UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number
(Exact name of Registrant as specified in its Charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices including zip code)
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Securities registered pursuant to Section 12(b) of the Act:
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(The Nasdaq Global Select Market) |
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of Registrant’s Common Stock outstanding as of May 6, 2022 was
Table of Contents
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Item 1. |
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3 |
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Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 |
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Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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32 |
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Item 1A. |
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Item 2. |
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71 |
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Item 3. |
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Item 4. |
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71 |
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Item 5. |
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71 |
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Item 6. |
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2
PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Chinook Therapeutics, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
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March 31, |
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December 31, |
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2022 |
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2021 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable securities |
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Accounts receivable |
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Prepaid expenses and other current assets |
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Total current assets |
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Marketable securities |
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Property and equipment, net |
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Restricted cash |
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Operating lease right-of-use assets |
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Investment in equity securities |
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Equity method investment |
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Intangible assets, net |
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In-process research & development |
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Goodwill |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
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Accrued and other current liabilities |
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Operating lease liabilities |
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Contingent value rights liability |
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Total current liabilities |
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Contingent value rights liability - non-current |
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Contingent consideration liability |
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Deferred tax liabilities |
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Operating lease liabilities, net of current maturities |
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Total liabilities |
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Commitments and contingencies (Note 12) |
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Stockholders’ equity: |
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Preferred stock, $ March 31, 2022 and December 31, 2021; March 31, 2022 and December 31, 2021 |
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Common stock, $ March 31, 2022 and December 31, 2021; and outstanding at March 31, 2022 and December 31, 2021 |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive loss |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Chinook Therapeutics, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share amounts)
(Unaudited)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Collaboration and license revenue |
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$ |
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$ |
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Operating expenses: |
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Research and development |
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General and administrative |
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Change in fair value of contingent consideration and contingent value rights liabilities |
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Amortization of intangible assets |
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Total operating expenses |
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Loss from operations |
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( |
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Other expense, net |
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( |
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( |
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Loss before income taxes and share of net loss of equity method investment |
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Share of net loss of equity method investment |
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— |
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Net loss |
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$ |
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$ |
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Net loss per share attributable to common stockholders, basic and diluted |
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$ |
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$ |
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Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted |
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Other comprehensive income (loss): |
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Foreign currency translation adjustments, net of tax of $ |
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Unrealized gain (loss) on marketable debt securities, net of tax of $ |
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( |
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Total other comprehensive income (loss) |
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( |
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Comprehensive loss |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Chinook Therapeutics, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
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Common Stock |
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Additional Paid-In |
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Accumulated |
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Accumulated Other Comprehensive |
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Total Stockholders' |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income (Loss) |
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Equity |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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Issuance of common stock upon exercise of stock options and vesting of restricted stock units |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Net loss |
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— |
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— |
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— |
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( |
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— |
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( |
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Balance at March 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Common Stock |
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Additional Paid-In |
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Accumulated |
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Accumulated Other Comprehensive |
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Total Stockholders' |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income (Loss) |
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Equity |
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Balance at December 31, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Issuance of common stock upon exercise of stock options and warrants |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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— |
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( |
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Balance at March 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Chinook Therapeutics, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Cash Flows from Operating Activities |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization expense |
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Loss on disposal of property and equipment |
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— |
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Amortization of intangible assets |
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Non-cash operating lease expense |
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Stock-based compensation expense |
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Change in fair value of contingent consideration and contingent value rights liabilities |
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( |
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Accretion of discounts and amortization of premiums on marketable securities |
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— |
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Share of net loss of equity method investment |
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— |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Prepaid expenses and other assets |
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( |
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( |
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Accounts payable |
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Accrued and other liabilities |
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( |
) |
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( |
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Operating lease liabilities |
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( |
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( |
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Deferred revenue |
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— |
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( |
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Net cash used in operating activities |
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( |
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( |
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Cash Flows from Investing Activities |
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Purchases of marketable securities |
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( |
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( |
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Proceeds from marketable securities |
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Purchases of property and equipment |
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( |
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( |
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Proceeds from sale of property and equipment |
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— |
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Net cash provided by (used in) investing activities |
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( |
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Cash Flows from Financing Activities |
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Proceeds from exercise of stock options and warrants |
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Previously incurred issuance costs related to an underwritten public offering paid during period |
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( |
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— |
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Net cash provided by financing activities |
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Effect of exchange rate changes on cash, cash equivalents and restricted cash |
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Net decrease in cash, cash equivalents and restricted cash |
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( |
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( |
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Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period |
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$ |
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$ |
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Reconciliation of Cash, Cash Equivalents and Restricted Cash |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Total cash, cash equivalents and restricted cash |
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$ |
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$ |
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Supplemental Cash Flow Information |
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Cash paid for amounts included in the measurement of lease liabilities |
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$ |
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$ |
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Supplemental Disclosure of Non-Cash Investing and Financing Activities |
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Purchases of property and equipment included in accounts payable and in accrued and other current liabilities |
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$ |
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$ |
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Receivable from option exercises |
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$ |
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$ |
— |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Chinook Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Description of Business
Chinook Therapeutics, Inc. (the “Company”, “Chinook”, “we”, “our”, or “us”) is a clinical-stage biopharmaceutical company focused on discovering, developing and commercializing precision medicines for kidney diseases. On October 5, 2020, Aduro Biotech, Inc. (“Aduro”) completed its merger with Chinook Therapeutics U.S., Inc. (“Private Chinook”), pursuant to the terms of a merger agreement dated as of June 1, 2020, and amended on August 17, 2020, by which a wholly owned subsidiary of Aduro merged with and into Private Chinook, with Private Chinook continuing as a wholly owned subsidiary of Aduro (the “Merger”). Immediately following the Merger, Aduro changed its name to “Chinook Therapeutics, Inc.” and the business conducted by Private Chinook became the primary business conducted by the Company. Refer to Note 3 “Reverse Merger and Contingent Value Rights” for more information.
Our lead clinical program is atrasentan, an endothelin receptor antagonist that was in-licensed from AbbVie in late 2019. In March 2021, we initiated the phase 3 ALIGN trial of atrasentan for IgA nephropathy (“IgAN”) and in April 2021, we initiated the phase 2 AFFINITY basket trial of atrasentan for proteinuric glomerular diseases. Our second product candidate, BION-1301, is an anti-APRIL monoclonal antibody also in phase 1/2 development for patients with IgAN. Our third product candidate is CHK-336, an oral small molecule LDHA inhibitor for the treatment of primary and secondary hyperoxaluria and idiopathic kidney stone formation. In April 2022, we initiated a phase 1 clinical trial of CHK-336 in healthy volunteers. In addition, we are building our precision medicine pipeline through research and discovery programs for other rare, severe chronic kidney diseases. We were incorporated in Delaware and are headquartered in Seattle, Washington.
2. Basis of Presentation and Consolidation, Use of Estimates and Recent Accounting Pronouncements
Basis of Presentation and Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and follow the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted, and accordingly the unaudited condensed consolidated financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. These financial statements have been prepared on the same basis as our annual financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of financial information. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other interim period or for any other future year.
The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2021 included in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 17, 2022.
The condensed consolidated financial statements include the accounts of Chinook Therapeutics, Inc. and our wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of expenses during the reporting periods. Such estimates include the valuation of intangible assets, acquired property and equipment, investments, contingent value rights (“CVR”) liability, contingent consideration liability, lease right-of-use assets, and lease obligations, as well as accruals for research and development activities, stock-based compensation expense, and income taxes. Actual results could differ from those estimates.
Risks and Uncertainties
We are subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, reliance on single-source vendors and collaborators, availability of raw materials, patentability of our products and processes and clinical efficacy and safety of our products under development, compliance with government regulations and the need to obtain additional financing to fund operations. Product candidates currently under development will require significant additional
7
research and development efforts, including extensive preclinical studies, clinical trials and regulatory approval, prior to commercialization. These efforts will require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance and reporting.
Our product candidates are still in development and, to date, none of our product candidates have been approved for sale and, therefore, we have not generated any revenue from product sales.
There can be no assurance that our research and development will be successfully completed, that adequate protection for our intellectual property will be obtained or maintained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if our product development efforts are successful, it is uncertain when, if ever, we will generate revenue from product sales. We operate in an environment of rapid technological change and substantial competition from other pharmaceutical and biotechnology companies. In addition, we are dependent upon the services of our employees, consultants and other third parties.
Moreover, the current COVID-19 pandemic, which is impacting worldwide economic activity, poses risk that we or our employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time which may delay the start-up and conduct of our clinical trials, and negatively impact manufacturing and testing activities performed by third parties. Any significant delays may impact the use and sufficiency of our existing cash reserves, and we may be required to raise additional capital earlier than we had previously planned. We may be unable to raise additional capital if and when needed, which may result in further delays or suspension of our development plans. The extent to which the pandemic will impact our business will depend on future developments that are highly uncertain and cannot be predicted at this time.
Recent Accounting Pronouncements
Recent Accounting Pronouncements, Not Yet Adopted
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standard Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This ASU replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. The standard is effective for smaller reporting companies in fiscal years beginning after December 15, 2022 with early adoption permitted for all periods beginning after December 15, 2018. We do not plan to early adopt ASU No. 2016-13 and are currently evaluating the impact the adoption of this ASU will have on our consolidated financial statements.
Recently Adopted Accounting Pronouncements
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40), which provides guidance on modifications or exchanges of a freestanding equity-classified written call option (such as a warrant) that is not within the scope of another Topic. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. We adopted the standard on
3. Reverse Merger and Contingent Value Rights
We completed our Merger with Aduro on October 5, 2020. At the effective time of the Merger, we also entered into an agreement pursuant to which Aduro’s common stockholders of record as of the close of business on October 2, 2020 received
4. Cash, Cash Equivalents and Marketable Securities
Cash, cash equivalents and marketable securities consisted of the following (in thousands):
8
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March 31, 2022 |
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Amortized Cost |
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Unrealized Gains |
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Unrealized Losses |
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Estimated Fair Value |
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Cash and cash equivalents: |
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Cash |
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$ |
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|
$ |
— |
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|
$ |
— |
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$ |
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|
Money market funds |
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|
|
|
|
— |
|
|
|
— |
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Commercial paper |
|
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|
|
|
|
— |
|
|
|
( |
) |
|
|
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U.S. government and agency securities |
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|
|
|
|
— |
|
|
|
— |
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Total cash and cash equivalents |
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$ |
|
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
|
Marketable securities: |
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|
|
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Commercial paper |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
U.S. government and agency securities |
|
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|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Corporate debt securities |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
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Total marketable securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
December 31, 2021 |
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Amortized Cost |
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Unrealized Gains |
|
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Unrealized Losses |
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|
Estimated Fair Value |
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||||
|
Cash and cash equivalents: |
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|
|
|
|
|
|
|
|
|
|
|
|
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Cash |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
Money market funds |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Commercial paper |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
Corporate debt securities |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
Total cash and cash equivalents |
|
$ |
|
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
|
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
$ |
|
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
|
U.S. government and agency securities |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total marketable securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
The amortized cost and estimated fair value of our available-for-sale marketable securities by contractual maturity are summarized below as of March 31, 2022 (in thousands):
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Amortized Cost |
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Unrealized Gains |
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Unrealized Losses |
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Estimated Fair Value |
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||||
|
Mature in one year or less |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Mature after one year through two years |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
Total available-for-sale marketable securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
5. Fair Value Measurements
We record certain financial assets and liabilities at fair value in accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 820 on fair value measurements. As defined in the guidance, fair value, defined as an exit price, represents the amount that would be received to sell an asset or pay to transfer a liability in an orderly transaction between market participants. As a result, fair value is a market-based approach that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering these assumptions, the guidance defines a three-tier valuation hierarchy that prioritizes the inputs used in the valuation methodologies in measuring fair value.
Level 1: Unadjusted quoted prices in active, accessible markets for identical assets or liabilities.
Level 2: Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.
9
Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The determination of a financial instrument’s level within the fair value hierarchy is based on an assessment of the lowest level of any input that is significant to the fair value measurement. We consider observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The following tables present information about our financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):
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March 31, 2022 |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Assets: |
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Cash and cash equivalents: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Cash and money market funds |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
Commercial paper |
|
|
— |
|
|
|
|
|
|
|
— |
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|
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U.S. government and agency securities |
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