Fair value measurements

12 Months Ended

Dec. 31, 2019

The following table sets forth the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2019 and 2018 (in thousands):


	Total		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
December 31, 2019
Assets:
Cash and cash equivalents	$	327,214	$	311,245	$	15,969	$	—
Marketable securities:
U.S. government agency securities and treasuries	635,936		—		635,936		—
Certificates of deposit	960		—		960		—
Commercial paper	74,378		—		74,378		—
Corporate bonds	186,608		—		186,608		—
Equity securities	12,870		12,870		—		—
Total assets	$	1,237,966	$	324,115	$	913,851	$	—
Liabilities:
Contingent consideration	$	7,977	$	—	$	—	$	7,977
Total liabilities	$	7,977	$	—	$	—	$	7,977
December 31, 2018
Assets:
Cash and cash equivalents	$	402,579	$	348,638	$	53,941	$	—
Marketable securities:
U.S. government agency securities	1,457,601		—		1,457,601		—
Certificates of deposit	9,080		—		9,080		—
Equity securities	22,167		22,167		—		—
Total assets	$	1,891,427	$	370,805	$	1,520,622	$	—
Liabilities:
Contingent consideration	$	5,230	$	—	$	—	$	5,230
Total liabilities	$	5,230	$	—	$	—	$	5,230

Cash and cash equivalents

The Company considers all highly liquid securities with original final maturities of 90 days or less from the date of purchase to be cash equivalents. As of December 31, 2019, cash and cash equivalents comprise funds in cash, commercial paper, and money market accounts. As of December 31, 2018, cash and cash equivalents comprise funds in cash, U.S. Treasury securities, U.S. government agency securities, and money market accounts.

Marketable securities

Marketable securities classified as Level 2 within the valuation hierarchy generally consist of certificates of deposit, U.S. Treasury securities and government agency securities, corporate bonds, and commercial paper. The Company estimates the fair values of these marketable securities by taking into consideration valuations obtained from third-party pricing sources. These pricing sources utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include market pricing based on real-time trade data for the same or similar securities, issuer credit spreads, benchmark yields, and other observable inputs. The Company validates the prices provided by its third-party pricing sources by understanding the models used, obtaining market values from other pricing sources and analyzing pricing data in certain instances.

The amortized cost of available-for-sale debt securities is adjusted for amortization of premiums and accretion of discounts to the earliest call date for premiums or to maturity for discounts. At December 31, 2019 and 2018, the balance in the Company’s accumulated other comprehensive loss was composed primarily of activity related to the Company’s debt securities. There were no material realized gains or losses recognized on the sale or maturity of available-for-sale securities during the year ended December 31, 2019 or 2018, and as a result, the Company did not reclassify any amounts out of accumulated other comprehensive loss for the same periods.

The aggregate fair value of debt securities held by the Company in an unrealized loss position for less than twelve months as of December 31, 2019 and 2018 was $67.2 million and $787.5 million, respectively. As of December 31, 2019, and 2018, there were $79.6 million and $315.3 million in securities held by the Company in an unrealized loss position for more than twelve months, respectively. The aggregate unrealized loss on securities held by the Company for less than twelve months as of December 31, 2019 and 2018 was less than $0.1 million and $0.9 million, respectively. The aggregate unrealized loss on securities held by the Company for more than twelve months as of December 31, 2019 and 2018 was less than $0.1 million and $2.1 million, respectively. The Company has the intent to hold such securities until recovery and it is not more likely than not that the Company will be required to sell the securities before recovery of their amortized costs bases, which may be maturity. The Company determined that there was no material change in the credit risk of the above investments. As a result, the Company determined it did not hold any investments with an other-than-temporary impairment as of December 31, 2019 and 2018.

The Company holds equity securities with an aggregate fair value of $12.9 million and $22.2 million at December 31, 2019 and 2018, respectively within short-term marketable securities on its consolidated balance sheet. The Company recorded a $9.3 million unrealized loss and a $2.2 million unrealized gain during the year ended December 31, 2019 and 2018, respectively, related to its equity securities, which is included in other (expense) income, net on the consolidated statements of operations and comprehensive loss.

Contingent consideration

In connection with its prior acquisition of Precision Genome Engineering, Inc. (“Pregenen”), the Company may be required to pay future consideration that is contingent upon the achievement of specified development, regulatory approvals or sales-based milestone events. Contingent consideration is measured at fair value and is based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The valuation of contingent consideration uses assumptions the Company believes would be made by a market participant. The Company assesses these estimates on an on-going basis as additional data impacting the assumptions is obtained. Future changes in the fair value of contingent consideration related to updated assumptions and estimates are recognized within the consolidated statements of operations and comprehensive loss.

Contingent consideration may change significantly as development progresses and additional data are obtained, impacting the Company’s assumptions regarding probabilities of successful achievement of related milestones used to estimate the fair value of the liability and the timing in which they are expected to be achieved. In evaluating the fair value information, considerable judgment is required to interpret the market data used to develop the estimates. The estimates of fair value may not

be indicative of the amounts that could be realized in a current market exchange. Accordingly, the use of different market assumptions and/or different valuation techniques could result in materially different fair value estimates.

The significant unobservable inputs used in the measurement of fair value of the Company’s contingent consideration are probabilities of successful achievement of clinical and commercial milestones, the period in which these milestones are expected to be achieved ranging from 2021 to 2028 and discount rates ranging from 12.7% to 14.3%. Significant increases or decreases in any of these inputs would result in a significantly higher or lower fair value measurement.

The table below provides a roll-forward of fair value of the Company’s contingent consideration obligations which include Level 3 inputs (in thousands):


	Year ended December 31,
	2019		2018
Beginning balance	$	5,230	$	2,231
Additions	—		—
Changes in fair value	2,747		2,999
Payments	—		—
Ending balance	$	7,977	$	5,230

Please refer to Note 9, Commitments and contingencies, for further information.

- 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.

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