Fair Value Measurements

9 Months Ended

Sep. 30, 2023

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):


	September 30, 2023
	Level 1		Level 2		Level 3		Total
Financial assets:
Money market funds	$	168,800	$	—	$	—	$	168,800
U.S. Treasury securities	—		249,157		—		249,157
U.S. government agency securities	—		68,953		—		68,953
Corporate debt securities	—		89,563		—		89,563

Total financial assets	$	168,800	$	407,673	$	—	$	576,473
Financial liabilities:
Success payment liabilities	$	—	$	—	$	1,047	$	1,047
Total financial liabilities	$	—	$	—	$	1,047	$	1,047


	December 31, 2022
	Level 1		Level 2		Level 3		Total
Financial assets:
Money market funds	$	67,970	$	—	$	—	$	67,970
U.S. Treasury securities	—		271,799		—		271,799
U.S. government agency securities	—		134,045		—		134,045
Corporate debt securities	—		220,681		—		220,681
Total financial assets	$	67,970	$	626,525	$	—	$	694,495
Financial liabilities:
Success payment liabilities	$	—	$	—	$	4,356	$	4,356
Total financial liabilities	$	—	$	—	$	4,356	$	4,356

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, U.S. government agency securities and corporate debt securities, which are valued using third-party pricing sources. The pricing services applied 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 Company’s Level 3 financial instruments fair values are estimated using valuation models, including Monte Carlo simulations for the Company’s success payment liabilities. Monte Carlo simulations model 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, expected volatility, the 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:


	September 30, 2023			December 31, 2022
Fair value of common stock	$	1.47		$	3.47
Risk-free interest rate	4.26% - 5.42%			3.58% - 4.65%
Expected volatility	80.0		%	80.0		%
Expected term (in years)	0.71 - 4.22			0.46 - 4.97

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


	September 30, 2023			December 31, 2022
Fair value of common stock	$	1.47		$	3.47
Risk-free interest rate	4.21% - 5.42%			3.58% - 4.65%
Expected volatility	80.0		%	80.0		%
Expected term (in years)	0.71 - 6.00			0.46 - 6.75

The Company utilizes estimates and assumptions in determining the estimated success payment liabilities and associated changes in fair value. 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 changes in fair value.

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


	Success Payment Liabilities
Balance at December 31, 2022	$	4,356
Change in fair value (1)	(3,309)
Balance at September 30, 2023	$	1,047

(1)The change in the fair value associated with the Fred Hutch success payment liabilities of approximately $(2.1) million is recorded in other income (expense), net. The change in the fair value of approximately $(1.2) million associated with the Stanford success payment liabilities is recorded as research and development expenses. (See Note 3, License, Collaboration and Success Payment Agreements).

In October 2022, the Company received non-voting PACT Series D convertible preferred stock with a fair value of $2.9 million (See Note 3, License, Collaboration and Success Payment Agreements). In connection with the preparation of the financial statements for the nine months ended September 30, 2023, the Company performed a qualitative assessment of potential indicators of impairment of the PACT Series D convertible preferred stock investment, resulting in $2.9 million impairment expense for the nine months ended September 30, 2023. See Note 5, Other Investments, for additional details regarding the PACT investment impairment.

- 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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