Fair Value Measurements

9 Months Ended

Sep. 30, 2022

Note 3. Fair Value Measurements

Financial assets and liabilities are recorded at fair value. The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market

participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value.

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.

During the periods presented, the Company has not changed the manner in which it values assets and liabilities that are measured at fair value. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy as of September 30, 2022 or December 31, 2021. The following tables set forth the Company’s financial instruments (excluding restricted cash) that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):


	September 30, 2022
	Total		Level 1 (Quoted Prices in Active Markets For Identical Assets)		Level 2 (Significant Other Observable Remaining Inputs)		Level 3 (Significant Other Unobservable Remaining Inputs)
Assets
Money market funds	$	136,260	$	136,260	$	-	$	-
U.S. treasury securities		351,348		-		351,348		-
Corporate securities and commercial paper		680,628		-		680,628		-
Certificates of deposit		4,339		-		4,339		-
U.S. government agency obligations		19,345		-		19,345		-
Total assets measured at fair value	$	1,191,920	$	136,260	$	1,055,660	$	-
Liabilities
Liability for sale of future royalties	$	11,697	$	-	$	-	$	11,697
Total liabilities measured at fair value	$	11,697	$	-	$	-	$	11,697


	December 31, 2021
	Total		Level 1 (Quoted Prices in Active Markets For Identical Assets)		Level 2 (Significant Other Observable Remaining Inputs)		Level 3 (Significant Other Unobservable Remaining Inputs)
Assets
Money market funds	$	147,914	$	147,914	$	-	$	-
U.S. treasury securities		112,170		-		112,170		-
Corporate securities and commercial paper		421,214		-		421,214		-
Total assets measured at fair value	$	681,298	$	147,914	$	533,384	$	-
Liabilities
Liability for sale of future royalties	$	5,260	$	-	$	-	$	5,260
Total liabilities measured at fair value	$	5,260	$	-	$	-	$	5,260

As of September 30, 2022 and December 31, 2021, the fair value of the liability for sale of future royalties recorded on the balance sheet in other long-term liabilities is based on the Company's current estimates of future contingent milestones and royalties expected to be paid to BVF Partners L.P. (BVF) over the term of the parties' funding agreement (the BVF Agreement). These estimates are considered Level 3 fair value inputs. See Note 6 for further discussion of the liability and related estimates.

The Company's investments are classified as follows (with contractual maturities):


	September 30, 2022		December 31, 2021
Cash and cash equivalents	$	217,647	$	147,914
Short-term investments (due within one year)		831,135		351,394
Long-term investments (due between one and three years)		143,138		181,990
Total cash, cash equivalents and investments in marketable securities	$	1,191,920	$	681,298

All the Company's investments in marketable securities are classified as available-for-sale. At September 30, 2022 and December 31, 2021, the balance in the Company’s accumulated other comprehensive income (loss) related to the Company’s available-for-sale marketable securities. There were $0.3 million in net losses recognized on the sale of available-for-sale marketable securities for each of the three and nine months ended September 30, 2022, respectively, and none recognized for the three and nine months ended September 30, 2021, respectively. As a result, the Company reclassified immaterial amounts out of accumulated other comprehensive income for the three and nine months ended September 30, 2022, and no amounts for the three and nine months ended September 30, 2021. The Company has not recognized any allowances for credit losses and no credit-related losses have been recognized for any of the periods presented, given the nature of the Company's receivables and investment portfolio. The Company does not intend to sell its securities with unrealized loss positions and has concluded it will not be required to sell the securities before recovery of the amortized cost for the investment at maturity.

The fair value and amortized cost of investments in marketable securities by major security type as of September 30, 2022 and December 31, 2021 are presented in the tables that follow (in thousands):


	Amortized Cost		Unrealized Gain		Unrealized Loss			Fair Value
As of September 30, 2022:
Money market funds	$	136,260	$	-	$	-		$	136,260
U.S. treasury securities		354,866		9		(3,527	)		351,348
Corporate securities and commercial paper		686,741		15		(6,128	)		680,628
Certificates of deposit		4,337		2		-			4,339
U.S. government agency obligations		19,517		-		(172	)		19,345
Total	$	1,201,721	$	26	$	(9,827	)	$	1,191,920


	Amortized Cost		Unrealized Gain		Unrealized Loss			Fair Value
As of December 31, 2021:
Money market funds	$	147,914	$	-	$	-		$	147,914
U.S. treasury securities		112,473		1		(304	)		112,170
Corporate securities and commercial paper		422,172		3		(961	)		421,214
Total	$	682,559	$	4	$	(1,265	)	$	681,298

- 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