Intellia Therapeutics, Inc. 10-K

Item 5. Market for the Registrant’s Common Equity, Related St ockholder Matters and Issuer Purchases of Equity Securities Our common stock is traded on the Nasdaq Global Market under the symbol “NTLA”. As of February 17, 2023, the number of holders of record of our common stock was 19. The actual number of holders of our common stock is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers or held by other nominees. This holders of record number also does not include stockholders whose shares may be held in trust by other entities. Dividends We have never declared or paid cash dividends on our capital stock. We intend to retain all of our future earnings, if any, to finance the growth and development of our business. We do not intend to pay cash dividends to our stockholders in the foreseeable future. 93 Stock Performance Graph The following graph shows a comparison from May 6, 2016, the first date that shares of our common stock were publicly traded, through December 31, 2022, of the cumulative total return on an assumed investment of $100.00 in cash in our common stock, the Nasdaq Composite Index and the Nasdaq Biotechnology Index for the same period. Such returns are based on historical results and are not intended to suggest future performance. Data for the Nasdaq Composite Index and the Nasdaq Biotechnology Index assume reinvestment of dividends. The performance graph in this Item 5 is not deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section, and shall not be deemed incorporated by reference into any of our filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate it by reference into such a filing. Equity Compensation Plans The information required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report on Form 10-K. Issuer Purchases of Equity Securities We did not purchase any of our registered equity securities during the period covered by this Annual Report. Unregistered Sales of Equity Securities and Use of Proceeds None. Item 6. [R e served]. 94 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Our management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included in this Annual Report on Form 10-K, which have been prepared by us in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and with Regulation S-X, promulgated under the Securities Exchange Act of 1934, as amended. This discussion and analysis should be read in conjunction with these consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in Part I, Item 1A. Risk Factors of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Information pertaining to fiscal year 2020 was included in our Annual Report on Form 10-K for the year ended December 31, 2021 on pages 101 through 109 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Position and Results of Operations,” which was filed with the Securities and Exchange Commission (the “SEC”) on February 24, 2022. Management Overview Intellia Therapeutics, Inc. (“we,” “us,” “our,” “Intellia,” or the “Company”) is a leading clinical-stage genome editing company, focused on developing potentially curative therapeutics using CRISPR/Cas9-based technologies. CRISPR/Cas9, an acronym for C lustered, R egularly I nterspaced S hort P alindromic R epeats (“CRISPR”)/ C RISPR a ssociated 9 (“Cas9”), is a technology for genome editing, the process of altering selected sequences of genomic deoxyribonucleic acid (“DNA”). To fully realize the transformative potential of CRISPR/Cas9-based technologies, we are building a full-spectrum genome editing company, by leveraging our modular platform, to advance in vivo a nd ex vivo therapies for diseases with high unmet need by pursuing two primary approaches. For in vivo applications to address genetic diseases, we deploy CRISPR/Cas9 as the therapy that targets cells within the body. In parallel, we are developing ex vivo applications to address immuno-oncology and autoimmune diseases, where we use CRISPR/Cas9 as the tool to create the engineered cell therapy. Our deep scientific, technical and clinical development experience, along with our robust intellectual property (“IP”) portfolio, have enabled us to unlock broad therapeutic applications of CRISPR/Cas9 and related technologies to create new classes of genetic medicine. For more information regarding our business, mission and pipeline, see above sections in Part I entitled “ Overview ”, “ Strategy ” and “ Our Pipeline ”. Financial Overview Collaboration Revenue Our revenue consists of collaboration revenue, including amounts recognized related to upfront technology access payments for licenses, technology access fees, research materials shipped, research funding and milestone payments earned under our collaboration and license agreements. Research and Development Research and development costs consist of expenses incurred in performing research and development activities, such as compensation and benefits, which includes equity-based compensation, for full-time research and development employees, allocated facility-related expenses, overhead expenses, license and milestone fees, contract research, development and manufacturing services, clinical trial costs and other related costs. 95 General and Administrative General and administrative expenses consist primarily of compensation and benefits, including equity-based compensation, for our executive, finance, legal, human resources, business development and support functions. Also included in general and administrative expenses are allocated facility-related costs not otherwise included in research and development expenses, travel expenses and professional fees for auditing, tax and legal services, including IP-related legal services, and other consulting fees and expenses. Other (Expense) Income, Net Other (expense) income consists of interest income earned on our cash, cash equivalents, restricted cash equivalents and marketable securities, loss from equity method investment and change in fair value of contingent consideration. Results of Operations The following discussion of the financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and the related footnotes thereto. Comparison of Years Ended December 31, 2022 and 2021 The following table summarizes our results of operations for the years ended December 31, 2022 and 2021 (in thousands): Year Ended December 31, Period-to- 2022 2021 Period Change Collaboration revenue $ 52,121 $ 33,053 $ 19,068 Operating expenses: Research and development 419,979 229,807 190,172 General and administrative 90,306 71,096 19,210 Total operating expenses 510,285 300,903 209,382 Operating loss (458,164 ) (267,850 ) (190,314 ) Other (expense) income, net: Interest income 8,542 1,283 7,259 Loss from equity method investment (11,079 ) (1,325 ) (9,754 ) Change in fair value of contingent consideration (13,485 ) - (13,485 ) Total other (expense) income, net (16,022 ) (42 ) (15,980 ) Net loss $ (474,186 ) $ (267,892 ) $ (206,294 ) Collaboration Revenue Collaboration revenue increased by $19.1 million to $52.1 million during the year ended December 31, 2022, as compared to $33.1 million during the year ended December 31, 2021. The increase in collaboration revenue during the year ended December 31, 2022 is primarily due to revenue from our joint venture with AvenCell Therapeutics, Inc. (“AvenCell”) and revenue from our license and collaboration agreement with Kyverna Therapeutics, Inc. (“Kyverna”). Refer to Note 9 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for further details. Research and Development Research and development expenses increased by $190.2 million to $420.0 million during the year ended December 31, 2022, as compared to $229.8 million during the year ended December 31, 2021. 96 The following table summarizes our research and development expenses for the years ended December 31, 2022 and 2021, together with the changes in those items in dollars (in thousands) and the respective percentages of change. Year Ended December 31, Period-to- Percent 2022 2021 Period Change Change External development expenses by program: NTLA-2001 $ 37,849 $ 24,350 $ 13,499 55 % NTLA-2002 11,611 7,375 4,236 57 % NTLA-5001 17,827 22,157 (4,330 ) -20 % Unallocated research and development expenses: Employee-related expenses 112,975 70,798 42,177 60 % Research materials and contracted services 86,296 49,796 36,500 73 % In-process research and development 55,990 - 55,990 - Facility-related expenses 37,618 26,873 10,745 40 % Stock-based compensation 56,279 26,712 29,567 111 % Other 3,534 1,746 1,788 102 % Total research and development expenses $ 419,979 $ 229,807 $ 190,172 83 % The increase in research and development expenses for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily attributable to: • a $13.5 million increase in external costs related to the development of NTLA-2001, our lead product candidate for the treatment of transthyretin (“ATTR”) amyloidosis, primarily due to an increase in spend on contracted services and drug components; • a $4.2 million increase in external costs related to the development of NTLA-2002, our lead product candidate for the treatment of hereditary angioedema (“HAE”), primarily due to an increase in spend on contracted services; • a $4.3 million decrease in external costs related to the development of NTLA-5001, our former product candidate for acute myeloid leukemia (“AML”), primarily due to a decrease in contracted services as we continued to wind down the program during the fourth quarter of 2022; • a $42.2 million increase in employee-related expenses, primarily driven by the increase in personnel growth to support our lead programs; • a $36.5 million increase in research materials and contracted services primarily driven by an increase in drug component expenses and consumables to support our pipelines; • $56.0 million of acquired in-process research and development expense in the first half of 2022 related to the acquisition of Rewrite Therapeutics, Inc. (“Rewrite”); • a $10.7 million increase in facility-related expenses primarily related to rent, depreciation and technology expense allocated to research and development; and • a $29.6 million increase in stock-based compensation driven by our larger workforce. During 2023, we expect research and development expenses to increase as we continue to grow our development team, initiate global pivotal trials for NTLA-2001 and NTLA-2002, progress our NTLA-3001 and NTLA-2003 programs and nominate new development candidates. General and Administrative General and administrative expenses increased by $19.2 million to $90.3 million during the year ended December 31, 2022, compared to $71.1 million during the year ended December 31, 2021. This increase was primarily related to an increase in employee-related expenses, including stock-based compensation of $14.8 million. 97 Other (Expense) Income, Net The increase in other (expense) income of $16.0 million is primarily related to an increase in the fair value of our contingent consideration liability of $13.5 million and an increase in our share of AvenCell's losses of $9.8 million, offset in part by a $7.3 million increase in interest income. Liquidity and Capital Resources Since our inception through December 31, 2022, we have raised an aggregate of $2,395.2 million to fund our operations through our collaboration agreements, our initial public offering and concurrent private placements, follow-on public offerings, at-the-market offerings and the sale of convertible preferred stock. As of December 31, 2022, we had $1,262.0 million in cash, cash equivalents and marketable securities. We are eligible to earn a significant amount of milestone payments and royalties, in each case, on a per-product basis under our collaborations with Novartis Institutes for BioMedical Research, Inc. (“Novartis”), SparingVision SAS (“SparingVision”) and ONK Therapeutics, Ltd. (“ONK”), on a per-target basis under our collaboration with Regeneron Pharmaceuticals, Inc. (“Regeneron”) and upon achievement of certain events under our collaboration with Kyverna. Our ability to earn these milestone payments and the timing of achieving these milestones is dependent upon the outcome of our research and development activities and is uncertain at this time. Our rights to payments under our collaboration agreements are our only committed external source of funds. Follow-on Offering In December 2022, we closed an underwritten public offering of 7,532,751 shares of common stock, including the exercise in full of the underwriters’ option to purchase an additional 982,532 shares of common stock, at the public offering price of $45.80 per share, for aggregate net proceeds of $337.9 million, after deducting the underwriting discount, commissions and approximately $0.3 million related to legal, accounting and other fees in connection with the sales. At-the-Market Offering Programs In August 2019, we entered into an Open Market Sale Agreement (the “2019 Sale Agreement”) with Jefferies LLC (“Jefferies”), under which Jefferies was able to offer and sell, from time to time in “at-the-market” offerings, shares of our common stock having aggregate gross proceeds of up to $150.0 million. We agreed to pay to Jefferies cash commissions of 3.0% of the gross proceeds of sales of common stock under the 2019 Sale Agreement. During the first quarter of 2022, we issued 579,788 shares of our common stock in a series of sales at an average price of $69.43 per share in accordance with the 2019 Sale Agreement, for aggregate net proceeds of $38.9 million after payment of cash commissions to Jefferies and approximately $0.2 million related to legal, accounting and other fees in connection with the sales. The 2019 Sale Agreement expired in the third quarter of 2022. In March 2022, we entered into an Open Market Sale Agreement (the “2022 Sale Agreement”) with Jefferies, under which Jefferies is able to offer and sell, from time to time in “at-the-market” offerings, shares of our common stock having aggregate gross proceeds of up to $400.0 million. We agreed to pay to Jefferies cash commissions of 3.0% of the gross proceeds of sales of common stock under the 2022 Sale Agreement. During the year ended December 31, 2022, we issued 3,395,339 shares of our common stock in a series of sales at an average price of $57.43 per share in accordance with the 2022 Sale Agreement, for aggregate net proceeds of $189.0 million after payment of cash commissions to Jefferies and approximately $0.1 million related to legal, accounting and other fees in connection with the sales. As of December 31, 2022, $205.0 million in shares of common stock remain eligible for sale under the 2022 Sale Agreement. 98 Funding Requirements Our primary uses of capital are, and we expect will continue to be, research and development research materials and contracted services, clinical trial costs, compensation and related expenses, laboratory and office facilities, research supplies, legal and regulatory expenses, patent prosecution filing and maintenance costs for our licensed IP, milestone and royalty payments and general overhead costs. During 2023, we expect our expenses to increase compared to prior periods in connection with our ongoing activities as we continue to grow our research and development team, develop our clinical programs and advance additional programs into clinical development. Because our lead programs are still in the early clinical stage and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of any future product candidates or whether, or when, we may achieve profitability. Until such time as we can generate substantial product revenues, if ever, we expect to finance our ongoing cash needs through equity financings and collaboration arrangements. We receive cost reimbursements from Regeneron for the ATTR and hemophilia programs. Additionally, we are eligible to earn milestone payments and royalties, in each case, on a per-product basis under our collaborations with Novartis, SparingVision and ONK, on a per-target basis under our collaboration with Regeneron, and upon achievement of certain events with Kyverna, subject to the provisions of our agreements with each of them. Except for these sources of funding, we will not have any committed external source of liquidity. To the extent that we raise additional capital through the future sale of equity, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders. If we raise additional funds through collaboration arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Outlook Based on our research and development plans and our expectations related to the progress of our programs, we expect that our cash, cash equivalents and marketable securities as of December 31, 2022, as well as research and cost reimbursement funding from our collaboration agreements will enable us to fund our ongoing operating expenses and capital expenditure requirements beyond the next 24 months, excluding any potential milestone payments or extension fees that could be earned and distributed under our collaboration agreements or any strategic use of capital not currently in the base case planning assumptions. We have based this estimate on current assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. Our ability to generate revenue and achieve profitability depends significantly on our success in many areas, including: developing our delivery technologies and our CRISPR/Cas9 technology platform; selecting appropriate product candidates to develop; completing research and preclinical and clinical development of selected product candidates; obtaining regulatory approvals and marketing authorizations for product candidates for which we complete clinical trials; developing a sustainable and scalable manufacturing process for product candidates; launching and commercializing product candidates for which we obtain regulatory approvals and marketing authorizations, either directly or with a collaborator or distributor; obtaining market acceptance of our product candidates; addressing any competing technological and market developments; negotiating favorable terms in any collaboration, licensing, or other arrangements into which we may enter; maintaining good relationships with our collaborators and licensors; maintaining, protecting, and expanding our portfolio of IP rights, including patents, trade secrets, and know-how; and attracting, hiring, and retaining qualified personnel. Cash Flows The following is a summary of cash flows for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 (In millions) Net cash used in operating activities $ (333.3 ) $ (225.0 ) Net cash provided by (used in) investing activities 160.3 (550.8 ) Net cash provided by financing activities 583.0 736.7 99 Net cash used in operating activities Net cash used in operating activities of $333.3 million during the year ended December 31, 2022 primarily reflects the increased spend in our research and development activities, offset by the receipt of $10.7 million in payments from our collaboration partners during that period. Net cash used in operating activities of $225.0 million during the year ended December 31, 2021 primarily reflects increased spend in our research and development activities offset by the receipt of $6.7 million in payments from our collaboration partners during that period. Net cash provided by (used in) investing activities During the year ended December 31, 2022, our investing activities provided net cash of $160.3 million primarily due to $647.6 million in marketable securities maturing, offset in part by $429.0 million of marketable securities purchased, $44.8 million in net cash for the acquisition of Rewrite, and $13.6 million in cash for the purchase of property and equipment. During the year ended December 31, 2021, our investing activities used net cash of $550.8 million. The increase in the year ended December 31, 2021 is primarily due to marketable securities activity during the period, as $1,020.6 million in marketable securities were purchased and $485.6 million in marketable securities matured, as well as the use of $12.8 million in cash for the purchase of property and equipment and $3.0 million for an investment in Kyverna. Net cash provided by financing activities Net cash provided by financing activities of $583.0 million during the year ended December 31, 2022 is primarily due to the receipt of $337.9 million in net proceeds from a follow-on offering of our common stock, $227.9 million in net proceeds from at-the-market offerings, $14.5 million in cash received from the exercise of stock options and $2.6 million in cash received from the issuance of shares through our employee stock purchase plan. Net cash provided by financing activities of $736.7 million during the year ended December 31, 2021 is primarily due to the receipt of $648.3 million in net proceeds from a follow-on offering of our common stock, $45.3 million in net proceeds from at-the-market offerings, $41.1 million in cash received from the exercise of stock options and $2.0 million in cash received from the issuance of shares through our employee stock purchase plan. Contractual and Other Obligations We have entered into arrangements that contractually obligate us to make payments that will affect our liquidity and cash flows in future periods . Property Leases - Commenced As of December 31, 2022, our contractual commitments for leases were $170.4 million, which will be paid over the term of such leases. For additional information on our leases and timing of future payments refer to Note 12 of the consolidated financial statements included in this Annual Report on Form 10-K. Property Leases – Not Yet Commenced In February 2022, we entered into a lease agreement for office, general laboratory and good manufacturing practice (“GMP”) manufacturing space at 840 Winter Street in Waltham, Massachusetts, which is described in further detail in Note 12 of the consolidated financial statements included in this Annual Report on Form 10-K. In connection therewith, we have committed to making at least $146.0 million in rental payments over a lease term of 144 months estimated to begin in 2024. Other Obligations We enter into contracts in the normal course of business with various third parties for clinical trials, preclinical research studies, supply manufacturing and other services and products for operating purposes. As of December 31, 2022, we have $8.0 million of commitments that are legally enforceable and due within one year. We do not include any potential future pass-through milestone payments or royalty payments we may be required to make under our existing license agreements or the merger agreement related to our acquisition of Rewrite due to the uncertainty of the occurrence of the events requiring payment under those agreements. These payments are not reflected in the disclosures above. In January 2023, a research milestone related to Rewrite was achieved and settled (see Note 11). 100 Critical Accounting Policies and Use of Estimates Our management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the balance sheets and the reported amounts of collaboration revenue and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances at the time such estimates are made. Actual results and outcomes may differ materially from our estimates, judgments and assumptions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in the consolidated financial statements prospectively from the date of the change in estimate. Refer to Note 2 to our consolidated financial statements of this Annual Report on Form 10-K for our significant accounting policies related to our critical accounting estimates. We define our critical accounting policies as those accounting principles generally accepted in the U.S. that require the most significant estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles. We believe the critical accounting policies used in the preparation of our consolidated financial statements which require significant estimates and judgments are as follows: Revenue Recognition We recognize revenue in accordance with Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) and its related amendments (collectively known as Accounting Standard Codification (“ASC”) 606 (“ASC 606”). At inception, we determine whether contracts are within the scope of ASC 606 or other topics. For contracts that are determined to be within the scope of ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods and services. To achieve this core principle, we apply the following five steps: (i) identify the contract with the customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when or as we satisfy a performance obligation. We only apply the five-step model to contracts when we determine that collection of substantially all consideration for goods and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. As of December 31, 2022, our only revenue recognized is related to collaboration agreements with third parties which are either within the scope of ASC 606, under which we license certain rights to our product candidates to third parties, or within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) if it involves a joint operating activity pursuant to which we are an active participant and are exposed to significant risks and rewards with respect to the arrangement. As discussed in further detail in Note 9 to our consolidated financial statements of this Annual Report on Form 10-K, we enter into out-licensing agreements which are within the scope of ASC 606, under which we license certain rights to our product candidates to third parties and may provide services related to the research and development of the product candidates. The terms of these arrangements typically include consideration payable to us of one or more of the following: nonrefundable, upfront fees; development, regulatory, and commercial milestone payments; research and development funding payments; and royalties on the net sales of licensed products. Additionally, the terms of certain arrangements may include an equity interest in the other company. Consideration received from each of these payments results in collaboration revenues, except for revenues from royalties on the net sales of licensed products, which are classified as royalty revenues. For arrangements within the scope of ASC 808, the terms of these arrangements typically include payments received or made under the cost sharing provisions which are recognized as a component of collaboration revenues in the consolidated statements of operations and comprehensive loss. In determining the accounting for each contract, the significant areas of management judgment or estimation include determining the transaction price, identifying the distinct performance obligations within a contract, determining the standalone selling prices for distinct performance obligations when more than one distinct performance obligation is 101 identified within a contract and determining the revenue recognition pattern for each performance obligation that best reflects the timing of when we transfer control of goods and services to the customer. If the consideration received in exchange for entering into a contract is in the form of noncash consideration, we are required to estimate the fair value of the noncash consideration received. If our estimates of the noncash consideration received are not appropriate it could impact the total amount of revenue recognized for the contract. Furthermore, many of our performance obligations, whether distinct or combined, do not have readily available standalone selling prices and therefore we are required to make judgments and estimates regarding the standalone selling prices when relevant. To the extent the estimates are not appropriate in the circumstances, it could impact the timing of our revenue recognition. We evaluate the measure of progress each reporting period and if estimates related to the measure of progress change, related revenue recognition is adjusted accordingly. Accrued Research and Development Expenses As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to vendors in connection with clinical research organizations (“CROs”) in connection with clinical studies, vendors in connection with preclinical development activities and vendors related to development, manufacturing and distribution of clinical trial materials. We base our expenses related to preclinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple CROs that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Contingent Consideration Liability As discussed in Notes 2, 4 and 11 to our consolidated financial statements of this Annual Report on Form 10-K, during the year ended December 31, 2022, we entered into the Rewrite Merger Agreement. Under the Rewrite Merger Agreement, the Rewrite Holders are eligible to receive a $25.0 million research milestone payment, payable in a combination of cash and our common stock. We account for contingent consideration identified in an asset acquisition that is settled in shares of common stock under ASC 480, Distinguishing Liabilities from Equity (“ASC 480”), which results in us applying judgment in estimating the fair value of the liability at the end of each reporting period. We engaged an independent valuation specialist to determine the fair value of the contingent consideration liability (see Note 4 to our consolidated financial statements for specifics related to the valuation model and inputs utilized). The estimated probability of achievement is a highly sensitive input into the model. A 10% decrease in the probability of achievement, keeping all other variables the same, yields a 10% decrease in the earnout liability. Equity-Based Compensation We measure employee equity-based compensation based on the grant date fair value of the equity awards using the Black-Scholes option pricing model. Equity-based compensation expense is recognized on a straight-line basis over the requisite service period of the awards and is adjusted for pre-vesting forfeitures in the period in which the forfeitures occur. For equity awards that have a performance condition, we recognize stock-based compensation expense using the accelerated attribution method, based on our assessment of the probability that the performance condition will be achieved. Our stock price is a key input that will drive the grant date fair value of the equity awards. We classify equity-based compensation expense in our consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s salary and related costs are classified or in which the award recipient’s service payments are classified. 102 Recent Accounting Pronouncements Please read Note 2 to our consolidated financial statements included in Part IV, Item 15, “Notes to Consolidated Financial Statements,” of this Annual Report on Form 10-K for a description of recent accounting pronouncements applicable to our business. Item 7A. Quantitative and Qualitati ve Disclosures about Market Risk The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates. As of December 31, 2022, we had cash equivalents, restricted cash equivalents and marketable securities of $1,273.0 million consisting of interest-bearing money market accounts, reverse repurchase agreements, corporate and financial institution debt securities, U.S. Treasury and other government securities and asset-backed securities. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are primarily in marketable securities. Due to the short-term duration of our investment portfolios and the low risk profile of our investments, we do not believe an immediate change of 100 basis points, or one percentage point, would have a material effect on the fair market value of our investment portfolio. Declines in interest rates, however, would reduce future investment income. We do not have any foreign currency or derivative financial instruments. Inflation generally affects us by increasing our cost of labor, preclinical and clinical trial costs. We do not believe that inflation had a material effect on our results of operations during the year ended December 31, 2022. Item 8. Financial Statement s and Supplementary Data The information required by this item is presented at the end of this report beginning on page F-1. Item 9. Changes in and Disagreements with Accou ntants on Accounting and Financial Disclosure None.