Quarterly report pursuant to Section 13 or 15(d)

Fair Value of Financial Instruments

v3.19.3
Fair Value of Financial Instruments
9 Months Ended
Sep. 30, 2019
Fair Value of Financial Instruments  
Fair Value of Financial Instruments

3. Fair Value of Financial Instruments

ASC 820, Fair Value Measurement, establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances.

ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes among the following:

·

Level 1‑Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

·

Level 2‑Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.

·

Level 3‑Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Cash, Cash Equivalents and Marketable Securities

The following table presents fair value of the Company’s cash, cash equivalents, and marketable securities as of September 30, 2019 and December 31, 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

 

    

Adjusted 

   

Unrealized

   

Unrealized

   

 

 

   

Cash and Cash

   

Restricted

   

Marketable

 

 

Cost

 

Gains

 

Losses

 

Fair Value

 

Equivalents

 

Cash

 

Securities

Cash

 

$

3,348

 

$

 —

 

$

 —

 

$

3,348

 

$

2,040

 

$

1,308

 

$

 —

Level 1 (1):

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Money market funds

 

 

15,240

 

 

 —

 

 

 —

 

 

15,240

 

 

15,240

 

 

 —

 

 

 —

U.S. treasury securities

 

 

22,432

 

 

 4

 

 

 —

 

 

22,436

 

 

11,975

 

 

 —

 

 

10,461

Subtotal

 

 

37,672

 

 

 4

 

 

 —

 

 

37,676

 

 

27,215

 

 

 —

 

 

10,461

Level 2 (2):

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

U.S. government agency securities

 

 

5,000

 

 

 —

 

 

 —

 

 

5,000

 

 

 —

 

 

 —

 

 

5,000

Total

 

$

46,020

 

$

 4

 

$

 —

 

$

46,024

 

$

29,255

 

$

1,308

 

$

15,461

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

Adjusted 

 

Unrealized

 

Unrealized

 

 

 

 

Cash and Cash

 

Restricted

 

Marketable

 

    

Cost

    

Gains

    

Losses

    

Fair Value

    

Equivalents

    

Cash

    

Securities

Cash

 

$

10,992

 

$

 —

 

$

 —

 

$

10,992

 

$

9,689

 

$

1,303

 

$

 —

Level 1 (1):

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Money market funds

 

 

23,203

 

 

 —

 

 

 —

 

 

23,203

 

 

23,203

 

 

 —

 

 

 —

U.S. treasury securities

 

 

18,938

 

 

 —

 

 

(4)

 

 

18,934

 

 

 —

 

 

 —

 

 

18,934

Subtotal

 

 

42,141

 

 

 —

 

 

(4)

 

 

42,137

 

 

23,203

 

 

 —

 

 

18,934

Level 2 (2):

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

U.S. government agency securities

 

 

9,661

 

 

 —

 

 

(5)

 

 

9,656

 

 

 —

 

 

 —

 

 

9,656

Total

 

$

62,794

 

$

 —

 

$

(9)

 

$

62,785

 

$

32,892

 

$

1,303

 

$

28,590


(1)

The fair value of Level 1 securities is estimated based on quoted prices in active markets for identical assets or liabilities.

(2)

The fair value of Level 2 securities is estimated based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

The Company classifies investments available to fund current operations as current assets on its balance sheets. As of September 30, 2019, the Company did not hold any investment securities exceeding a one-year maturity.

The Company maintains $1.3 million as collateral under a letter of credit for the Company’s facility lease obligations in Chesterbrook, Pennsylvania. The Company has recorded this deposit and accumulated interest thereon as restricted cash on its balance sheet.

Unrealized gains and losses on marketable securities are recorded as a separate component of accumulated other comprehensive income (loss) included in stockholders’ equity. Realized gains (losses) are included in interest income (expense) in the statement of operations and comprehensive income (loss) on a specific identification basis. The Company did not record any realized gains or losses during the three and nine months ended September 30, 2019 and 2018. To date, the Company has not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value.

Accretion of bond discount on marketable securities is included in other income as a separate component of other income (expense) on the statement of operations and comprehensive loss.  Interest income on marketable securities is recorded as interest income on the statement of operations and comprehensive loss.

The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers between Level 2 and Level 3 during the nine months ended September 30, 2019 or the year ended December 31, 2018.