Fair value of financial instruments

12 Months Ended

Dec. 31, 2022

Fair Value Disclosures [Abstract]

Disclosure - Fair Value of Financial Instruments

5. fair value of financial instruments

The Company’s financial instruments that are measured at fair value on a recurring basis consist of money market funds, marketable securities, and a derivative liability (success payment liability) pursuant to the Harvard/ Broad License Agreement and the Broad License Agreement. The antidilution right liability was fully settled in the year ended December 31, 2021. The following tables set forth the fair value of the Company’s financial instruments by level within the fair value hierarchy:

	As of December 31, 2022
(in thousands)	Fair value		Level 1		Level 2		Level 3
Assets
Money market funds	$	105,303	$	105,303	$	—	$	—
Marketable securities:
U.S. treasury bills and notes		228,144		—		228,144		—
U.S. agency securities		211,252		—		211,252		—
Total assets	$	544,699	$	105,303	$	439,396	$	—
Liabilities
Success payment liability		2,885		—		—		2,885
Total liabilities	$	2,885	$	—	$	—	$	2,885

	As of December 31, 2021
(in thousands)	Fair value		Level 1		Level 2		Level 3
Assets
Money market funds	$	58,127	$	58,127	$	—	$	—
Marketable securities:
U.S. treasury bills and notes		277,341		—		277,341		—
U.S. agency securities		18,771		—		18,771		—
Total assets	$	354,239	$	58,127	$	296,112	$	—
Liabilities
Success payment liability	$	4,371	$	—	$	—	$	4,371
Total liabilities	$	4,371	$	—	$	—	$	4,371

Cash Equivalents—Cash equivalents of $105.3 million and $58.1 million as of December 31, 2022 and 2021, respectively, consisted of money market funds and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.

Marketable Securities—The Company measures its marketable securities at fair value on a recurring basis and classifies those instruments within Level 2 of the fair value hierarchy. Marketable securities are classified within Level 2 of the fair value hierarchy because pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies.

Antidilution Rights—This obligation was satisfied in full upon the issuance of an aggregate of an additional 878,098 shares of common stock upon the closing of the Company's IPO in June 2021. Refer to Note 5, Fair value of financial instruments, for additional discussion.

Success Payment Liability— The Company is obligated to pay to Harvard and Broad tiered success payments in the event its average market capitalization exceeds specified thresholds for a specified period of time ascending from a high nine-digit dollar amount to $10.0 billion, or sale of the Company for consideration in excess of those thresholds. In the event of a change of control or a sale of the Company, the Company is required to pay success payments in cash within a specified period following such event. Otherwise, the success payments may be settled at the Company’s option in either cash or shares of its common stock, or a combination of cash and shares of its common stock. The maximum aggregate success payments that could be payable by the Company is $31.3 million (after termination of the Broad License Agreement).

The success payments liability is stated at fair value and is considered Level 3 because its fair value measurement is based, in part, on significant inputs not observed in the market. The Company used a Monte Carlo simulation model, which models the value of the liability based on several key variables, including probability of event occurrence, timing of event occurrence, as well as the value of the Company’s common stock.

The Company remeasured the liability at fair value with increases of $1.5 million, $7.8 million and $2.4 million recorded to other expense for the years ended December 31, 2022, 2021 and 2020, respectively.

In September 2021, multiple success payments were triggered and amounts due to Harvard and Broad totaled $6.3 million. These amounts were settled in cash in November 2021. The Company will continue to adjust the remaining success payment liability for changes in fair value until the earlier of the achievement or expiration of the obligation.

The primary inputs used in valuing the success payments liability associated with the Company’s realization of a certain valuation threshold through either a sale of the Company’s preferred stock, an initial public offering, or a company sale at December 31, 2022, 2021 and 2020, were as follows:

	At December 31, 2022			At December 31, 2021			At December 31, 2020
Fair value of common stock (per share)	$	19.35		$	36.87		$	8.24
Equity volatility		84	%		77	%		105	%
Cumulative probability of triggering event	n/a			n/a				70	%
Expected term (in years)	n/a			n/a				0.50

At December 31, 2020 the fair value of the Company's common stock was determined by management with the assistance of an independent third-party valuation specialist using methods consistent with the AICPA Valuation Guide. The computation of equity volatility was estimated using available information about the historical volatility of stocks of similar publicly traded companies for a period matching the expected term assumption. In addition, the Company incorporated the timing and probability of future events in the calculation of liabilities. The Company applied a 90% probability of termination of the Broad License Agreement at December 31, 2020.

In February 2021, the Company provided written notice to Broad of its election to terminate the Broad License Agreement, which termination became effective in June 2021.

The reconciliation of changes in the fair value of financial instruments based on Level 3 inputs were as follows:

(in thousands)	Antidilution rights liability			Success payment liability			Total
Balance at December 31, 2020	$	6,916		$	2,806		$	9,722
Issuance of Series A Preferred		(32,490	)		—			(32,490	)
Issuance of common stock		—			(6,250	)		(6,250	)
Change in fair value		25,574			7,815			33,389
Balance at December 31, 2021	$	—		$	4,371		$	4,371
Change in fair value		—			(1,486	)		(1,486	)
Balance at December 31, 2022	$	—		$	2,885		$	2,885