Fair Value Measurements

12 Months Ended

Dec. 31, 2021

The following table sets forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):


	December 31, 2021
	Level 1		Level 2		Level 3		Total
Financial assets:
Money market funds	$	206,245	$	—	$	—	$	206,245
U.S. Treasury securities	—		289,706		—		289,706
U.S. government agency securities	—		93,626		—		93,626
Corporate debt securities	—		285,156		—		285,156
Equity warrant investment	—		—		1,067		1,067
Total financial assets	$	206,245	$	668,488	$	1,067	$	875,800
Financial liabilities:
Success payment liabilities	$	—	$	—	$	9,486	$	9,486
Total financial liabilities	$	—	$	—	$	9,486	$	9,486


	December 31, 2020
	Level 1		Level 2		Level 3		Total
Financial assets:
Money market funds	$	50,513	$	—	$	—	$	50,513
U.S. Treasury securities	—		202,701		—		202,701
U.S. government agency securities	—		205,764		—		205,764
Corporate debt securities	—		211,109		—		211,109
Equity warrant investment	—		—		1,323		1,323
Total financial assets	$	50,513	$	619,574	$	1,323	$	671,410
Financial liabilities:
Success payment liabilities	$	—	$	—	$	5,773	$	5,773
Total financial liabilities	$	—	$	—	$	5,773	$	5,773

The Company measures the fair value of money market funds based on quoted prices in active markets for identical assets or liabilities. The Level 2 marketable securities include U.S. Treasury securities, government agency securities and corporate debt securities. The Company’s Level 2 securities are valued using third-party pricing sources. The pricing services utilize industry standard valuation models. Inputs utilized include market pricing based on real-time trade data for the same or similar securities and other significant inputs derived from or corroborated by observable market data.

The Level 3 financial instruments include an equity warrant investment and the success payment liabilities. The Company’s Level 3 financial instruments are valued using valuation models which include the Black-Scholes model for valuing the equity warrant investment and a Monte Carlo simulation for the success payment liabilities. To determine the estimated fair value of the success payment liabilities, the Company uses a Monte Carlo simulation methodology that models the future movement of stock prices based on several key variables combined with empirical knowledge of the process governing the behavior of the stock price. The following variables were incorporated in the estimated fair value of the success payment liabilities: fair value of the Company’s common stock (Series A convertible preferred stock, prior to IPO), expected volatility, risk-free interest rate and the estimated number and timing of valuation measurement dates on the basis of which payments may be triggered. The computation of expected volatility was estimated based on available information about the historical volatility of stocks of similar publicly traded companies for a period matching the expected term assumption.

The following assumptions were incorporated into the calculation of the estimated fair value of the Fred Hutch success payment liability:


	December 31,
	2021			2020
Fair value of common stock (Series A convertible preferred stock)	$	7.74		$	9.07
Risk-free interest rate	0.19% - 1.88%			0.10% - 1.52%
Expected volatility	75		%	80		%
Expected term (in years)	0.46 - 5.97			1.00 - 6.97

The following assumptions were incorporated into the calculation of the estimated fair value of the Stanford success payment liability:


	December 31,
	2021			2020
Fair value of common stock (Series A convertible preferred stock)	$	7.74		$	9.07
Risk-free interest rate	0.19% - 1.88%			0.10% - 1.53%
Expected volatility	75		%	80		%
Expected term (in years)	0.46 - 7.75			1.00 - 8.75

The Company utilizes estimates and assumptions in determining the estimated success payment liabilities and associated expense. A small change in the valuation of the Company’s common stock may have a relatively large change in the estimated fair value of the success payment liability and associated expense.

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial assets and liabilities (in thousands):


	Equity Warrant Investment		Success Payment Liabilities
Balance at December 31, 2019	$	—	$	436
Additions	1,380		—
Change in fair value (1)	(57)		5,337
Balance at December 31, 2020	1,323		5,773

Change in fair value (1)	(256)		3,713
Balance at December 31, 2021	$	1,067	$	9,486

__________

(1)The change in fair value associated with the equity warrant investment held is recorded in other (expense) income, net and the change in fair value associated with success payments liabilities is recorded in research and development expense.

- 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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