| Restructuring, Impairment and Other Costs of Terminated Program | Restructuring, Impairment and Other Costs of Terminated ProgramAs discussed in Note 1, because our registrational trials in bempegaldesleukin did not meet their primary endpoints, we decided to discontinue all of our ongoing clinical trials of bempegaldesleukin in combination with checkpoint inhibitors and tyrosine kinase inhibitors, and, during April 2022, we announced the Restructuring Plan to prioritize key Phase 2 development programs, to advance our early stage research pipeline and to reduce our workforce by approximately 70% from approximately 735 to approximately 225 employees. In connection with these events, we reported the following costs in Restructuring, impairment and other costs of terminated program in the three months ended June 30, 2022: • Clinical trial expense, other third-party costs and employee costs for the wind down of the bempegaldesleukin program, net of the reimbursement from BMS; • Severance and related benefit costs pursuant to the Restructuring Plan; • Impairment of right-of-use assets and property, plant and equipment resulting from the Restructuring Plan, primarily reflecting excess office and laboratory leased spaces in San Francisco, CA; and • Contract termination and other costs associated with these plans. Previously, during the three months ended March 31, 2022, we recognized an initial $1.5 million in cancellation fees related to certain manufacturing activities for bempegaldesleukin. In prior periods, we reported the clinical trial costs, other third-party costs and employee costs related to the bempegaldesleukin primarily in research and development expense. Restructuring, impairment and other costs of terminated program includes the following (in thousands): Three months ended Six months ended June 30, 2022 Clinical trial expense, other third-party and employee costs for the wind down of the bempegaldesleukin program $ 20,408 $ 20,408 Severance and benefit expense 27,750 27,750 Impairment of right-of-use assets and property, plant and equipment 57,321 57,321 Contract termination and other restructuring costs 566 2,041 Restructuring, impairment and other costs of terminated program $ 106,045 $ 107,520 The clinical trial expense, other third-party and employee costs for the wind down of the bempegaldesleukin program for the three and six months ended June 30, 2022 includes a reduction of $7.6 million for the net reimbursement from BMS. Severance and Benefit Expense Employees affected by the reduction in force under our Restructuring Plan are entitled to receive severance payments and certain Company funded benefits. We recognized severance and benefit expense in full for employees who were notified of their termination in April 2022 and have no requirements for future service, and we are recognizing expense for employees who are required to render services to receive their severance and benefits over the service period ratably over the service period. This service period began in April 2022 and all will end during 2022. The following table provides details regarding the severance and other termination benefit expense and a reconciliation of such liability for the three months ended June 30, 2022, which we report within Accrued compensation on our Condensed Consolidated Balance Sheet (in thousands): For the three months ended June 30, 2022 No service period Service period required Total Total severance and other termination benefits, at fair value $ 23,588 $ 8,829 $ 32,417 Liability balance as of March 31, 2022 $ — $ — $ — Expense recognized during the period 23,588 4,162 27,750 Payments during the period (12,881) — (12,881) Liability balance as of June 30, 2022 $ 10,707 $ 4,162 $ 14,869 The liability as of June 30, 2022 for employees terminated with no requirements for future service primarily relates to final severance paid in July 2022. We may record adjustments to severance and benefit expense in future periods as our estimates of the costs of benefits change or when an employee terminates before the end of their requisite service period. However, we do not expect that such adjustments will have a material effect on our results of operations or financial condition. Impairment of Right-of-Use Assets and Property, Plant and Equipment In connection with our Restructuring Plan, we have consolidated our operations by exiting all of the office space from our leased facility at 360 Third St. and certain laboratory and office spaces at our leased facility at 455 Mission Bay Blvd. South, both in San Francisco, CA. We are seeking to sublease these spaces, while still maintaining sufficient office and laboratory space to allow our team to develop our proprietary programs. We have also terminated all research and development activities at our owned facility in India, which we plan to sell. As a result of these plans, we reviewed each of our excess spaces for impairment as of May 31, 2022, when management had determined which spaces we would retain and which spaces we may sublease. As part of our impairment evaluation of each excess space, we separately compared the estimated undiscounted income for each sublease to the net book value of the related long-term assets, which include right-of-use assets and certain property, plant and equipment, primarily for leasehold improvements (collectively, sublease assets). We estimated sublease income using market participant assumptions, including the length of time to enter into a sublease and lease payments, which we evaluated using current real estate trends and market conditions. If such income exceeded the net book value of the related assets, we did not record an impairment charge. Otherwise, we recorded an impairment charge by reducing the net book value of the assets to their estimated fair value, which we determined by discounting the estimated sublease income using the estimated borrowing rate of a market participant subtenant, which we estimated to be 6.4%. For our India site, we recorded no impairment charge because the estimated net proceeds from the sale exceed the net book value of the site. We have classified the India facility as an asset held for sale as of June 30, 2022 and report this in other current assets in our Condensed Consolidated Balance Sheet. Additionally, we recorded an impairment expense primarily for software which we plan to abandon and certain excess equipment based on the estimated income from selling such assets. We recorded impairment charges as follows (in thousands): Three months ended June 30, 2022 Property, Plant and Equipment Operating Lease Right-of-Use Assets Total Net book value of impaired facilities before write-off $ 16,348 $ 70,920 $ 87,268 Less: Fair value of impaired facilities — Level 3 of Fair Value Hierarchy (6,976) (28,091) (35,067) Impairment expense for facilities 9,372 42,829 52,201 Impairment of other property, plant and equipment 5,120 — 5,120 Total impairment of right-of-use assets and property, plant and equipment $ 14,492 $ 42,829 $ 57,321 The following table presents our property, plant and equipment as of June 30, 2022 and December 31, 2021, reflecting the effects of the impairment charges and held-for-sale reclassification. June 30, 2022 December 31, 2021 Building and leasehold improvements $ 83,158 $ 97,385 Laboratory equipment 36,738 42,704 Computer equipment and software 28,391 28,829 Manufacturing equipment 23,743 22,374 Furniture, fixtures, and other 7,318 10,094 Depreciable property, plant and equipment at cost 179,348 201,386 Less: accumulated depreciation (143,304) (148,039) Depreciable property, plant and equipment, net 36,044 53,347 Construction-in-progress 3,748 7,163 Property, plant and equipment, net $ 39,792 $ 60,510 |
