Fair Value Measurements

9 Months Ended

Sep. 30, 2023

4. Fair Value Measurements

The Company classifies fair value-based measurements using a three-level hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: Level 1, quoted market prices (unadjusted) in active markets for identical assets or liabilities; Level 2, observable inputs other than quoted market prices included in Level 1, such as quoted market prices for markets that are not active or other inputs that are observable or can be corroborated by observable market data; and 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, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

As of September 30, 2023 and December 31, 2022, the Company’s financial assets recognized at fair value on a recurring basis consisted of the following:


	Fair Value as of September 30, 2023
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets
Cash equivalents and restricted cash equivalents	$	139,880	$	139,880	$	-	$	-
Marketable securities:
U.S. Treasury and other government-backed securities		329,943		77,781		252,162		-
Financial institution debt securities		318,578		-		318,578		-
Corporate debt securities		115,042		-		115,042		-
Other asset-backed securities		60,950		-		60,950		-
Total marketable securities		824,513		77,781		746,732		-
Total Assets	$	964,393	$	217,661	$	746,732	$	-

	Fair Value as of December 31, 2022
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets
Cash equivalents and restricted cash equivalents	$	534,581	$	534,581	$	-	$	-
Marketable securities:
U.S. Treasury and other government-backed securities		242,686		172,939		69,747		-
Financial institution debt securities		379,861		-		379,861		-
Corporate debt securities		101,550		-		101,550		-
Other asset-backed securities		14,357		-		14,357		-
Total marketable securities		738,454		172,939		565,515		-
Total Assets	$	1,273,035	$	707,520	$	565,515	$	-

Certain of the Company’s financial assets, including cash equivalents, restricted cash equivalents and marketable securities, have been initially valued at the transaction price, and subsequently revalued at the end of each reporting period, utilizing third party pricing services or other observable market data. The pricing services utilize industry standard valuation models and observable market inputs to determine value.

Other financial instruments, including accounts receivable, accounts payable and accrued expense, are carried at cost, which approximates fair value due to the short duration and term to maturity.

As discussed further in Note 9, under the Rewrite Merger Agreement, the Rewrite Holders received a $25.0 million research milestone payment in February of 2023, paid in a combination of $0.9 million in cash and the remainder in the Company’s common stock. The milestone payable in the Company’s common stock resulted in liability classification under ASC 480, Distinguishing Liabilities from Equity (“ASC 480”). This contingent consideration liability was carried at fair value which was estimated by applying a probability-based model, which utilized inputs based on timing of achievement that were unobservable in the market. The contingent consideration liability was classified within Level 3 of the fair value hierarchy until it was settled in February of 2023.

The following table reconciles the change in fair value of the contingent consideration liability based on the level 3 inputs listed below (in thousands):


	For the Nine Months Ended September 30, 2023
Balance at December 31, 2022	$	24,026
Change in fair value		100
Payment of contingent consideration		(24,126	)
Balance at September 30, 2023	$	-


	December 31, 2022
Discount rate	10.1%
Probability of achievement	100%
Projected year of achievement	2023

- 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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