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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2023
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair value measurements We determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows: •Level 1 inputs include unadjusted quoted prices in active markets for identical assets or liabilities; •Level 2 inputs include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability; and •Level 3 inputs include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Our Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables summarize the types of assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy (in millions):
Fair value measurement as of September 30, 2023 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |  |
Money market funds |  | $ | 110 |  |  | $ | — |  |  | $ | — |  |  | $ | 110 |
U.S. treasury securities |  | — |  |  | 245 |  |  | — |  |  | 245 |
Corporate securities and commercial paper |  | — |  |  | 491 |  |  | — |  |  | 491 |
U.S. government agency obligations |  | — |  |  | 96 |  |  | — |  |  | 96 |
Certificate of deposit |  | — |  |  | 8 |  |  | — |  |  | 8 |
Total assets measured at fair value |  | $ | 110 |  |  | $ | 840 |  |  | $ | — |  |  | $ | 950 |
Liabilities |  |  |  |  |  |  |  |
Liability for sale of future royalties |  | $ | — |  |  | $ | — |  |  | $ | 19 |  |  | $ | 19 |
Total liabilities measured at fair value |  | $ | — |  |  | $ | — |  |  | $ | 19 |  |  | $ | 19 |
Fair value measurement as of December 31, 2022 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |  |
Money market funds |  | $ | 169 |  |  | $ | — |  |  | $ | — |  |  | $ | 169 |
U.S. treasury securities |  | — |  |  | 314 |  |  | — |  |  | 314 |
Corporate securities and commercial paper |  | — |  |  | 631 |  |  | — |  |  | 631 |
U.S. government agency securities |  | — |  |  | 20 |  |  | — |  |  | 20 |
Certificate of deposit |  | — |  |  | 4 |  |  | — |  |  | 4 |
Total assets measured at fair value |  | $ | 169 |  |  | $ | 969 |  |  | $ | — |  |  | $ | 1,138 |
Liabilities |  |  |  |  |  |  |  |
Liability for sale of future royalties |  | $ | — |  |  | $ | — |  |  | $ | 17 |  |  | $ | 17 |
Total liabilities measured at fair value |  | $ | — |  |  | $ | — |  |  | $ | 17 |  |  | $ | 17 |
Liability for Sale of Future Royalties In 2021, we entered into an agreement with BVF Partners L.P. (BVF), under which BVF funded the discovery and development of compounds for the treatment of inflammatory diseases (the BVF Program) for $15 million in non-refundable payments which were paid in 2021 and 2022. In return, we are obligated to: perform research and development activities in the Program; make contingent payments upon the achievement of certain clinical and regulatory milestones of up to $73 million or $160 million depending on whether the program is solely developed by us or with Gilead if they opt-in under the Gilead Collaboration Agreement; and pay mid- to high-single digit royalties on any net product sales generated by the BVF Program. We account for the BVF Agreement as a liability primarily because we have significant continuing involvement in generating the cash flows due to BVF. The liability is recorded at fair value by using probability-adjusted discounted cash flows and is revalued each reporting period until the related contingencies have been resolved. The fair value measurement is based on significant unobservable inputs that are reviewed quarterly by management and include, as applicable, estimated probabilities and the timing of achieving specified development, regulatory and commercial milestones as well as estimated annual sales. Significant changes that increase or decrease the probabilities of achieving the related development, regulatory and commercial events or that shorten or lengthen the time required to achieve such events or that increase or decrease estimated annual sales would result in corresponding increases or decreases in the fair values of the obligations, as applicable. Changes in the fair value of this liability related to interest accretion are recognized in Non-operating income (expense) in the Condensed Consolidated Statements of Operations. During the second quarter of 2023, new preclinical information from our BVF Program led to revised assumptions which decreased the estimated probabilities of success and delayed the projected timing of achieving specified development, regulatory and commercial milestones and commercial sales. These changes in estimates are accounted for prospectively and resulted in a decrease in the imputed effective interest rate on the unamortized portion of the liability to 10.1% commencing with the quarter ended June 30, 2023, compared to 20.6% for the quarters ended March 31, 2023 and prior. The impact of this change on the non-cash interest expense for the quarter and nine months ended September 30, 2023 was not material when compared to the prior year periods. The liability for sale of future royalties is reported in Other noncurrent liabilities in the Condensed Consolidated Balance Sheets and changes were as follows (in millions):
| Nine Months Ended September 30,
| 2023 |  | 2022
Beginning balance | $ | 17 |  |  | $ | 5 |
Cash received | — |  |  | 5 |
Interest accretion | 2 |  |  | 2 |
Ending balance | $ | 19 |  |  | $ | 12 |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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