10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on May 11, 2023
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to ______
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 5, 2023, the registrant had
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Form 10-Q”), including its section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. Forward-looking statements in this Form 10-Q may include, but are not limited to, statements about:
In some cases, forward-looking statements can be identified by terminology such as “will,” “may,” “should,” “could,” “expects,” “intends,” “plans,” “aims,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section entitled “Risk Factors” and elsewhere in this Form 10-Q. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those expressed or implied by the forward-looking statements. No forward-looking statement is a promise or a guarantee of future performance.
The forward-looking statements in this Form 10-Q represent our views as of the date of this Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Form 10-Q.
This Form 10-Q may include statistical and other industry and market data that we obtained from industry publications and research, surveys, and studies conducted by third parties. Industry publications and third-party research, surveys, and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We have not independently verified the information contained in such sources.
We use various trademarks and trade names in our business, including without limitation our corporate name and logo. All other trademarks or trade names referred to in this Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks and trade names in this Form 10-Q may be referred to without the ® and symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.
Table of Contents
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PART I. |
FINANCIAL INFORMATION |
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Item 1. |
Financial Statements (Unaudited) |
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1 |
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2 |
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3 |
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5 |
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6 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 |
Item 3. |
29 |
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Item 4. |
29 |
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PART II. |
30 |
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Item 1. |
30 |
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Item 1A. |
30 |
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Item 2. |
31 |
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Item 3. |
31 |
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Item 4. |
31 |
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Item 5. |
31 |
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Item 6. |
32 |
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33 |
i
Graphite Bio, Inc.
Condensed Balance Sheets
(in thousands, except share and per share data)
(unaudited)
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March 31, |
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December 31, |
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2023 |
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2022 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Investments in marketable securities, current |
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Prepaid expenses and other current assets |
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Total current assets |
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Restricted cash |
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Investments in marketable securities, non-current |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders’ equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued compensation |
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Accrued research costs |
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Accrued expenses and other current liabilities |
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Operating lease liabilities, current |
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Total current liabilities |
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Operating lease liabilities, non-current |
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Other long- term liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
1
Graphite Bio, Inc.
Condensed Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data)
(unaudited)
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Three Months Ended |
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2023 |
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2022 |
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Operating expenses: |
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Research and development |
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$ |
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$ |
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General and administrative |
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Restructuring costs |
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Total operating expenses |
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Loss from operations |
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Other income (expense), net: |
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Interest income, net |
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Loss on disposal of assets |
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Total other income, net |
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Net loss |
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$ |
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$ |
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Unrealized gain (loss) on investments in marketable securities |
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Comprehensive loss |
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$ |
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$ |
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Net loss per share attributable to common stockholders—basic and diluted |
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$ |
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$ |
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Weighted-average shares used in computing net loss per share—basic and diluted |
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The accompanying notes are an integral part of these unaudited condensed financial statements
2
Graphite Bio, Inc.
Condensed Statements of Stockholders’ Equity
(in thousands, except share data)
(unaudited)
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Accumulated |
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Common |
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Additional |
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Other |
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Total |
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Stock |
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Paid-In |
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Comprehensive |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Vesting of early exercised shares |
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— |
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— |
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— |
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— |
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Repurchase of unvested early exercised shares |
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( |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Unrealized gain on investments in marketable securities |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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Balance at March 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
3
Graphite Bio, Inc.
Condensed Statements of Stockholders’ Equity
(in thousands, except share data)
(unaudited)
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Accumulated |
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Common |
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Additional |
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Other |
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Total |
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Stock |
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Paid-In |
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Comprehensive |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
— |
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$ |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Vesting of early exercised shares |
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— |
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— |
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— |
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— |
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Unrealized loss on investments in marketable securities |
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— |
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— |
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— |
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( |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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Balance at March 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
4
Graphite Bio, Inc.
Condensed Statements of Cash Flows
(in thousands)
(unaudited)
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Three Months Ended |
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March 31, |
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2023 |
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2022 |
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Cash flows from operating activities: |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Net amortization of premiums and discounts on investments in marketable securities |
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Depreciation and amortization |
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Noncash lease expense |
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Stock-based compensation expense |
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Changes in assets and liabilities: |
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Prepaid expenses and other current assets and other assets |
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Accounts payable |
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Accrued compensation |
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Accrued research costs |
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Accrued expenses and other current liabilities and other liabilities |
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Operating lease liabilities |
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Net cash used in operating activities |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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( |
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Purchases of investments in marketable securities |
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Proceeds from maturities of marketable securities |
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Net cash provided by (used in) investing activities |
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Cash flows from financing activities: |
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Repurchase of unvested early exercised shares |
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Net cash used in financing activities |
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Net increase (decrease) in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash, at beginning of period |
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Cash, cash equivalents and restricted cash, at end of period |
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$ |
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$ |
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Reconciliation of cash, cash equivalents and restricted cash to statement of financial position: |
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Cash and cash equivalents |
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Restricted cash |
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Cash, cash equivalents and restricted cash in statement of financial position |
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$ |
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$ |
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Supplemental disclosures of non-cash investing and financing information: |
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Property and equipment purchases in accounts payable and accrued expenses |
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$ |
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( |
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$ |
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Lessor funded lease incentive additions included in property and equipment |
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$ |
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$ |
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Vesting of early exercised stock options |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
Graphite Bio, Inc.
Notes to Condensed Financial Statements
(unaudited)
Organization and Business
Graphite Bio, Inc. (the “Company”) is a clinical-stage, next-generation gene editing company harnessing high-efficiency targeted gene integration to develop a new class of therapies to potentially cure a wide range of serious and life-threatening diseases. The Company’s precision gene editing approach aims to achieve one of medicine’s most elusive goals: to precisely “find & replace” any gene in the genome. The Company has a next-generation gene editing approach designed to allow the Company to precisely correct mutations, replace entire disease-causing genes with normal genes, or insert new genes into predetermined, safe locations.
In January 2023, the Company announced a voluntary pause of its Phase 1/2 CEDAR study of nulabeglogene autogedtemcel (nula-cel), the Company’s lead product candidate for sickle cell disease (SCD), due to a serious adverse event in the first patient dosed, which the Company concluded is likely related to study treatment. Nula-cel was designed to provide a highly differentiated approach with the potential to directly correct the mutation that causes SCD and restore normal adult hemoglobin (HgbA) expression.
In February 2023, the Company announced its decision to discontinue the development of nula-cel and initiate a process to explore strategic alternatives. As a result of this decision, the Company announced a corporate restructuring that will result in an approximately 50% reduction in workforce. The Company also disclosed its intention to continue research activities associated with its early-stage non-genotoxic conditioning program, with the goal of advancing toward one or more potential development candidates.
From its inception in 2017, the Company’s primary activities have been to perform research and development, undertake preclinical studies and enable manufacturing activities in support of its product development efforts, organize and staff the Company, establish its intellectual property portfolio, and raise capital to support and expand such activities.
The Company was incorporated in Ontario, Canada in June 2017 as Longbow Therapeutics Inc., and was reincorporated in the State of Delaware in October 2019. In February 2020, the Company changed its name to Integral Medicines, Inc., and again in August 2020, changed the name to Graphite Bio, Inc. Research and development of the Company’s initial technology ceased at the end of 2018, and the Company did not have any significant operations or any research and development activities in 2019. In March 2020, the Company identified new gene editing technology which the Company sought to further develop, and the Company licensed the related intellectual property rights from The Board of Trustees of the Leland Stanford Junior University (“Stanford”) in December 2020 (Note 6).
Liquidity Matters
The Company has incurred significant operating losses since inception and has primarily relied on private equity and convertible debt financings to fund its operations. As of March 31, 2023, the Company had an accumulated deficit of $
On July 21, 2022, the Company filed a shelf registration statement on Form S-3 (the “2022 Shelf”) with the SEC in relation to the registration of up to an aggregate offering price of $
2. Summary of Significant Accounting Policies
Basis of Presentation
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
6
Unaudited Interim Condensed Financial Statements
The interim condensed balance sheet as of March 31, 2023 and the condensed statements of operations and comprehensive loss and stockholders’ equity for the three months ended March 31, 2023 and 2022 and the condensed statements of cash flows for the three months ended March 31, 2023 and 2022 are unaudited. The unaudited interim condensed financial statements have been prepared on the same basis as the annual financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair statement of the Company’s financial position as of March 31, 2023 and its results of operations and cash flows for the three months ended March 31, 2023 and 2022. The financial data and the other financial information disclosed in these notes to the financial statements related to the three month periods are also unaudited. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any other future annual or interim period. The condensed balance sheet as of December 31, 2022 included herein was derived from the audited financial statements as of that date. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from these interim financial statements. These condensed financial statements should be read in conjunction with the Company's audited financial statements and the related notes thereto for the year ended December 31, 2022, which are included in the Company’s Annual Report on Form 10-K filed with the SEC.
Significant Accounting Policies
The significant accounting policies used in preparation of these condensed financial statements for the three months ended March 31, 2023 are consistent with those discussed in Note 2 to the condensed financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, except as noted below and within the “Adopted and Recently Issued Accounting Pronouncements” section.
Use of Estimates
The preparation of condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed financial statements, and the reported amounts of expenses during the reporting period. On an ongoing basis, the Company evaluates estimates and assumptions, including but not limited to those related to the fair value of the marketable securities, stock-based compensation expense, accruals for research and development costs, lease assets and liabilities, the valuation of deferred tax assets, and uncertain income tax positions. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of
Restricted Cash
Restricted cash of $
Marketable Securities
The Company’s marketable securities are accounted for as available-for-sale and recorded at fair value with the related unrealized gains and losses included in accumulated other comprehensive gain (loss).
The Company reviews its investment portfolio to identify and evaluate investments that have an indication of possible other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.
Operating Leases
7
Adopted and Recently Issued Accounting Pronouncements
The Company is a smaller reporting company and an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay the adoption of new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Thus, the Company has elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) the Company is no longer an emerging growth company or (ii) the Company affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. However as described below, the Company early adopted certain accounting standards, as the JOBS Act does not preclude an emerging growth company from adopting a new or revised accounting standard earlier than the time that such standard applies to private companies to the extent early adoption is permitted.
3. Fair Value Measurements
Assets and liabilities recorded at fair value on a recurring basis in the condensed balance sheets, as well as assets and liabilities measured at fair value on a non-recurring basis or disclosed at fair value, are categorized based upon the level of judgment associated with inputs used to measure their fair values. The accounting guidance for fair value provides a framework for measuring fair value and requires certain disclosures about how fair value is determined. Fair value is defined as the price that would be received upon the sale of 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 also establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:
Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
Level 2 — Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and
Level 3 — Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.
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. An 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. Changes in the ability to observe valuation inputs may result in a reclassification of levels of certain securities within the fair value hierarchy. The Company recognizes transfers into and out of levels within the fair value hierarchy in the period in which the actual event or change in circumstances that caused the transfer occurs.
As of March 31, 2023 and December 31, 2022, Level 1 securities consist of U.S. Treasury and money market funds, for which the carrying amounts are based on the quoted market prices in active markets.
As of March 31, 2023 and December 31, 2022, Level 2 securities consist of highly rated commercial paper, U.S. agency securities, and asset-backed securities, for which fair value is determined through the use of models or other valuation methodologies. The Company had an immaterial amount of unrealized gains on its Level 2 securities as of March 31, 2023 and December 31, 2022.
During the periods presented, the Company did not have any Level 3 securities.
8
The following tables set forth the financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy as of March 31, 2023 and December 31, 2022 (in thousands):
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March 31, 2023 |
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Total Fair |
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Level 1 |
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Level 2 |
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Level 3 |
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||||
Cash equivalents: |
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|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds (1) |
|
$ |
|
|
$ |
|
|
$ |
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|
$ |
|
||||
Commercial paper (1) |
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|
|
|
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|
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|
||||
Total cash equivalents |
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|
||||
Marketable securities: |
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|
|
|
|
|
|
|
|
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|
||||
U.S. treasuries(2) |
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|
|
|
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|
||||
Commercial paper(2) |
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|
|
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|
||||
U.S. agency securities(2) |
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|
||||
Asset-backed securities(2) |
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|
||||
Total marketable securities |
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|
|
|
|
|
|
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|
||||
Total cash equivalents and marketable securities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
December 31, 2022 |
|
|||||||||||||
|
|
Total Fair |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Commercial paper (1) |
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|
|
|
|
|
|
|
|
|
|
|
||||
Total cash equivalents |
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|
|
|
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|
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|
||||
Marketable securities: |
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|
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|
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||||
U.S. treasuries(2) |
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|