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Fair Value Measurements
 9 Months Ended
Sep. 30, 2021
Fair Value Disclosures [Abstract]  
Fair Value Measurements

6. Fair Value Measurements

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, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

331,349

 

 

$

-

 

 

$

-

 

 

$

331,349

 

U.S. Treasury securities

 

 

-

 

 

 

249,761

 

 

 

-

 

 

 

249,761

 

U.S. government agency securities

 

 

-

 

 

 

103,961

 

 

 

-

 

 

 

103,961

 

Corporate debt securities

 

 

-

 

 

 

230,704

 

 

 

-

 

 

 

230,704

 

Equity warrant investment

 

 

-

 

 

 

-

 

 

 

1,124

 

 

 

1,124

 

Total financial assets

 

$

331,349

 

 

$

584,426

 

 

$

1,124

 

 

$

916,899

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Success payment liabilities

 

$

-

 

 

$

-

 

 

$

25,116

 

 

$

25,116

 

Total financial liabilities

 

$

-

 

 

$

-

 

 

$

25,116

 

 

$

25,116

 

 

 

 

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 and 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 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 payments, the Company uses a Monte Carlo simulation methodology which 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:

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Fair value of common stock (Series A convertible preferred stock)

 

$

14.80

 

 

$

9.07

 

Risk-free interest rate

 

0.07% - 2.24%

 

 

0.10% - 1.52%

 

Expected volatility

 

 

75

%

 

 

80

%

Expected term (in years)

 

0.71 - 6.22

 

 

1.00 - 6.97

 

 

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

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Fair value of common stock (Series A convertible preferred stock)

 

$

14.80

 

 

$

9.07

 

Risk-free interest rate

 

0.07% - 2.24%

 

 

0.10% - 1.53%

 

Expected volatility

 

 

75

%

 

 

80

%

Expected term (in years)

 

0.71 - 8.00

 

 

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, 2020

 

$

1,323

 

 

$

5,773

 

Change in fair value (1)

 

 

(199

)

 

 

19,343

 

Balance at September 30, 2021

 

$

1,124

 

 

$

25,116

 

 

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