Quarterly report pursuant to Section 13 or 15(d)

Fair Value of Financial Instruments

v3.20.2
Fair Value of Financial Instruments
6 Months Ended
Jun. 30, 2020
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 June 30, 2020 and December 31, 2019 (in thousands):

June 30, 2020

    

Adjusted 

   

Unrealized

   

Unrealized

   

   

Cash and Cash

   

Restricted

   

Marketable

Cost

Gains

Losses

Fair Value

Equivalents

Cash

Securities

Cash

$

10,663

$

$

$

10,663

$

9,353

$

1,310

$

Level 1 (1):

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Money market funds

 

45,442

 

 

 

45,442

 

45,442

 

 

U.S. treasury securities

 

 

 

 

 

 

 

Subtotal

 

45,442

 

 

 

45,442

 

45,442

 

 

Level 2 (2):

 

  

 

  

 

  

 

  

 

  

 

  

 

  

U.S. government agency securities

 

 

 

 

 

 

 

Total

$

56,105

$

$

$

56,105

$

54,795

$

1,310

$

December 31, 2019

Adjusted 

Unrealized

Unrealized

Cash and Cash

Restricted

Marketable

    

Cost

    

Gains

    

Losses

    

Fair Value

    

Equivalents

    

Cash

    

Securities

Cash

$

9,302

$

$

$

9,302

$

7,993

$

1,309

$

Level 1 (1):

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Money market funds

 

18,306

 

 

 

18,306

 

18,306

 

 

U.S. treasury securities

5,996

5,996

2,496

3,500

Subtotal

 

24,302

 

 

 

24,302

 

20,802

 

 

3,500

Level 2 (2):

 

  

 

  

 

  

 

  

 

  

 

  

 

  

U.S. government agency securities

 

3,510

 

 

 

3,510

 

3,510

 

 

Total

$

37,114

$

$

$

37,114

$

32,305

$

1,309

$

3,500

(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 June 30, 2020, 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 six months ended June 30, 2020 and 2019. 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 six months ended June 30, 2020, or the year ended December 31, 2019.