| 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 and nine months ended September 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. In prior periods through March 31, 2022, we reported the clinical trial costs, other third-party costs and employee costs related to the bempegaldesleukin program primarily in research and development expense. Restructuring, impairment and other costs of terminated program includes the following (in thousands): Three Months Ended Nine Months Ended September 30, 2022 Clinical trial expense, other third-party and employee costs for the wind down of the bempegaldesleukin program $ 8,530 $ 28,938 Severance and benefit expense 2,077 29,827 Impairment of right-of-use assets and property, plant and equipment 1,200 58,521 Contract termination and other restructuring costs 5,023 7,064 Restructuring, impairment and other costs of terminated program $ 16,830 $ 124,350 For the three and nine months ended September 30, 2022, we recorded reductions of expense of $8.3 million and $16.7 million, respectively, for the net reimbursement from BMS, primarily for clinical trial expense, other third-party and employee costs for the wind down of the bempegaldesleukin program. 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 and nine months ended September 30, 2022, which we report within Accrued compensation on our Condensed Consolidated Balance Sheet (in thousands): Three and Nine Months Ended September 30, 2022 No service period Service period required Total Total severance and other termination benefits, at fair value $ 23,000 $ 7,955 $ 30,955 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 Expense recognized during the period (588) 2,661 2,073 Payments during the period (9,544) (2,505) (12,049) Liability balance as of September 30, 2022 $ 575 $ 4,318 $ 4,893 In the three months ended September 30, 2022, we recorded a reduction to severance and benefits expense for a decrease in the estimated utilization of Company-funded post-employment benefits, and we may record similar adjustments in future periods. 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, and subsequently at each reporting date or as facts and circumstances change. 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 sublease payments, which we evaluated using sublease negotiations or agreements when applicable, 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 anticipated sale exceed the net book value of the site. We have classified the India facility as an asset held for sale as of September 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, which we also present as assets held for sale in other current assets in our Condensed Consolidated Balance Sheet as of September 30, 2022. We recorded impairment charges as follows (in thousands): Nine Months Ended September 30, 2022 Property, Plant and Equipment Operating Lease Right-of-Use Assets Total Net book value of impaired facilities before write-off $ 16,348 $ 74,191 $ 90,539 Less: Fair value of impaired facilities — Level 3 of Fair Value Hierarchy (6,976) (30,162) (37,138) Impairment expense for facilities 9,372 44,029 53,401 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 $ 44,029 $ 58,521 In the three months ended September 30, 2022, we recorded an impairment charge of $1.2 million for a right-of-use asset based on changes to sublease negotiations during such period. We may record adjustments to impairment expense in future periods as we enter into sublease or sale agreements or update our estimates when additional information becomes available to us. The following table presents our property, plant and equipment as of September 30, 2022 and December 31, 2021, reflecting the effects of the impairment charges and held-for-sale reclassifications. September 30, 2022 December 31, 2021 Building and leasehold improvements $ 78,380 $ 97,385 Laboratory equipment 34,628 42,704 Computer equipment and software 28,183 28,829 Manufacturing equipment 23,779 22,374 Furniture, fixtures, and other 4,647 10,094 Depreciable property, plant and equipment at cost 169,617 201,386 Less: accumulated depreciation (135,064) (148,039) Depreciable property, plant and equipment, net 34,553 53,347 Construction-in-progress 2,250 7,163 Property, plant and equipment, net $ 36,803 $ 60,510 |
