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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
______________________________________
FORM 10-Q
______________________________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-40631
______________________________________
Caribou Biosciences, Inc.
(Exact Name of Registrant as Specified in its Charter)
______________________________________
Delaware45-3728228
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2929 7th Street, Suite 105
Berkeley, California
94710
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (510) 982-6030
______________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001 per shareCRBU
The Nasdaq Global Select Market
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. Yes x No o
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). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.
Large accelerated fileroAccelerated filero
Non-accelerated filerxSmaller reporting companyo
Emerging growth companyx
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 3, 2022, the registrant had 61,001,561 shares of common stock, $0.0001 par value per share, outstanding.


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Page
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Table of Contents
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
CARIBOU BIOSCIENCES, INC. AND ITS SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share amounts)
September 30,
2022
December 31,
2021
ASSETS
CURRENT ASSETS
Cash and cash equivalents$82,085 $240,420 
Marketable securities, short-term211,284 135,412 
Accounts receivable397 1,153 
Contract assets1,899 1,488 
Other receivables2,699 5,483 
Prepaid expenses and other current assets8,558 7,236 
Total current assets306,922 391,192 
NON-CURRENT ASSETS
Investments in equity securities7,759 7,626 
Marketable securities, long-term49,221 37,676 
Property and equipment, net8,959 4,887 
Operating lease, right of use assets24,626  
Other assets1,336 975 
TOTAL ASSETS$398,823 $442,356 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable$1,228 $3,990 
Accrued expenses and other current liabilities14,638 13,136 
Lease liabilities, current912  
Deferred revenue ($150 and $0 from related party, respectively)
12,036 8,703 
Total current liabilities28,814 25,829 
LONG-TERM LIABILITIES
Deferred revenue, net of current portion ($0 and $100 from related party, respectively)
15,423 22,032 
Deferred rent and lease incentive liability 2,097 
MSKCC success payments liability3,039 4,080 
Lease liabilities, non-current26,958  
Other liabilities 17 
Deferred tax liabilities475 476 
Total liabilities74,709 54,531 
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS’ EQUITY
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized at September 30, 2022 and December 31, 2021; no shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
  
Common stock, par value $0.0001 per share, 300,000,000 shares authorized at September 30, 2022 and December 31, 2021, respectively; 60,986,936 and 60,263,158 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
6 6 
Additional paid-in-capital496,369 485,748 
Accumulated other comprehensive loss(2,035)(135)
Accumulated deficit(170,226)(97,794)
Total stockholders’ equity324,114 387,825 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$398,823 $442,356 
The accompanying notes are an integral part of these condensed consolidated financial statements.
1

Table of Contents
CARIBOU BIOSCIENCES, INC. AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands, except share and per share amounts)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Licensing and collaboration revenue$3,303 $3,977 $10,159 $7,039 
Operating expenses:
Research and development19,991 15,833 56,494 37,144 
General and administrative9,849 6,760 29,486 16,469 
Total operating expenses29,840 22,593 85,980 53,613 
Loss from operations(26,537)(18,616)(75,821)(46,574)
Other income (expense):
Change in fair value of equity securities31  (73) 
Change in fair value of the MSKCC success payments liability(1,607)(2,403)1,041 (3,584)
Gain on extinguishment of PPP Loan   1,584 
Other income, net1,466 45 2,421 130 
Total other income (expense)(110)(2,358)3,389 (1,870)
Net loss(26,647)(20,974)(72,432)(48,444)
Other comprehensive loss:
Net unrealized loss on available-for-sale marketable securities, net of tax(454) (1,900) 
Net comprehensive loss$(27,101)$(20,974)$(74,332)$(48,444)
Net loss per share, basic and diluted$(0.44)$(0.46)$(1.19)$(2.20)
Weighted-average common shares outstanding, basic and diluted60,886,921 45,889,646 60,731,520 22,052,944 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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CARIBOU BIOSCIENCES, INC. AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(Unaudited)
(in thousands, except share amounts)
Convertible Preferred StockCommon StockAdditional Paid-In
Capital
Other Comprehensive
Loss
Accumulated
Deficit
Total Stockholders’ Equity
(Deficit)
SharesAmountSharesAmount
BALANCE—December 31, 2021$ 60,263,158$6 $485,748 $(135)$(97,794)$387,825 
Issuance of common stock under employee stock plans— 36,596— 361 — — 361 
Issuance of common stock on exercise of options— 389,855— 629 — — 629 
Stock-based compensation expense— — 3,024 — — 3,024 
Net loss— — — — (19,088)(19,088)
Other comprehensive loss— — — (954)— (954)
BALANCE—March 31, 2022$ 60,689,609$6 $489,762 $(1,089)$(116,882)$371,797 
Issuance of common stock on exercise of options— 148,761— 363 — — 363 
Stock-based compensation expense— — 2,918 — — 2,918 
Net loss— — — — (26,697)(26,697)
Other comprehensive loss— — — (492)— (492)
BALANCE—June 30, 2022$ 60,838,370$6 $493,043 $(1,581)$(143,579)$347,889 
Issuance of common stock on exercise of options— 148,566— 654 — — 654 
Stock-based compensation expense— — 2,672 — — 2,672 
Net loss— — — — (26,647)(26,647)
Other comprehensive loss— — — (454)— (454)
BALANCE—September 30, 2022$ 60,986,936$6 $496,369 $(2,035)$(170,226)$324,114 
BALANCE—December 31, 20207,766,582$41,323 9,710,830$1 $7,433 $ $(30,871)$(23,437)
Issuance of Series C convertible preferred stock, net of issuance costs of $6.2 million
6,663,940108,827 — — — — — 
Issuance of common stock on exercise of options— 584,614— 564 — — 564 
Stock-based compensation expense— — 343 — — 343 
Net loss— — — — (13,159)(13,159)
BALANCE—March 31, 202114,430,522$150,150 10,295,444$1 $8,340 $ $(44,030)$(35,689)
Repayment of promissory note— — 1,150 — — 1,150 
Issuance of common stock on exercise of options— 1,037,979— 566 — — 566 
Stock-based compensation expense— — 593 — — 593 
Net loss— — — — (14,311)(14,311)
BALANCE—June 30, 202114,430,522$150,150 11,333,423$1 $10,649 $ $(58,341)$(47,691)
Conversion of convertible preferred stock into common stock-14,430,522(150,150)26,234,6543 150,147 — — 150,150 
Issuance of common stock upon initial public offering, net of issuance costs of $28.6 million
— 21,850,0002 321,018 — — 321,020 
Issuance of common stock on exercise of options— 603,246— 961 — — 961 
Stock-based compensation expense— — 935 — — 935 
Net loss— — — — (20,974)(20,974)
BALANCE—September 30, 2021$ 60,021,323$6 $483,710 $ $(79,315)$404,401 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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CARIBOU BIOSCIENCES, INC. AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Nine Months Ended September 30,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(72,432)$(48,444)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization1,116 711 
Loss on disposal of fixed assets 3 
Non-cash consideration for licensing and collaboration revenue(205) 
Change in fair value of equity securities73  
Stock-based compensation expense8,615 1,871 
Change in fair value of MSKCC success payments liability(1,041)3,584 
Acquired in-process research and development300 1,000 
Extinguishment of PPP Loan (1,578)
Amortization of investment premiums106  
Non-cash lease expense1,622  
Changes in operating assets and liabilities:
Accounts receivable756 (428)
Contract assets(411)(525)
Other receivables2,783 (1,673)
Prepaid expenses and other current assets(1,613)(2,759)
Other assets(361)(151)
Accounts payable(2,568)848 
Accrued expenses and other current liabilities909 4,855 
Deferred revenue, current and long-term(3,277)30,669 
Deferred rent and lease incentive liability 909 
Operating lease liabilities(279)(22)
Other liabilities(15) 
Net cash used in operating activities(65,922)(11,130)
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of marketable securities163,130  
Purchases of marketable securities(252,552) 
Purchases of property and equipment(4,697)(1,436)
Payments to acquire in-process research and development(300)(1,000)
Net cash used in investing activities(94,419)(2,436)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering of common stock, net of offering costs 321,020 
Proceeds from issuance of Series C convertible preferred stock, net of issuance costs 108,827 
Proceeds from exercise of stock options and purchases of common stock under employee stock purchase plan2,006 2,091 
Repayment of promissory note 1,150 
Payments on capital lease (119)
Net cash provided by financing activities2,006 432,969 
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH(158,335)419,403 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — BEGINNING OF PERIOD240,466 15,953 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — END OF PERIOD$82,131 $435,356 
RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
Cash and cash equivalents$82,085 $435,310 
Restricted cash46 46 
TOTAL CASH, CASH EQUIVALENTS, AND RESTRICTED CASH$82,131 $435,356 
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes$ $11 
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of property and equipment included in accrued expenses and other current liabilities$757 $268 
Acquired in-process research and development accrued$ $ 
Extinguishment of PPP Loan$ $1,578 
Conversion of convertible preferred stock to common stock at closing of initial public offering$ $150,150 
Right-of-use-assets obtained in exchange for new operating lease liabilities$26,249 $ 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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CARIBOU BIOSCIENCES, INC. AND ITS SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Description of the Business, Organization, and Liquidity
Business and Organization
Caribou Biosciences, Inc. (the “Company” or “we”) is a clinical-stage CRISPR genome-editing biopharmaceutical company dedicated to developing innovative, transformative therapies for patients with devastating diseases. CRISPR is an acronym for Clustered Regularly Interspaced Short Palindromic Repeats. Our novel CRISPR platform, CRISPR hybrid RNA-DNA (“chRDNA,” pronounced “chardonnay”), enables high genome-editing precision to develop cell therapies that are specifically engineered to target cancer and are armored for enhanced persistence. We are advancing a pipeline of allogeneic, or off-the-shelf, chimeric antigen receptor (“CAR”)-T (“CAR-T”) and CAR-natural killer (“CAR-NK”) cell therapies for the treatment of patients with hematologic malignancies and solid tumors.
We incorporated in October 2011 as a Delaware corporation and are headquartered in Berkeley, California. We have four wholly owned subsidiaries: Antler Holdco, LLC, incorporated in Delaware in April 2019; Microbe Holdco, LLC, incorporated in Delaware in June 2020; Arboreal Holdco, LLC, incorporated in Delaware in November 2020; and Biloba Holdco, LLC, incorporated in Delaware in April 2021. Our wholly owned subsidiaries hold interests in our equity investments and do not have operating activities.
Liquidity
We have incurred net losses and negative cash flows from operations since our inception and we had an accumulated deficit of $170.2 million as of September 30, 2022. During the nine months ended September 30, 2022, we incurred a net loss of $72.4 million and used $65.9 million of cash in operating activities. We expect to continue to incur substantial losses, and our ability to achieve and sustain profitability will depend on the successful development, approval, and commercialization of our product candidates and on our achievement of sufficient revenue to support our cost structure. We may never achieve profitability and, unless and until we do, we will need to continue to raise additional capital. Our management expects that existing cash, cash equivalents, and marketable securities of $342.6 million as of September 30, 2022, will be sufficient to fund our current operating plan for at least the next 12 months from the date of issuance of our condensed consolidated financial statements.
2. Summary of Significant Accounting Policies
There have been no changes to the significant accounting policies disclosed in Note 2 to the annual consolidated financial statements for the year ended December 31, 2021 included in our Annual Report on Form 10-K, other than changes to our leasing policy described below in connection with the adoption of the guidance under the Accounting Standards Codification (“ASC”) 842, Leases.
Basis of Presentation and Principles of Consolidation
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of Caribou Biosciences, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions are eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires our 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 our condensed consolidated financial statements; and the reported amounts of revenue, income, and expenses during the applicable reporting period. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, common stock valuation, stock-based compensation expense, accrued expenses related to research and development activities, valuation of the Memorial Sloan Kettering Cancer Center (“MSKCC”) success payments liability, and income taxes. Our management bases its estimates on historical experience and on various other assumptions that they believe 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.
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Segments
We operate and manage our business as one reportable operating segment, which is the business of developing a pipeline of allogeneic CAR-T and CAR-NK cell therapies. Our president and chief executive officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for allocating resources and evaluating financial performance. All long-lived assets are maintained in the United States.
Concentrations of Credit Risk and Other Uncertainties
Financial instruments that potentially subject us to concentration of credit risk consist of cash and cash equivalents, accounts receivable, contract assets, other receivables, and investments in marketable securities and equity securities. Substantially all of our cash and cash equivalents are deposited in accounts at two financial institutions, and account balances may at times exceed federally insured limits. We mitigate the risks by investing in high-grade instruments, limiting our exposure to one issuer, and we monitor the ongoing creditworthiness of the financial institutions and issuers. We believe these financial institutions to be of high credit quality.
Licensees that represent 10% or more of our revenue and accounts receivable and contract assets were as follows:
 
Revenue
Revenue
Accounts Receivable and
Contract Assets
 
Three Months Ended
Nine Months Ended
As of
September 30, 2022
As of
December 31, 2021
 September 30, 2022September 30, 2021September 30, 2022September 30, 2021
Licensee A17.2 %14.0 %16.4 %23.2 %24.2 %24.6 %
Licensee B51.7 %57.2 %54.2 %39.5 %33.7 %45.1 %
Licensee C * * * *12.0 % *
Total68.9 %71.2 %70.6 %62.7 %69.9 %69.7 %
*Less than 10%
We monitor economic conditions to identify facts or circumstances that may indicate if any of our accounts receivable are not collectible or if the contract assets should be impaired. No allowance for doubtful accounts or contract asset impairment was recorded as of September 30, 2022 or December 31, 2021.
Property and Equipment, Net
Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets. The useful lives of property and equipment are as follows:
Computers3 years
Furniture and fixtures5 years
Laboratory equipment5 years
Leasehold improvementsShorter of remaining lease term or estimated useful life
Upon retirement or sale of the assets, the cost and related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is recorded in the statements of operations. Repairs and maintenance are expensed as incurred.
Leases
We adopted the guidance under ASC 842 on January 1, 2022 using the modified retrospective approach with a cumulative-effect adjustment as of January 1, 2022 in accordance with the Accounting Standard Update (“ASU”) 2016-02, Leases (Topic 842). We determine whether an arrangement is or contains a lease at the inception of the arrangement and whether such a lease is classified as a finance lease or operating lease at the commencement date of the lease. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities, and long-term lease liabilities. We elected not to recognize the right-of-use assets and lease liabilities for leases with lease terms of 12 months or less (short-term leases). Lease liabilities and their corresponding right-of-use assets are recorded based on the present
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value of lease payments over the expected lease term. As the interest rate implicit in our lease contracts is not readily determinable, we utilize a collateralized incremental borrowing rate based on the information available at the commencement date to determine the present value of lease payments. Certain adjustments to the right-of-use assets may be required for items such as initial direct costs paid or incentives received and impairment charges if we determine the right-of-use assets are impaired. There was no cumulative-effect adjustment recorded to retained earnings on January 1, 2022.
We consider the lease term to be the noncancellable period that we have the right to use the underlying asset, together with any periods where it is reasonably certain we will exercise an option to extend (or not terminate) the lease. Periods covered by an option to extend (or not terminate) the lease in which the exercise of the option is controlled by the lessor are included in the lease term.
Rent expense for operating leases is recognized on a straight-line basis over the lease term and is presented in operating expenses on the statements of operations and comprehensive loss. We have elected to not separate lease and non-lease components for our facilities leases and leases of electroporation devices and, instead, we account for each separate lease component and the non-lease components associated with that lease component as a single lease component. Variable lease payments are recognized as incurred and are presented in operating expenses on the statements of operations and comprehensive loss.
As of September 30, 2022 and December 31, 2021, we had no finance leases. See Note 9 to our condensed consolidated financial statements included elsewhere in this Form 10-Q for additional information about the impact of adoption and disclosures on our leases.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “FASB”) or other standard-setting bodies and are adopted by us as of the specified effective date.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This ASU requires a lessee to recognize in its statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. We adopted the new standard as of January 1, 2022, using the modified retrospective approach. Comparative periods were not adjusted and continue to be presented under the previous accounting guidance. We elected the package of practical expedients permitted under the transition guidance, which allows us to carry forward the historical lease classification of contracts entered into prior to January 1, 2022.
Our adoption of the new standard impacted the condensed consolidated balance sheets as follows (in thousands):
January 1, 2022
Pre-ASC 842 Balance
ASC 842 Adoption Impact
Post-ASC 842 Balance
Operating lease right-of-use assets$— $22,818 $22,818 
Prepaid rent$291 $(291)$— 
Accrued expenses and other current liabilities*$13,136 $683 $13,819 
Long-term operating lease liabilities$— $23,941 $23,941 
Deferred rent and lease incentive liability$2,097 $(2,097)$— 
*Adjustment represents the current portion of operating lease liabilities of $0.8 million and reclassification of the current portion of the lease incentive liability of $0.1 million to reduce the operating lease right-of-use assets.
New Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments–Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326). This ASU provides guidance on the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 replaces the current incurred loss impairment approach with a methodology to reflect expected credit losses and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates. This ASU is to be applied on a modified retrospective approach and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, and interim reporting periods within fiscal years beginning after December 15,
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2023. Early adoption is permitted for all entities for fiscal years beginning after December 15, 2018, and interim periods therein. We are currently evaluating the impact of adoption of ASU 2016-13 on our condensed consolidated financial statements and related disclosures.
3. Fair Value Measurements and Fair Value of Financial Instruments
The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices 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 assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Assets and liabilities measured at fair value are classified in their entireties based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires our management to make judgments and consider factors specific to the asset or liability.
Our financial instruments consist of Level 1, Level 2, and Level 3 financial instruments. We generally classify our marketable securities as Level 2. Instruments are classified as Level 2 when observable market prices for identical securities that are traded in less active markets are used. When observable market prices for identical securities are not available, such instruments are priced using benchmark curves, benchmarking of like securities, sector groupings, matrix pricing, and valuation models. These valuation models are proprietary to the pricing providers or brokers and incorporate a number of inputs, including in approximate order of priority: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. For certain security types, additional inputs may be used, or some of the standard inputs may not be applicable. Evaluators may prioritize inputs differently on any given day for any security based on market conditions, and not all inputs listed are available for use in the evaluation process for each security evaluation on any given day. Changes in the ability to observe valuation inputs may result in a reclassification of levels of certain securities within the fair value hierarchy. We recognize 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. No such transfers occurred during the three and nine months ended September 30, 2022. Level 1 financial instruments are comprised of money market fund investments and U.S. Treasury bills. Level 2 financial instruments are comprised of commercial paper, corporate debt securities, and U.S. government agency bonds. Financial assets and liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies, or similar techniques, and at least one significant model assumption or input is unobservable. Level 3 financial instruments consist of the MSKCC success payments liability.
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The following table sets forth our financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):
Fair Value Measurements as of September 30, 2022
TotalLevel 1Level 2Level 3
Assets:    
Commercial paper ($52,821 included in cash and cash equivalents)
$149,970 $ $149,970 $ 
U.S. Treasury bills87,863 87,863   
Corporate debt securities46,635  46,635  
Money market fund investments (included in cash and cash equivalents)29,264 29,264   
U.S. government agency bonds28,858  28,858  
Total fair value of assets$342,590 $117,127 $225,463 $ 
Liabilities:    
MSKCC success payments liability$3,039 $ $ $3,039 
Total fair value of liabilities$3,039 $ $ $3,039 
 Fair Value Measurements as of December 31, 2021
 TotalLevel 1Level 2Level 3
Assets:    
Money market fund investments (included in cash and cash equivalents)$181,528 $181,528 $ $ 
Commercial paper ($58,892 included in cash and cash equivalents)
141,676  141,676  
Corporate debt securities38,649  38,649  
U.S. Treasury bills26,590 26,590   
U.S. government agency bonds25,065  25,065  
Total fair value of assets$413,508 $208,118 $205,390 $ 
Liabilities:    
MSKCC success payments liability$4,080 $ $ $4,080 
Total fair value of liabilities$4,080 $ $ $4,080 
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The fair value and amortized cost of cash equivalents and available-for-sale marketable securities by major security type as of September 30, 2022 and December 31, 2021 are presented in the following tables (in thousands):
 As of September 30, 2022
 
Amortized
Cost Basis
Unrealized
Gains
Unrealized
Losses
Estimated
Fair Value
Commercial paper ($52,821 included in cash and cash equivalents)
$150,135 $ $(165)$149,970 
U.S. Treasury bills89,027  (1,164)87,863 
Corporate debt securities47,022  (387)46,635 
Money market investments (included in cash equivalents)29,264 — — 29,264 
U.S. government agency bonds29,178 1 (321)28,858 
Total cash equivalents and marketable securities$344,626 $1 $(2,037)$342,590 
Classified as:   
Cash and cash equivalents  $82,085 
Marketable securities, short-term  211,284 
Marketable securities, long-term  49,221 
Total cash equivalents and marketable securities  $342,590 
 As of December 31, 2021
 
Amortized
Cost Basis
Unrealized
Gains
Unrealized
Losses
Estimated
Fair Value
Money market investments (included in cash equivalents)$181,528 $— $— $181,528 
Commercial paper ($58,892 included in cash equivalents)
141,726 1 (51)141,676 
U.S. government agency bonds25,102  (37)25,065 
Corporate debt securities38,661 4 (16)38,649 
U.S. Treasury bills26,626 1 (37)26,590 
Total cash equivalents and marketable securities$413,643 $6 $(141)$413,508 
      
Classified as:
Cash and cash equivalents$240,420 
Marketable securities, short-term135,412 
Marketable securities, long-term37,676 
Total cash equivalents and marketable securities$413,508 
The following table sets forth a summary of the changes in the fair value of our Level 3 financial liability (in thousands):
  MSKCC Success Payments
Liability
Balance at December 31, 2021$4,080 
Change in fair value(1,041)
Balance at September 30, 2022$3,039 
Our liability for the MSKCC success payments is carried at fair value and changes are recognized as expense or income as part of other income (expense) until the success payments liability is paid or expires (Note 4). We recorded a
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$1.6 million and $2.4 million change in fair value of the MSKCC success payments liability as a loss in other income (expense) in our condensed consolidated statements of operations and comprehensive loss for the three months ended September 30, 2022 and 2021, respectively. We recorded a $1.0 million and $3.6 million change in fair value of the MSKCC success payments liability as a gain and a loss, respectively, in other income (expense) and research and development expense in our condensed consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2022 and 2021, respectively.
We utilize a Monte Carlo simulation model that models the future movement of stock prices based on several key variables. This model requires significant estimates and assumptions in determining the estimated fair value of the MSKCC success payments liability at each balance sheet date. The assumptions used to calculate the fair value of the MSKCC success payments are subject to a significant amount of judgment including the expected volatility that was estimated using available information about the historical volatility of stocks of publicly traded companies that are similar to us, the estimated term, and the estimated number and timing of valuation measurement dates. The table below summarizes key assumptions used in the valuation of MSKCC success payments liability:
 As of
September 30,
2022
As of
December 31,
2021
Fair value of common stock$10.55 $15.09 
Risk-free interest rate
 3.83%
 1.52%
Expected volatility