SEC Filing - Kezar Life Sciences, Inc.

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kzr-10q_20200331.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

☐	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: 001-38542

Kezar Life Sciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

47-3366145

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

4000 Shoreline Court, Suite 300

South San Francisco, CA, 94080

(650) 822-5600

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, $0.001 par value	KZR	The Nasdaq Stock Market LLC

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. Yes ☒ No ☐

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). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☒

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 ☐ No ☒

As of May 4, 2020, the registrant had 38,177,462 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Loss	4
	Condensed Consolidated Statement of Stockholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Defaults Upon Senior Securities	61
Item 4.	Mine Safety Disclosures	61
Item 5.	Other Information	61
Item 6.	Exhibits	62

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “should,” “would,” “potential,” “project,” “plan,” “expect,” “seek,” “should,” “target” or similar expressions, or the negative or plural of these words or expressions. These forward-looking statements include statements concerning the following:

•

statements regarding the impact of the COVID-19 pandemic and its effects on our operations, research and development, clinical trials and financial position, and its potential effects on the operations of third-party manufacturers, contract research organizations, other service providers, and collaborators with whom we conduct business;

•

our plans to develop and commercialize our product candidates;

•

the initiation, timing, progress and expected results of our current and future clinical trials and our research and development programs;

•

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

•

our ability to successfully acquire or in-license additional product candidates or other technology on reasonable terms;

•

our ability to maintain and establish collaborations or strategic relationships or obtain additional funding;

•

the timing and likelihood of obtaining regulatory approval of our current and future product candidates;

•

our expectations regarding the potential market size and the rate and degree of market acceptance of such product candidates;

•

our ability to fund our working capital requirements and expectations regarding the sufficiency of our capital resources;

•

the implementation of our business model and strategic plans for our business and product candidates;

•

the scope of protection we are able to establish and maintain for intellectual property rights and the duration of our patent rights covering our product candidates;

•

developments or disputes concerning our intellectual property or other proprietary rights;

•

the scalability and commercial viability of our manufacturing methods and processes;

•

our expectations regarding government and third-party payor coverage and reimbursement;

•

our ability to compete in the markets for our product candidates;

•

the impact of government laws and regulations;

•

developments relating to our competitors and our industry; and

•

the factors that may impact our financial results.

These statements are only current predictions and are subject to known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in greater detail under the heading “Risk Factors” and elsewhere in this report. You should not rely upon forward-looking statements as predictions of future events.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we are under no duty to update or revise any of the forward-looking statements in this report, whether as a result of new information, future events or otherwise, after the date of this report.

Unless the context otherwise requires, the terms “Kezar,” “Kezar Life Sciences,” “the Company,” “we,” “us,” “our” and similar references in this Quarterly Report on Form 10-Q refer to Kezar Life Sciences, Inc. and our wholly owned Australian subsidiary, Kezar Life Sciences Australia Pty Ltd.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

KEZAR LIFE SCIENCES, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

	March 31, 2020			December 31, 2019
	(Unaudited)			(Note 2)
Assets
Current assets:
Cash and cash equivalents	$	20,571		$	14,951
Marketable securities		102,779			63,255
Prepaid expenses		2,122			1,878
Other current assets		1,060			1,048
Total current assets		126,532			81,132
Property and equipment, net		4,131			4,282
Operating lease right-of-use asset		3,699			3,817
Other assets		282			282
Total assets	$	134,644		$	89,513
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,583		$	823
Accrued liabilities		4,202			4,218
Operating lease liabilities, current		934			900
Other liabilities, current		52			62
Total current liabilities		6,771			6,003
Operating lease liabilities, noncurrent		5,219			5,464
Total liabilities		11,990			11,467
Stockholders' equity:
Common stock, $0.001 par value, 125,000,000 shares authorized as of March 31, 2020 (unaudited) and December 31, 2019; 38,176,462 and 19,208,077 shares issued and outstanding as of March 31, 2020 (unaudited) and December 31, 2019, respectively		38			19
Preferred stock, $0.001 par value, 10,000,000 shares authorized, zero shares issued and outstanding as of March 31, 2020 (unaudited) and December 31, 2019		—			—
Additional paid-in capital		217,032			162,505
Accumulated other comprehensive loss		(122	)		(196	)
Accumulated deficit		(94,294	)		(84,282	)
Total stockholders' equity		122,654			78,046
Total liabilities and stockholders' equity	$	134,644		$	89,513

See accompanying notes to the unaudited interim condensed consolidated financial statements

KEZAR LIFE SCIENCES, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share amounts)

	Three Months Ended
	March 31,
	2020			2019
Operating expenses:
Research and development	$	7,457		$	5,927
General and administrative		3,021			2,382
Total operating expenses		10,478			8,309
Loss from operations		(10,478	)		(8,309	)
Interest income		466			667
Net loss	$	(10,012	)	$	(7,642	)
Net loss per common share, basic and diluted	$	(0.30	)	$	(0.40	)
Weighted-average shares used to compute net loss per common share, basic and diluted		32,867,597			19,042,524

See accompanying notes to the unaudited interim condensed consolidated financial statements

KEZAR LIFE SCIENCES, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)

	Three Months Ended
	March 31,
	2020			2019
Net loss	$	(10,012	)	$	(7,642	)
Other comprehensive income (loss)
Foreign currency translation adjustments		(117	)		8
Unrealized gain on marketable securities		191			65
Total other comprehensive income, net of tax		74			73
Comprehensive loss	$	(9,938	)	$	(7,569	)

See accompanying notes to the unaudited interim condensed consolidated financial statements

KEZAR LIFE SCIENCES, INC.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited)

(In thousands, except share amounts)

	COMMON STOCK				ADDITIONAL PAID-IN		ACCUMULATED OTHER COMPREHENSIVE			ACCUMULATED			TOTAL STOCKHOLDERS'
	SHARES		AMOUNTS		CAPITAL		LOSS			DEFICIT			EQUITY
Balance at December 31, 2019		19,208,077	$	19	$	162,505	$	(196	)	$	(84,282	)	$	78,046
Issuance of common stock and pre-funded warrants through underwritten offering, net of offering costs of $3,447		18,965,385		19	$	53,341		—			—			53,360
Issuance of common stock under employee stock incentive plans		3,000		—		3		—			—			3
Vesting related to shares of common stock issued pursuant to early exercises		—		—		10		—			—			10
Stock-based compensation expense		—		—		1,173		—			—			1,173
Other comprehensive income		—		—		—		74			—			74
Net loss		—		—		—		—			(10,012	)		(10,012	)
Balance at March 31, 2020		38,176,462	$	38	$	217,032	$	(122	)	$	(94,294	)	$	122,654

	COMMON STOCK				ADDITIONAL PAID-IN		ACCUMULATED OTHER COMPREHENSIVE			ACCUMULATED			TOTAL STOCKHOLDERS'
	SHARES		AMOUNTS		CAPITAL		LOSS			DEFICIT			EQUITY
Balance at December 31, 2018		19,114,421	$	19	$	158,176	$	(203	)	$	(49,195	)	$	108,797
Issuance of common stock under employee stock incentive plans		4,000		—		4		—			—			4
Vesting related to shares of common stock issued pursuant to early exercises		—		—		12		—			—			12
Stock-based compensation expense		—		—		901		—			—			901
Other comprehensive income		—		—		—		73			—			73
Net loss		—		—		—		—			(7,642	)		(7,642	)
Balance at March 31, 2019		19,118,421	$	19	$	159,093	$	(130	)	$	(56,837	)	$	102,145

See accompanying notes to the unaudited interim condensed consolidated financial statements

KEZAR LIFE SCIENCES, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Three Months Ended
	March 31,
	2020			2019
Cash flows from operating activities:
Net loss	$	(10,012	)	$	(7,642	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		362			303
Stock-based compensation		1,173			901
Amortization of premiums and discounts on marketable securities		(96	)		(359	)
Changes in operating assets and liabilities
Prepaid expenses, other current assets and other long-term assets		(256	)		(282	)
Accounts payable, accrued liabilities and other current liabilities		739			560
Operating lease liabilities		(211	)		(181	)
Net cash used in operating activities		(8,301	)		(6,700	)
Cash flows from investing activities:
Purchases of property and equipment		(93	)		(34	)
Purchases of marketable securities		(72,518	)		(35,936	)
Maturities of marketable securities		33,281			36,946
Net cash (used in) provided by investing activities		(39,330	)		976
Cash flows from financing activities:
Proceeds from sale of common stock and pre-funded warrants in underwritten offering, net of offering costs		53,365			—
Proceeds from issuance of common stock under employee stock incentive plans		3			4
Net cash provided by financing activities		53,368			4
Effect of exchange rate changes on cash and cash equivalents		(117	)		8
Net increase (decrease) in cash and cash equivalents		5,620			(5,712	)
Cash and cash equivalents at the beginning of period		14,951			24,182
Cash and cash equivalents at the end of period	$	20,571		$	18,470
Supplemental disclosures of noncash investing and financing information:
Reclassification of employee stock liability to equity upon vesting	$	10		$	12
Purchase of property and equipment in accounts payable	$	—		$	423
Unpaid offering costs in accrued liabilities	$	5		$	—

See accompanying notes to the unaudited interim condensed consolidated financial statements

Kezar Life Sciences, Inc

Notes to Unaudited Condensed Consolidated Financial Statements

1. Organization and Description of the Business

Description of Business

Kezar Life Sciences, Inc. (the “Company,” “we,” “us,” or “our”) was incorporated in the state of Delaware in February 2015 and commenced operations in June 2015. The Company is a clinical-stage biotechnology company, discovering and developing novel small molecule therapeutics to treat unmet needs in autoimmunity and cancer. The Company’s principal operations are in South San Francisco, California, and it operates in one segment.

Liquidity

Since commencing operations in mid-2015, substantially all of the Company’s efforts have been focused on research, development, and the advancement of the Company’s lead product candidate, KZR-616. The Company’s ultimate success depends on the outcome of the ongoing research and development activities. The Company has not yet generated product sales and as a result has experienced operating losses since inception and had an accumulated deficit of $94.3 million as of March 31, 2020. The Company expects to incur additional losses in the future to conduct research and development and will need to raise additional capital to fully implement management’s business plan. The Company intends to raise such capital through the issuance of additional equity, and potentially through borrowings, strategic alliances with partner companies and other licensing transactions. However, if such financing is not available at adequate levels, the Company may need to reevaluate its operating plans. Management believes that its existing cash, cash equivalents and marketable securities will be sufficient to fund the Company’s cash requirements for at least 12 months following the issuance of these financial statements.

In July 2019, the Company entered into an Open Market Sale Agreement^SM (the “ATM Agreement”) with Jefferies LLC (“Jefferies”), pursuant to which it may offer and sell, from time to time at its sole discretion through Jefferies, as its sales agent, shares of common stock having an aggregate offering price of up to $50.0 million. Jefferies may sell the common stock by any method permitted by law deemed to be an “at-the-market offering” as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended, including sales made directly on or through The Nasdaq Global Select Market or on any other existing trading market for the Company’s common stock. Any shares of common stock sold will be issued pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-232542). The Company will pay Jefferies a commission up to 3.0% of the gross sales proceeds of any shares of common stock sold through Jefferies under the ATM Agreement and also has provided Jefferies with indemnification and contribution rights. To date, the Company has not sold any shares of its common stock under the ATM Agreement.

On February 4, 2020, the Company completed an underwritten public offering of 18,965,385 shares of its common stock, which includes the full exercise of the underwriters’ option to purchase additional shares of common stock, and, to certain investors in lieu thereof, pre-funded warrants to purchase 2,884,615 shares of its common stock at an exercise price of $0.001 per share (the “February Offering”). The public offering price of our common stock was $2.60 per share and the public offering price of each pre-funded warrant was $2.599 per underlying share. The net proceeds from the public offering were approximately $53.4 million, after deducting underwriting discounts and commissions and other offering expenses paid by us. The Company’s existing stockholder, Morningside Ventures, together with its affiliate, and certain of the Company’s officers and directors purchased an aggregate of approximately $22.9 million of common stock in the offering.

2. Summary of Significant Accounting Policies

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2019 and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the U.S. Securities and Exchange Commission (“SEC”) on March 12, 2020 (the “Annual Report”), and there have been no material changes during the three months ended March 31, 2020.

Basis of Presentation and Consolidation

The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and include the Company’s accounts and those of its wholly owned Australian subsidiary, Kezar Life Sciences Australia Pty Ltd., which is a proprietary company limited by shares. All intercompany balances and transactions have been eliminated upon consolidation.

The condensed consolidated balance sheet at December 31, 2019 has been derived from the audited consolidated financial statements at that date but does not include all information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Annual Report.

Unaudited Interim Condensed Consolidated Financial Statements

The accompanying financial information as of March 31, 2020 is unaudited. The condensed consolidated financial statements included in this report reflect all adjustments (consisting only of normal recurring adjustments) that our management considers necessary for the fair statement of the results of operations for the interim periods covered and of our financial condition at the date of the interim balance sheet. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The results for interim periods are not necessarily indicative of the results for the entire year or any other interim period. The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto included in our Annual Report.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant items subject to such estimates and assumptions include the useful lives of fixed assets, stock-based compensation, and accrued research and development costs. Management bases its estimates on historical experience and on various other market-specific relevant assumptions that management believes to be reasonable under the circumstances. Actual results may differ from those estimates.

We also anticipate that the COVID-19 pandemic will have an impact on the clinical and pre-clinical development timelines for our clinical and pre-clinical programs. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and judgments or revise the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information is obtained and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s financial statements.

Significant Risks and Uncertainties

With the global spread of the ongoing COVID-19 pandemic in the first quarter of 2020, we have implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on our business. The extent to which the COVID-19 pandemic impacts our business, our pre-clinical and clinical development and regulatory efforts, our corporate development objectives and the value of and market for our common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the United States, Europe and other countries, and the effectiveness of actions taken globally to contain and treat the disease. The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

In addition, we are subject to other challenges and risks specific to our business and our ability to execute on our strategy, as well as risks and uncertainties common to companies in the biotechnology industry with development operations, including, without limitation, risks and uncertainties associated with: obtaining regulatory feedback regarding our product candidates; delays or problems in the supply of our product candidates; loss of single source suppliers or their failure to comply with manufacturing regulations; identifying, acquiring or in-licensing additional technologies or product candidates; clinical development and the inherent uncertainty of clinical success; the challenges of protecting and enhancing our intellectual property rights; and complying with applicable regulatory requirements. In addition, to the extent the ongoing COVID-19 pandemic adversely affects our business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties discussed above.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. Cash equivalents are stated at fair value.

Marketable Securities

All marketable securities have been classified as “available-for-sale” in accordance with the Company’s investment policy and cash management strategy. Short-term marketable securities mature within one-year from the balance sheet date. Investments in marketable securities are recorded at fair value, with any unrealized gains and losses reported within accumulated other comprehensive income as a separate component of stockholders’ deficit until realized or until a determination is made that an other-than-temporary decline in market value has occurred. If a credit loss does exist for available-for-sale debt securities and should be recognized, an allowance will be recorded rather than a write-down of the amortized cost basis. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion, together with interest on securities, are included in interest income on the Company’s condensed consolidated statements of operations.

Leases

At lease commencement, the Company records a lease liability based on the present value of lease payments over the expected lease term. The Company calculates the present value of lease payments using the discount rate implicit in the lease, unless that rate cannot be readily determined. In that case, the Company uses its incremental borrowing rate, which is the rate of interest that the Company would have to pay to borrow on a collateralized basis an amount equal to the lease payments over the expected lease term. The Company records a corresponding right-of-use (“ROU”) lease asset based on the lease liability, adjusted for any lease incentives received and any initial direct costs paid to the lessor prior to the lease commencement date.

After lease commencement, the Company measures its leases as follows: (i) the lease liability based on the present value of the remaining lease payments using the discount rate determined at lease commencement; and (ii) the ROU lease asset based on the remeasured lease liability, adjusted for any unamortized lease incentives received, any unamortized initial direct costs and the cumulative difference between rent expense and amounts paid under the lease agreement. Any lease incentives received and any initial direct costs are amortized on a straight-line basis over the expected lease term. Rent expense is recorded on a straight-line basis over the expected lease term.

The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company did not elect to apply the practical expedient to not separate lease and non-lease components for all of its leases.

Accounting Pronouncements Adopted in 2020

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) as well as subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively Topic 326). Topic 326 requires the measurement and recognition of expected credit losses for financial assets. Under the new guidance, an entity will recognize as an allowance its estimate of expected credit losses. The Company adopted the new standard using the modified retrospective approach as of January 1, 2020 and the adoption did not have a material impact on its condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements. The amendment of ASU No. 2018-13 removes disclosure requirements from Topic 820 in the areas of: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation processes for Level 3 fair value measurements. The Company adopted the new standard as of January 1, 2020 and the adoption did not have a material impact on its condensed consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles found in ASC740, Income Taxes. As part of the simplification, along with other exceptions, it removes the exception to the incremental approach for intraperiod tax allocation in the event of a loss from continuing operations and income or a gain from other items. The Company early adopted ASU 2019-20 as of January 1, 2020 and the adoption did not have a material impact on the Company’s condensed consolidated financial statements.

3. Fair Value Measurements

Financial assets and liabilities are recorded at fair value. The carrying amount of certain financial instruments, including cash and cash equivalents, marketable securities, other current assets, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. Assets and liabilities recorded at fair value on a recurring basis in the condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Observable inputs other than Level 1 prices, 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.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

The Company applies fair value accounting for all financial assets and liabilities and nonfinancial assets and liabilities that are required to be recognized or disclosed at fair value in the financial statements. The Company determines the fair value of Level 1 assets using quoted prices in active markets for identical assets. The Company reviews trading activity and pricing for Level 2 investments as of each measurement date. Level 2 inputs, which are obtained from various third-party data providers, represent quoted prices for similar assets in active markets and were derived from observable market data, or, if not directly observable, were derived from or corroborated by other observable market data.

In certain cases, where there is limited activity or less transparency around inputs to valuation, securities are classified as Level 3 within the valuation hierarchy. The Company does not have any assets or liabilities measured using Level 3 inputs as of March 31, 2020 or December 31, 2019.

The following table summarizes the Company’s financial assets measured at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above (in thousands):

	March 31, 2020
	Total		Level 1		Level 2		Level 3
Financial Assets:
Money market funds	$	20,373	$	20,373	$	—	$	—
U.S. Treasury securities		4,566		4,566		—		—
Commercial paper		38,999		—		38,999		—
Corporate debt securities		13,977		—		13,977		—
U.S. agency bonds		45,237		—		45,237		—
Total	$	123,152	$	24,939	$	98,213	$	—

	December 31, 2019
	Total		Level 1		Level 2		Level 3
Financial Assets:
Money market funds	$	14,731	$	14,731	$	—	$	—
U.S. Treasury securities		5,285		5,285		—		—
Commercial paper		15,186		—		15,186		—
Corporate debt securities		17,171		—		17,171		—
U.S. agency bonds		25,613		—		25,613		—
Total	$	77,986	$	20,016	$	57,970	$	—

4. Available-for-Sale Securities

The following table is a summary of available-for-sale securities recorded in cash and cash equivalents or marketable securities in the Company’s condensed consolidated balance sheets (in thousands):

	March 31, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Financial Assets
Money market funds	$	20,373	$	—	$	—		$	20,373
U.S. Treasury securities		4,524		42		—			4,566
Commercial paper		38,906		93		—			38,999
Corporate debt securities		14,037		—		(60	)		13,977
U.S. agency bonds		45,088		149		—			45,237
Total	$	122,928	$	284	$	(60	)	$	123,152

	December 31, 2019
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Financial Assets
Money market funds	$	14,731	$	—	$	—		$	14,731
U.S. Treasury securities		5,285		1		(1	)		5,285
Commercial paper		15,174		12		—			15,186
Corporate debt securities		17,168		3		—			17,171
U.S. agency bonds		25,597		16		—			25,613
Total	$	77,955	$	32	$	(1	)	$	77,986

As of March 31, 2020 and December 31, 2019, the Company has not recognized an allowance for credit losses on any securities in an unrealized loss position.

The following table displays additional information regarding gross unrealized losses and fair value by major security type for available-for-sale securities in an unrealized loss position as of March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020					December 31, 2019
	Less than 12 consecutive months					Less than 12 consecutive months
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Corporate debt securities	$	12,775	$	(60	)	$	—	$	—
U.S. Treasury securities		—		—			4,535		(1	)
Total	$	12,775	$	(60	)	$	4,535	$	(1	)

The Company currently does not intend to sell these securities prior to maturity and does not consider these investments to be other-than-temporarily impaired at March 31, 2020. There were no sales of available-for-sale securities in any of the periods presented.

As of March 31, 2020, the amortized cost and estimated fair value of the Company’s available-for-sale securities by contractual maturity are shown below (in thousands):

	Amortized		Estimated
	Cost		Fair Value
Available-for-sale securities maturing:
In one year or less	$	122,928	$	123,152
Total available-for-sale securities	$	122,928