Annual report pursuant to Section 13 and 15(d)

Fair Value Measurement

v3.22.0.1
Fair Value Measurement
 12 Months Ended
Dec. 31, 2021
Fair Value Disclosures [Abstract]  
Fair Value Measurement Fair Value MeasurementThe Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Cash equivalents, investments and derivative instruments are recorded at fair value on a recurring basis. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy defines a three-level valuation hierarchy for classification and disclosure of fair value measurements as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, 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 that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company has elected the FVO for its investments. Unrealized gains and losses on investments have been reported in investment income in the consolidated statements of operations at each reporting date. The Company classifies cash equivalents (consisting of money market funds) and investments in U.S. government securities as Level 1 within the fair value hierarchy. Investments in commercial paper and corporate bonds are classified as Level 2 within the fair value hierarchy.
On June 30, 2020, the Company entered into the Oberland Facility (see "Note 10 - Long-Term Debt, Net of Financing Fees") and obtained the first tranche of $35,000 at closing. On June 30, 2021, the second tranche of $15,000 was drawn down by the Company. The Company determined that the term debt instrument included certain embedded features that required separate accounting identified as the Debt Derivative Liabilities and that the equity contract (the “Common Stock Derivative Option Liability”) entered into concurrently were required to be classified as liabilities and recorded at fair value, requiring Level 3 fair value measurements. The Common Stock Derivative Option Liability was settled on December 10, 2020 (see "Note 10 - Long-Term Debt, Net of Financing Fees"). The Debt Derivative Liabilities are measured using a ‘with and without’ valuation model to compare the fair value of the Oberland Facility including the identified embedded derivative features and the fair value of a plain vanilla note with the same terms. The fair value of the Oberland Facility including the embedded derivative features was determined using a probability-weighted expected return model based on four potential settlement scenarios for the Oberland Facility due to (a) a 5% probability of a mandatory prepayment event of the Oberland Facility on December 31, 2023; (b) a 15% probability of a mandatory prepayment event of the Oberland Facility on March 31, 2026; (c) a 5% probability of the prepayment of the Oberland Facility at the Company’s option on December 31, 2025; and (d) a 75% probability that the Oberland Facility will be held to its scheduled maturity dates in accordance with the terms of the debt agreement. The estimated settlement value of each scenario, which would include any required make-whole payment (see "Note 10 - Long-Term Debt, Net of Financing Fees"), is then discounted to present value using a discount rate that is derived based on the initial terms of the Oberland Facility at issuance and corroborated utilizing a synthetic credit rating analysis.
The significant inputs that are included in the valuation of the Debt Derivative Liability - first tranche include:
December 31, 2021 December 31, 2020
Input
Remaining term (years) 5.5 6.5
Maturity date June 30, 2027 June 30, 2027
Coupon rate 9.50%  9.50% 
Revenue participation payments Maximum each year Maximum each year
Discount rate 10.72%  1 8.70  % 1
Probability of mandatory prepayment before 2024 5.0%  1 5.0%  1
Estimated timing of mandatory prepayment event before 2024 December 31, 2023 1 December 31, 2023 1
Probability of mandatory prepayment 2024 or after 15.0%  1 15.0%  1
Estimated timing of mandatory prepayment event 2024 or after March 31, 2026 1 March 31, 2026 1
Probability of optional prepayment event 5.0%  1 5.0%  1
Estimated timing of optional prepayment event December 31, 2025 1 December 31, 2025 1
1 Represents a significant unobservable input.
The significant inputs that are included in the valuation of the Debt Derivative Liability - second tranche include:
December 31, 2021
Input
Remaining term (years) 6.5
Maturity date June 30, 2028
Coupon rate 9.50% 
Revenue participation payments Maximum each year
Discount rate 13.21  % (1)
Probability of mandatory prepayment before 2024 5.0%  (1)
Estimated timing of mandatory prepayment event before 2024 December 31, 2023 (1)
Probability of mandatory prepayment 2024 or after 15.0%  (1)
Estimated timing of mandatory prepayment event 2024 or after March 31, 2026 (1)
Probability of optional prepayment event 5.0%  (1)
Estimated timing of optional prepayment event December 31, 2025 (1)
1 Represents a significant unobservable input.
The following tables represent the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 and 2020:
(in thousands) Level 1 Level 2 Level 3 Total
December 31, 2021
Assets:
Money market funds $ 22,012  $ —  $ —  $ 22,012 
U.S. government securities 12,081  —  —  12,081 
Commercial paper —  39,249  —  39,249 
Total assets $ 34,093  $ 39,249  $ —  $ 73,342 
Liabilities:
Debt derivative liabilities $ —  $ —  $ 5,562  $ 5,562 
Total liabilities $ —  $ —  $ 5,562  $ 5,562 
December 31, 2020 Level 1 Level 2 Level 3 Total
Assets:
Money market funds $ 23,044  $ —  $ —  $ 23,044 
U.S. government securities 12,123  —  —  12,123 
Corporate bonds —  6,408  —  6,408 
Commercial paper —  36,668  —  36,668 
Total assets $ 35,167  $ 43,076  $ —  $ 78,243 
Liabilities:
Debt derivative liability $ —  $ —  $ 2,497  $ 2,497 
Total liabilities $ —  $ —  $ 2,497  $ 2,497 
The changes in Level 3 liabilities measured at fair value on a recurring basis were as follows:

(in thousands)  Common Stock Derivative Option Liability Debt Derivative Liabilities
Balance, December 31, 2019 $ —  $ — 
Acquired 175 2,387 
Change in fair value included in net loss 7 110 
Settlement (182) — 
Balance, December 31, 2020 — 2,497 
Acquired — 3,037 
Change in fair value included in net loss — 28 
Balance, December 31, 2021 $ — $ 5,562 
The fair value of cash, restricted cash, accounts receivable, accounts payable and accrued expenses approximates the carrying values because of the short-term nature of these instruments. The Oberland Facility is classified as Level 3 within the fair value hierarchy. The carrying value and fair value of the Oberland Facility were $45,325 and $52,605 at December 31, 2021, respectively, and $32,623 and $36,855 at December 31, 2020, respectively.
There were no changes in the levels or methodology of the measurement of financial assets or liabilities during the years ended December 31, 2021 and 2020.