| Organization and Summary of Significant Accounting Policies | Organization and Summary of Significant Accounting Policies Organization We are a biotechnology company that develops and commercializes targeted therapies to treat cancer. We are commercializing ADCETRIS®, or brentuximab vedotin, for the treatment of certain CD30-expressing lymphomas, PADCEV®, or enfortumab vedotin-ejfv, for the treatment of certain metastatic urothelial cancers, TIVDAK™, or tisotumab vedotin-tftv, for the treatment of certain metastatic cervical cancers, and TUKYSA®, or tucatinib, for treatment of certain metastatic HER2-positive breast cancers. We are also advancing a pipeline of novel therapies for solid tumors and blood-related cancers designed to address unmet medical needs and improve treatment outcomes for patients. Many of our programs, including ADCETRIS, PADCEV and TIVDAK, are based on our antibody-drug conjugate, or ADC, technology that utilizes the targeting ability of monoclonal antibodies to deliver cell-killing agents directly to cancer cells. Basis of presentation The accompanying consolidated financial statements reflect the accounts of Seagen Inc. and its wholly-owned subsidiaries (collectively "Seagen," "we," "our," or "us"). The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. All intercompany transactions and balances have been eliminated. Management has determined that we operate in one segment: the development and sale of pharmaceutical products on our own behalf or in collaboration with others. Use of estimates The preparation of financial statements in accordance with GAAP requires us to make estimates, assumptions, and judgments that affect the amounts report ed in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Estimates include those used for revenue recognition, valuation of investments, inventory valuation, accrued liabilities, including those related to the long-term incentive plans and performance-based equity, clinical trials and contingencies, and stock option valuation. Cash and cash equivalents We consider all highly liquid investments with maturities of three months or less at the date of acquisition to be cash equivalents. Non-cash activities We had $20.1 million and $9.9 million of accrued capital expenditures as of December 31, 2022 and 2021, respectively. Accrued capital expenditures have been treated as a non-cash investing activity and, accordingly, have not been included in the consolidated statement of cash flows until such amounts have been paid in cash. During the years ended December 31, 2022, 2021 and 2020, we recorded $1.2 million, $9.1 million, and $7.2 million, respectively, of right-of-use assets in exchange for lease liabilities, which has been treated as a non-cash operating activity. See Note 3 for additional information. Investments We hold certain equity securities which are reported at estimated fair value based on quoted market prices. Chang es in the fair value of equity securities are recorded in income or loss. The cost of equity securities for purposes of computing gains and losses is based on the specific identification method. We invest our available cash primarily in debt securities. These debt securities are classified as available-for-sale, which are reported at estimated fair value with unrealized gains and losses included in accumulated other comprehensive income (loss) in stockholders' equity. Realized gains, realized losses and declines in the value of debt securities judged to be other-than-temporary are included in investment and other income, net. The cost of debt securities for purposes of computing realized and unrealized gains and losses is based on the specific identification method. Amortization of premiums and accretion of discounts on debt securities are included in investment and other income, net. Interest and dividends earned are included in investment and other income, net. Accrued interest receivable as of December 31, 2022 and 2021, were $5.2 million and $0.4 million, respectively, and were included in prepaid expenses and other current assets. We classify investments in debt securities maturing within one year of the reporting date, or where management's intent is to use the investments to fund current operations or to make them available for current operations, as short-term investments. If the estimated fair value of a debt security is below its carrying value, we evaluate whether it is more likely than not that we will sell the security before its anticipated recovery in market value and whether evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. We also evaluate whether or not we intend to sell the investment. If the impairment is considered to be other-than-temporary, the security is written down to its estimated fair value. In addition, we consider whether credit losses exist for any securities. A credit loss exists if the present value of cash flows expected to be collected is less than the amortized cost basis of the security. Other-than-temporary declines in estimated fair value and credit losses are included in investment and other income, net. Fair value of financial instruments The recorded amounts of certain financial instruments, including cash and cash equivalents, interest receivable, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their relatively short maturities. Investments that are classified as available-for-sale are recorded at estimated fair value. The estimated fair value for securities held is determined using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Restricted Cash As of December 31, 2022, we had $3.5 million cash held in escrow restricted by a contractual agreement related to our Everett, Washington building construction project. The restricted cash was recorded in prepaid expenses and other current assets in the consolidated balance sheet. We determine classification based on the expected duration of the restriction. Our total cash, cash equivalents, and restricted cash, as presented in the consolidated statements of cash flows, was as follows: December 31, (dollars in thousands) 2022 2021 Cash and cash equivalents $ 319,940 $ 424,834 Restricted cash included in prepaid expenses and other current assets 3,546 — Total cash, cash equivalents, and restricted cash as presented in the consolidated statements of cash flows $ 323,486 $ 424,834 Leases We determine if an arrangement is a lease at inception d ate. All of our currently effective leases are classified as operating leases. Operating lease liabilities and the corresponding right-of-use assets are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The operating lease right-of-use asset also excludes lease incentives and initial direct costs incurred. As our existing leases do not contain an implicit interest rate, we estimate our incremental borrowing rate based on information available a t commencement date in determining the present value of future payments. We include options to extend the lease in our lease liability and right-of-use asset when it is reasonably certain that we will exercise that option. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Variable lease cost primarily includes building operating expenses as charged to us by our landlords. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. For our short-term leases, we recognize lease payments as an expense on a straight-line base over the lease term. Inventories We consider regulatory approval of product candidates to be uncertain. Accordingly, we charge manufacturing costs to research and development expense until such time as a product has received regulatory approval for commercial sale. Production costs for our marketed products are capitalized into inventory. Inventory that is deployed for clinical, research or development use is charged to research and development expense when it is no longer available for commercial sales. Production costs for our other product candidates are charged to research and development expense. We value our inventories at the lower of cost or market value. Cost is determined on a specific identification basis. Inventory includes the cost of materials, third-party contract manufacturing and overhead associated with the production of our commercialized products. In the event that we identify excess, obsolete or unsalable inventory, its value is written down to net realizable value. Property and equipment Property and equipment are stated at cost. Land is not depreciated, while all other property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets, which are generally as follows: Years Building and improvements 20-30 Laboratory and manufacturing equipment 5-15 Furniture and fixtures 5 Computers, software and office equipment 3 Leasehold improvements are amortized over the shorter of the remaining term of the applicable lease or the useful life of the asset. Gains and losses from the disposal of property and equipment are reflected in income or loss at the time of disposition and have not been significant. Expenditures for additions and improvements to our facilities are capitalized and expenditures for maintenance and repairs are charged to expense as incurred. Intangible assets, net Our intangible assets are primarily comprised of acquired TUKYSA technology. Upon FDA approval and commercial launch of TUKYSA in April 2020, we classified in-process research and development costs related to the acquired TUKYSA technology as finite-lived intangible assets. The following table presents the balances of our finite-lived intangible assets for the periods presented: December 31, (dollars in thousands) 2022 2021 Gross carrying value $ 305,650 $ 305,650 Less: accumulated amortization (68,134) (45,057) Total $ 237,516 $ 260,593 The following table presents our amortization expense related to acquired TUKYSA technology costs, included in cost of sales in our consolidated statements of comprehensive income (loss), for the periods presented: Years ended December 31, (dollars in thousands ) 2022 2021 2020 Amortization expense $ 23,077 $ 23,087 $ 16,345 The weighted average useful life of our finite-lived intangible assets was 10 years as of December 31, 2022, and estimated future amortization expense related to acquired TUKYSA technology costs is $23.1 million for each of the years ending December 31, 2023 through December 31, 2027. Goodwill We evaluate goodwill for impairment annually, as of October 1, or more frequently when events or circumstances indicate that impairment may have occurred. As part of the impairment evaluation, we may elect to perform an assessment of qualitative factors. If this qualitative assessment indicates that it is more likely than not that the fair value of the reporting unit (for goodwill) is less than its carrying value, we then would proceed with the quantitative impairment test to compare the fair value to the carrying value and record an impairment charge if the carrying value exceeds the fair value. We have not recognized any impairment losses through December 31, 2022 as there have been no events warranting an impairment analysis. Impairment of long-lived assets We assess the impairment of long-lived assets, including intangible assets and property and equipment, whenever events or changes in business circumstances indicate that the carrying amounts of the assets may not be fully recoverable. When such events occur, we determine whether there has been an impairment in value by comparing the asset's carrying value with its fair value, as measured by the anticipated undiscounted net cash flows of the asset. If an impairment in value exists, the asset is written down to its estimated fair value. We have not recognized any impairment losses through December 31, 2022 as there have been no events warranting an impairment analysis. Our long-lived assets are primarily located in the U.S.; however, we have multiple subsidiaries in foreign jurisdictions, including several subsidiaries in Europe. Revenue recognition - Net product sales We sell our products primarily thr ough a limited number of specialty distributors and specialty pharmacies in the U.S, and to a lesser extent, internationally. The delivery of our products represents a single performance obligation for these transactions and we record net product sales at the point in time when control is transferred to the customer, which generally occurs upon receipt by the customer. The transaction price for net product sales represents the amount we expect to receive, which is net of estimated government-mandated rebates and chargebacks, distribution fees, estimated product returns, and other deductions. Accruals are established for these deductions, and actual amounts incurred are offset against applicable accruals. We reflect these accruals as either a reduction in the related account receivable from the distributor or as an accrued liability, depending on the nature of the sales deduction. Sales deductions are based on management's estimates that consider payor mix in target markets and experience to-date. These estimates involve a substantial degree of judgment. Outside of the U.S., the transaction price for net product sales represents the amount we expect to receive, which is net of estimated discounts, estimated government mandated rebates, distribution fees, estimated product returns, and other deductions. Accruals are established for these deductions, and actual amounts incurred are offset against applicable accruals. These estimates involve judgment in estimating net product sales. U.S. government-mandated rebates and chargebacks : We have entered into a Medicaid Drug Rebate Agreement, or MDRA, with the Centers for Medicare & Medicaid Services. This agreement provides for a rebate based on covered purchases of our products. Medicaid rebates are invoiced to us by the various state Medicaid programs. We estimate Medicaid rebates using the expected value approach, based on a variety of factors, including payor mix and our experience to-date. We have a Federal Supply Schedule, or FSS, agreement under which certain U.S. government purchasers receive a discount on eligible purchases of our products. In addition, we have entered into a Pharmaceutical Pricing Agreement with the Secretary of Health and Human Services, which enables certain entities that qualify for government pricing under the Public Health Services Act, or PHS, to receive discounts on their qualified purchases of our products. Under these agreements, eligible customers receive an applicable discount which is processed through the distributor as a chargeback to us for the difference between wholesale acquisition cost and the applicable discounted price. We estimate expected chargebacks for FSS and PHS purchases based on the expected value of each entity’s eligibility for the FSS and PHS programs. We also review historical rebate and chargeback information to further refine these estimates. Distribution fees, product returns and other deductions : Our distributors charge a volume-based fee for distribution services that they perform for us. We allow for the return of product that is within a specified number of days of its expiration date or that is damaged. We estimate product returns based on our experience to-date using the expected value approach. We provide financial assistance to qualifying patients that are underinsured or cannot cover the cost of commercial coinsurance amounts through our patient support programs. Estimated contributions for commercial coinsurance under our patient assistance program, Seagen Secure, are deducted from gross sales and are based on an analysis of expected plan utilization. These estimates are adjusted as necessary to reflect our actual experience. Revenue recognition - Royalty revenues Royalty revenues primarily reflect amounts earned under the ADCETRIS collaboration with Takeda Pharmaceutical Company Limited, or Takeda. These royalties include commercial sales-based milestones and sales royalties that relate predominantly to the license of intellectual property. Sales royalties are based on a percentage of Takeda's net sales of ADCETRIS, with rates that range from the mid-teens to the mid-twenties based on annual net sales tiers. Takeda bears a portion of low single digit third-party royalty costs owed on its sales of ADCETRIS. This amount is included in royalty revenues. Amounts owed to our third-party licensors related to Takeda's sales of ADCETRIS are recorded in cost of sales. These amounts are recognized in the period in which the related sales by Takeda occur. Royalty revenues also reflect amounts from Genentech, Inc., a member of the Roche Group, or Genentech, earned on net sales of Polivy, and amounts from GlaxoSmithKline earned on net sales of Blenrep. Revenue recognition - Collaboration and license agreement revenues We have collaboration and license agreements for our technology with a number of biotechnology and pharmaceutical companies. Under these agreements, we typically receive or are entitled to receive upfront cash payments and progress- and sales-dependent milestones for the achievement by our licensees of certain events, and annual maintenance fees and support fees for research and development services and materials provided under the agreements. We also are entitled to receive royalties on net sales of any resulting products incorporating our technology. Generally, our licensees are solely responsible for research, product development, manufacturing and commercialization of any product candidates under these collaborations, which includes the achievement of the potential milestones. Since we may not take a substantive role or control the research, development or commercialization of any products generated by some of our licensees, we may not be able to reasonably estimate when, if at all, any potential future milestone payments or royalties may be payable to us by our licensees. As such, the potential future milestone payments associated with certain of our collaboration and license agreements involve a substantial degree of uncertainty and risk that they may never be received. Collaboration and license agreements are initially evaluated as to whether the intellectual property licenses granted by us represent distinct performance obligations. If they are determined to be distinct, the value of the intellectual property licenses would be recognized up-front while the research and development service fees would be recognized as the performance obligations are satisfied. Variable consideration is assessed at each reporting period as to whether it is not subject to future reversal of cumulative revenue and, therefore, should be included in the transaction price. Assessing the recognition of variable consideration requires judgment. If a contract includes a fixed or minimum amount of research and development support, this also would be included in the transaction price. Changes to collaboration and license agreements, such as the extensions of the research term or increasing the number of targets or technology covered under an existing agreement, are assessed for whether they represent a modification or should be accounted for as a new contract. We have concluded that the license of intellectual property in certain collaboration and license agreements is not distinct from the perspective of our customers at the time of initial transfer, since we often do not license intellectual property without related technology transfer and research and development support services. Such evaluation requires significant judgment since it is made from the customer's perspective. Our performance obligations under our collaborations may include such things as providing intellectual property licenses, performing technology transfer, performing research and development consulting services, providing reagents, ADCs, and other materials, and notifying the customer of any enhancements to licensed technology or new technology that we discover, among others. We determined our performance obligations under certain collaboration and license agreements as evaluated at contract inception were not distinct and represented a single performance obligation. Upfront payments are amortized to revenue over the performance period. Upfront payment contract liabilities resulting from our collaborations do not represent a financing component as the payment is not financing the transfer of goods or services, and the technology underlying the licenses granted reflects research and development expenses already incurred by us. For agreements beyond the initial performance period, we have no remaining performance obligations. We may receive license maintenance fees and potential milestones and royalties based on collaborator development and regulatory progress, which are recorded in the period achieved in the case of milestones, and during the period of the related sales for royalties. When no performance obligations are required of us, or following the completion of the performance obligation period, such amounts are recognized upon transfer of control of the goods or services to the customer. Generally, all amounts received or due other than sales-based milestones and royalties are classified as collaboration and license agreement revenues. Sales-based milestones and royalties are recognized as royalty revenue in the period the related sale occurred. We generally invoice our collaborators and licensees on a monthly or quarterly basis, or upon the completion of the effort or achievement of a milestone, based on the terms of each agreement. Deferred revenue arises from amounts received in advance of the culmination of the earnings process and is recognized as revenue in future periods as performance obligations are satisfied. Deferred revenue expected to be recognized within the next twelve months is classified as a current liability. Research and development expenses Research and development, or R&D, expenses consist of salaries, benefits and other headcount-related costs of our R&D staff, preclinical activities, clinical trials and related manufacturing costs, lab supplies, contract and outside service fees and facilities and overhead expenses for research, development and preclinical studies focused on drug discovery, development and testing. R&D activities are expensed as incurred. Clinical trial expenses are a significant component of research and development expenses, and we outsource a significant portion of these costs to third parties. Third-party clinical trial expenses include investigator fees, site costs, clinical research organization costs, and costs for central laboratory testing and data management. Costs associated with activities performed under co-development collaborations are reflected in R&D expense. In-licensing fees, milestones, maintenance fees and other costs to acquire technologies utilized in R&D for product candidates that have not yet received regulatory approval and that are not expected to have alternative future use are expensed when incurred. Non-refundable advance payments for goods or services that will be used or rendered for future R&D activities are capitalized and recognized as expense as the related goods are delivered or the related services are performed. This results in the temporary deferral of recording expense for amounts incurred for research and development activities from the time payments are made until the time goods or services are provided. Advertising Advertising costs are expensed as incurred. We incurred $114.1 million, $88.8 million, and $59.3 million in advertising expenses during 2022, 2021, and 2020, respectively. Concentration of credit risk Cash, cash equivalents and investments are invested in accordance with our investment policy. The policy includes guidelines for the investment of cash reserves and is reviewed periodically to minimize credit risk. Most of our investments are in U.S. Treasury securities and are not federally insured. We have accounts receivable from the sale of our products from a small number of distributors, and from our collaborators. We do not require collateral on amounts due from our distributors or our collaborators and are therefore subject to credit risk. We maintain our cash, cash equivalents, and investments at accredited financial institutions that we believe are creditworthy. From time to time, these deposits may exceed federally insured limits. Allowance for doubtful accounts We estimate an allowance for doubtful accounts based on our assessment of the collectability of customer accounts. We regularly review the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer's ability t o pay. As of December 31, 2022 and 2021, there was no allowance for doubtful accounts, and we recognized no credit losses during the years ended December 31, 2022, 2021, and 2020. Geographic and customer information Net product revenues are attributed to countries based on the location of the customer. Royalty revenues and collaboration and licenses agreements revenues are attributed to countries based on the location of the Company's subsidiary associated with the royalty or collaborative arrangement related to such revenues. Over 90% of our revenues and assets are related to operations in the U.S. for all periods presented; however, we have multiple subsidiaries in foreign jurisdictions, including several subsidiaries in Europe. We sell our products throug h a limited nu mber of d istributors and specialty pharmacies. The following table presents each major distributor or collaborator that comprised more than 10% of total revenue: Years ended December 31, 2022 2021 2020 Distributor A 34 % 36 % 18 % Distributor B 27 % 27 % 15 % Distributor C 16 % 17 % 10 % Collaborator B — % — % 45 % The following table presents each major distributor or collaborator that accounted for more than 10% of accounts receivable: December 31, 2022 2021 Distributor A 30 % 29 % Distributor B 28 % 22 % Distributor C 17 % 16 % Collaborator A 9 % 11 % Major suppliers The use of a relatively small number of contract manufacturers to supply drugs necessary for our commercial and clinical operations create a concentration of risk for us. For certain components of our approved products and our clinical product candidates we primarily use one source of supply, though other sources are available should we need to change suppliers. For PADCEV, in particular, we rely on Astellas for both commercial and clinical supply as Astellas oversees the manufacturing supply chain. As a form of reducing near-term risk, we endeavor to maintain reasonable levels of drug supply inventory across the supply chain. A change in suppliers or disruption at one of our suppliers, however, could cause a delay or interruption in delivery of drug or clinical trials. Such an event would adversely affect our business. Income taxes We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using tax rates in effect for the year in which the differences are expected to reverse. We have provided a valuation allowance against substantially all our deferred tax assets for all periods presented. A valuation allowance is recorded when it is more likely than not that some portion or all of the net deferred tax asset will not be realized. Future realization of deferred tax assets is dependent upon a number of factors, including the existence of sufficient taxable income based on future earnings, the timing and amount of which is uncertain. The assessment regarding whether a valuation allowance is required considers the evaluation of both positive and negative evidence when concluding whether it is more likely than not that deferred tax assets are realizable. Based upon a review of all available evidence, we determined that it is not more likely than not that the U.S. deferred tax assets will be realized, and therefore the deferred tax assets have been fully offset by a valuation allowance. We follow the guidance related to accounting for uncertainty in income taxes, which requires the recognition of an uncertain tax position when it is more likely than not to be sustainable upon audit by the applicable taxing authority. If this threshold is met, the tax benefit is then measured and recognized at the largest amount that is greater than 50% likely of being realized upon ultimate settlement. Share-based compensation The Company recognizes compensation expense based upon the grant date fair value for our equity awards. The fair value of certain stock options is estimated using the Black-Scholes option pricing model and restricted stock units, or RSUs, is estimated based upon the fair value of our common stock. The fair value of stock options or RSUs, subject to market-based performance metrics, is estimated using a Monte Carlo simulation model. We use the graded-vesting attribution method for recognizing compensation expense for certain stock options and RSUs. Compensation expense is recognized over the requisite service periods on awards ultimately expected to vest and reduced for forfeitures that are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For performance-based stock options and RSUs, subject to the achievement of pre-determined performance milestones, which may include regulatory milestones or revenue-based milestones, we record compensation expense over the requisite service period once the achievement of the performance-based milestone is considered probable. The vesting of performance-based awards generally includes vesting upon achievement of pre-determined regulatory milestones, revenue-based milestones, or market-based performance metrics, in addition to the passage of time. At each reporting date, we assess whether achievement of a milestone is considered probable, and if so, record compensation expense based on the portion of the service period elapsed to date with respect to that milestone, with a cumulative catch-up, net of estimated forfeitures. We recognize any remaining compensation expense with respect to a milestone, over the estimated remaining requisite service period. For performance-based stock options and RSUs, subject to market-based performance metrics, which may include total shareholder return compared to our industry peer group or stock price targets, we record compensation expense over the requisite service periods irrespective of the probability of achieving the market-based condition and compensation expense is not reversed if the market condition is not satisfied. Comprehensive (loss) income Comprehensive (loss) income is the change in stockholders' equity from transactions and other events and circumstances other than those resulting from investments by stockholders and distributions to stockholders. Our comprehensive (loss) income is comprised of net (loss) income, unrealized gains and losses on available-for-sale securities, net of income tax provision and foreign currency translation adjustments, net of income tax provision. Loss contingencies We are involved in various legal proceedings in the normal course of business. A loss contingency is recorded if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. We evaluate, among other factors, the probability of an unfavorable outcome and our ability to make a reasonable estimate and the amount of the ultimate loss. Loss contingencies that are determined to be reasonably possible, but not probable, are disclosed but not recorded. Legal fees incurred as a result of our involvement in legal procedures are expensed as incurred. Certain risks and uncertainties Our revenues are derived from net product sale |
