 

 

44,130

 

Corporate notes(2)(3)

 

 

 

 

 

91,680

 

 

 

 

 

 

91,680

 

Equity investment(4)

 

 

 

 

 

389

 

 

 

 

 

 

389

 

Total

 

$

6,671

 

 

$

149,711

 

 

$

 

 

$

156,382

 

 

(1)

Included in cash and cash equivalents on our condensed balance sheets.

(2)

Included in current portion of marketable securities on our condensed balance sheets.

(3)

Included in noncurrent portion of marketable securities on our condensed balance sheets.

(4)

Included in deposits and other assets on our condensed balance sheets. See “Equity Investment” in this Note 2 for further discussion of this equity investment.

Equity Investment

In December 2007, we received 13,842,625 ordinary shares in Sienna Cancer Diagnostics Limited, or Sienna, in connection with a license we granted to Sienna for our hTERT technology for use in human diagnostics. The shares, which represented less than 20% ownership, were recorded at a zero cost basis under the cost method of accounting, upon receipt. Since the adoption of ASU 2016-01 on January 1, 2018, we reassess the fair value of our equity investment in Sienna at each reporting date and any resulting change in fair value is recognized on our condensed statements of operations.

In April 2020, Sienna announced its merger with BARD1 Life Sciences Limited, or BARD1, subject to approval by Sienna’s shareholders. Effective August 3, 2020, the merger was complete, and we received 13 BARD1 shares for every five shares of Sienna ordinary shares, resulting in our ownership of 35,990,825 shares of BARD1. In connection with this exchange, we recognized a gain of $182,000 which has been included in interest and other income on our condensed statements of operations. In the third quarter of 2020, we sold 15,322,939 shares of BARD1 and received $339,000 in net proceeds. In connection with the sales, we also recognized $34,000 in realized losses, which has been included in interest and other income.

As of September 30, 2020, we held 20,667,886 shares of BARD1 and the fair value of those shares was $385,000, as reported on the Australian stock exchange and translated into U.S. dollars. For the three and nine months ended September 30, 2020, we recognized a decrease in fair value of equity investment of $118,000 and an increase in fair value of $109,000,

respectively, compared to a decrease in fair value of $195,000 for each of the comparable periods in 2019, related to observable price changes on our condensed statements of operations. For the three and nine months ended September 30, 2020, we also recognized net gains of $27,000 and $78,000, respectively, compared to net losses of $14,000 and $17,000, respectively, for each of the comparable periods in 2019, related to foreign currency translation from Australian dollar to U.S. dollar, which have been included in interest and other expense on our condensed statements of operations.