Sutro Biopharma, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

Fair Value Measurements

9 Months Ended

Sep. 30, 2018

3. Fair Value Measurements

The following table sets forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy:

	September 30, 2018
	Total		Level 1		Level 2		Level 3
	(in thousands)
Assets:
Money market funds	$	31,879	$	31,879	$	–	$	–
Commercial paper		34,939		–		34,939		–
Corporate debt securities		15,774		–		15,774		–
Asset-backed securities		16,864		–		16,864		–
U.S. government agency securities		23,767		–		23,767		–
Total	$	123,223	$	31,879	$	91,344	$	–

Liabilities:
Redeemable convertible preferred stock warrant liability	$	867	$	–	$	–	$	867
Total	$	867	$	–	$	–	$	867

	December 31, 2017
	Total		Level 1		Level 2		Level 3
	(in thousands)
Assets:
Money market funds	$	6,578	$	6,578	$	–	$	–
Commercial paper		7,689		–		7,689		–
Corporate debt securities		800		–		800		–
U.S. government agency securities		3,893		–		3,893		–
Total	$	18,960	$	6,578	$	12,382		–

Liabilities:
Redeemable convertible preferred stock warrant liability	$	1,708	$	–	$	–	$	1,708
Total	$	1,708	$	–	$	–	$	1,708

Where applicable, the Company uses quoted market prices in active markets for identical assets to determine fair value. This pricing methodology applies to Level 1 investments, which are composed of money market funds.

If quoted prices in active markets for identical assets are not available, then the Company uses quoted prices for similar assets or inputs other than quoted prices that are observable, either directly or indirectly. These investments are included in Level 2 and consist of commercial paper, corporate debt securities, and U.S. government agency securities. These assets are valued using market prices when available, adjusting for accretion of the purchase price to face value at maturity.

A financial instrument’s categorization within the valuation hierarchy is based upon 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.

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. Level 3 liabilities that are measured at estimated fair value on a recurring basis consist of the redeemable convertible preferred stock warrant liability. Refer to Note 8 for the valuation techniques used to measure fair value and a description of the inputs and the information used to develop the inputs to the valuation models.

Generally, increases or decreases in the fair value of the underlying redeemable convertible preferred stock would result in a directionally similar impact in the fair value measurement of the associated warrant liability. There were no transfers within the hierarchy during the nine months ended September 30, 2018 and 2017.

The following table sets forth a summary of the changes in the estimated fair value of the Company’s redeemable convertible preferred stock warrant liability:

	Redeemable Convertible Preferred Stock Warrant Liability
	(in thousands)
Balance as of December 31, 2017	$	1,708
Proceeds from issuances of common stock upon exercise of warrants		(2	)
Changes in estimated fair value of warrant liability included in other income (expense), net		(839	)
Balance as of September 30, 2018	$	867

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details