The Company has certain financial assets and liabilities that are recorded at fair value which have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.

During the nine and twelve months ended September 30, 2022 and December 31, 2021, there were no transfers into or out of Level 3. The tables below present information about the Company’s financial assets and liabilities that are measured and carried at fair value and indicate the level within the fair value hierarchy of valuation techniques it utilizes to determine such fair value:


	Fair Value Measurement as of September 30, 2022
	Total		Level 1		Level 2		Level 3
	(in thousands)
Assets
Money market funds	$	508,864	$	508,864	$	—	$	—
Commercial paper		176,782		—		176,782		—
Government and government agency bonds		749,131		—		749,131		—
Corporate bonds		174,313		—		174,313		—
Strategic equity investments		33,244		669		—		32,575
Certificates of deposit		48,811		—		48,811		—
Total assets	$	1,691,145	$	509,533	$	1,149,037	$	32,575

Liabilities
Contingent consideration	$	36,900	$	—	$	—	$	36,900
Total liabilities	$	36,900	$	—	$	—	$	36,900


	Fair Value Measurement as of December 31, 2021
	Total		Level 1		Level 2		Level 3
	(in thousands)
Assets
Money market funds	$	1,562,358	$	1,562,358	$	—	$	—
Strategic equity investments		34,892		2,480		—		32,412
Certificates of deposit		250		250		—		—
Total assets	$	1,597,500	$	1,565,088	$	—	$	32,412

Liabilities
Contingent consideration	$	43,600	$	—	$	—	$	43,600
Total liabilities	$	43,600	$	—	$	—	$	43,600

The Company’s assets with fair value categorized as Level 1 within the fair value hierarchy include money market funds and the Company’s strategic investment in Lysogene.

The Company's assets with fair value categorized as Level 2 within the fair value hierarchy consist of commercial paper, government and government agency bonds, corporate bonds and certificates of deposit. These assets have been initially valued at the transaction price and subsequently valued at the end of each reporting period utilizing third-party pricing services. The pricing services use observable market inputs to determine value, which primarily consist of reportable trades. Certain of the government and government agency bonds with original maturities of less than three months are presented as cash equivalents on the unaudited condensed consolidated balance sheets as of September 30, 2022.

The Company’s assets with fair value categorized as Level 3 within the fair value hierarchy consist of a strategic investment in Series A preferred stock of Lacerta Therapeutics, Inc. (“Lacerta”) and strategic investments in two other private biotechnology companies. For more information related to Lacerta, please read Note 3, License and Collaboration Agreements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The fair value of the Lacerta investment was initially based on a cost approach corroborated by the Black-Scholes-Merton option-pricing model. The most significant assumptions in the option pricing model include historical volatility of similar public companies, estimated term through Lacerta’s potential exit and a risk-free rate based on certain U.S. Treasury rates. The investments in the other two private companies are recorded at fair value at the time of purchase as measured by their respective investment cost. At the end of each reporting period, the fair value of the Company's strategic investments will be adjusted if the issuers are to issue similar or identical equity securities or when there is a triggering event for impairment. During the three and nine months ended September 30, 2021, the Company recorded an impairment loss of $4.5 million related to its investment of one of the private companies. There was no similar activity during the three and nine months ended September 30, 2022, as no impairment indicators were identified nor were similar securities issued.

The Company’s contingent consideration liability is categorized as Level 3 within the fair value hierarchy and relates to the regulatory-related contingent payments to Myonexus Therapeutics, Inc. (“Myonexus”) selling shareholders as well as to two academic institutions under separate license agreements that meet the definition of a derivative. For more information related to Myonexus, please read Note 3, License and Collaboration Agreements of the Company’s Annual Report on Form 10-K for the year ended

December 31, 2021. The contingent consideration liability was estimated using an income approach based on the probability-weighted expected cash flows that incorporated industry-based probability adjusted assumptions relating to the achievement of the milestone and thus the likelihood of making the payments. This fair value measurement was based upon significant inputs not observable in the market and therefore represented a Level 3 measurement. Significant changes which increase or decrease the probabilities of achieving the milestone, or shorten or lengthen the time required to achieve the milestone, would result in a corresponding increase or decrease in the fair value of the liability. At the end of each reporting period, the fair value is adjusted to reflect the most current assumptions through earnings.

A net decrease of $6.7 million was recorded during the three and nine months ended September 30, 2022 to account for the change in fair value of existing contingent consideration liabilities. This change, which is recorded through earnings, was a result of updates made to certain inputs and assumptions impacting the probability-weighted expected cash flows, principally the probability of success of the underlying programs, the approval date of the underlying programs and the estimate of the amount of payments to be ultimately made. As of September 30, 2022, the contingent consideration was recorded as a non-current liability on the Company's unaudited condensed consolidated balance sheets.