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Liabilities Related to the Sales of Future Royalties | 12 Months Ended
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Dec. 31, 2021
Liability Related To Sale Of Potential Future Royalties [Abstract] |
Liabilities Related to the Sales of Future Royalties | Liabilities Related to the Sales of Future Royalties On February 24, 2012, we entered into a purchase and sale agreement (the 2012 Purchase and Sale Agreement) with RPI Finance Trust (RPI), an affiliate of Royalty Pharma, pursuant to which we sold, and RPI purchased, our right to receive royalty payments (the 2012 Transaction Royalties) arising from the worldwide net sales, from and after January 1, 2012, of (a) CIMZIA®, under our license, manufacturing and supply agreement with UCB Pharma (UCB), and (b) MIRCERA®, under our license, manufacturing and supply agreement with F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc. (together referred to as Roche). We received aggregate cash proceeds of $124.0 million for the 2012 Transaction Royalties. Although we sold all of our rights to receive royalties from the CIMZIA® and MIRCERA® products, as a result of our ongoing manufacturing and supply obligations related to the generation of these royalties, we continue to account for these royalties as revenue. We recorded the $124.0 million in proceeds from this transaction as a liability (the 2012 Royalty Obligation) that is amortized using the effective interest method over the estimated life of the 2012 Purchase and Sale Agreement as royalties from the CIMZIA® and MIRCERA® products are remitted directly to RPI. On June 5, 2020, UCB served notice of a Declaratory Judgment of Patent Invalidity, filed in the United States District Court for the District of Delaware, seeking a declaration of invalidity of certain of our patents that we had licensed to UCB and pursued similar actions in other jurisdictions. On October 14, 2021, RPI and we entered into a Letter Agreement which permitted us to enter into a Settlement Agreement, effective October 13, 2021, with UCB to effect the negotiation between RPI and UCB in which UCB and RPI agreed to a reduction in the royalty term and annual decreases in the royalty rate over the remaining royalty term in exchange for UCB’s withdrawal of all of UCB’s litigation and challenges. We concluded that we should account for the decrease in royalty payments to RPI as a result of these agreements as a modification of our liability. Due to the significance of the change in the estimated royalty payments, we concluded that we should treat the modification as an extinguishment of the prior liability and recognize a new liability based on the revised royalty payments and term, discounted to fair value. Accordingly, we estimated the fair value to be approximately $84.7 million, reflecting a discount rate of 16.0%, and we began amortizing the liability prospectively at this rate commencing in the three months ended December 31, 2021. As a result, we recognized a loss of $23.5 million on the revaluation of the prior liability in the three months ended December 31, 2021, and we wrote off of the remaining $0.9 million of unamortized transaction costs. We present these charges in Loss on revaluation of liability related to the sale of future royalties line in our Consolidated Statement of Operations. On December 16, 2020, we entered into a purchase and sale agreement (the 2020 Purchase and Sale Agreement) with entities managed by Healthcare Royalty Management, LLC (collectively, HCR). Pursuant to the 2020 Purchase and Sale Agreement, we agreed to sell to HCR certain of our rights to receive royalty payments (the 2020 Transaction Royalties) arising from the worldwide net sales, from and after October 1, 2020 until such time that certain return thresholds are met as described below, of (a) MOVANTIK® under that certain License Agreement, dated September 20, 2009, by and between Nektar and AstraZeneca AB, as amended, (b) ADYNOVATE® under that certain Exclusive Research, Development, License and Manufacturing and Supply Agreement, dated September 26, 2005, by and among Nektar, Baxalta US Inc. and Baxalta GmbH, as amended, (c) REBINYN® under that certain Settlement and License Agreement, dated December 21, 2016, by and among Nektar, Novo Nordisk Inc., Novo Nordisk A/S and Novo Nordisk A/G and (d) licensed products under that certain Right to Sublicense Agreement, dated October 27, 2017, by and among Nektar, Baxalta Incorporated, Baxalta US Inc. and Baxalta GmbH. The 2020 Purchase and Sale Agreement will automatically expire, and the payment of the 2020 Transaction Royalties to HCR will cease, when HCR has received payments of the 2020 Transaction Royalties equal to $210.0 million (the 2025 Threshold), if the 2025 Threshold is achieved on or prior to December 31, 2025, or $240.0 million, if the 2025 Threshold is not achieved on or prior to December 31, 2025 (or, if earlier, the date on which the last royalty payment under the relevant license agreements is made). If HCR has received payments of the 2020 Transaction Royalties equal to at least $208.0 million on or prior to December 31, 2025, we have the option to pay the difference between the 2025 Threshold and such 2020 Transaction Royalties, and the 2025 Threshold will be met and the 2020 Purchase and Sale Agreement will expire. After the 2020 Purchase and Sale Agreement expires, all rights to receive the 2020 Transaction Royalties return to Nektar. On December 30, 2020, we received aggregate cash proceeds of $150.0 million for the 2020 Transaction Royalties. As part of the sale, we incurred approximately $3.8 million in transaction costs, which will be amortized to interest expense over the estimated life of the 2020 Purchase and Sale Agreement. Although we sold all of our rights to receive royalties from these products, as a result of the limits on the 2020 Transaction Royalties to be received by HCR and our ongoing manufacturing and supply obligations related to the generation of these royalties, we will continue to account for these non-cash royalties as revenue, commencing with royalties for the three months ended December 31, 2020, to be received by HCR in the first quarter of 2021. We recorded the $150.0 million in proceeds from this transaction as a liability (the 2020 Royalty Obligation) that will be amortized using the effective interest method over the estimated life of the 2020 Purchase and Sale Agreement. As of December 31, 2021, our prospective effective interest rate used to amortize the liability is 15%. The following table shows the activity within the liability account of each arrangement (in thousands):
| Year-Ended December 31, 2021 |  | Period from inception to December 31, 2021
| 2012 Purchase and Sale Agreement |  | 2020 Purchase and Sale Agreement |  | Total |  | 2012 Purchase and Sale Agreement |  | 2020 Purchase and Sale Agreement |  | Total
Liabilities related to the sales of future royalties—beginning balance | $ | 65,880 |  |  | $ | 139,375 |  |  | $ | 205,255 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Royalty monetization proceeds | — |  |  | — |  |  | — |  |  | 124,000 |  |  | 150,000 |  |  | 274,000 |
Non-cash royalty revenue | (37,578) |  |  | (40,168) |  |  | (77,746) |  |  | (282,658) |  |  | (50,793) |  |  | (333,451) |
Non-cash interest expense | 26,458 |  |  | 20,855 |  |  | 47,313 |  |  | 223,418 |  |  | 20,855 |  |  | 244,273 |
Payments to RPI | — |  |  | — |  |  | — |  |  | (10,000) |  |  | — |  |  | (10,000) |
Loss on revaluation of liability related to the sale of future royalties | 23,522 |  |  |  |  | 23,522 |  |  | 23,522 |  |  | — |  |  | 23,522 |
Liabilities related to the sales of future royalties – ending balance | 78,282 |  |  | 120,062 |  |  | 198,344 |  |  | 78,282 |  |  | 120,062 |  |  | 198,344 |
Less: unamortized transaction costs | — |  |  | (2,917) |  |  | (2,917) |  |  | — |  |  | (2,917) |  |  | (2,917) |
Liabilities related to the sales of future royalties, net | $ | 78,282 |  |  | $ | 117,145 |  |  | $ | 195,427 |  |  | $ | 78,282 |  |  | $ | 117,145 |  |  | $ | 195,427 |
Pursuant to the 2012 Purchase and Sale Agreement, in March 2014 and March 2013, we were required to pay RPI $7.0 million and $3.0 million, respectively, as a result of worldwide net sales of MIRCERA® for the 12 month periods ended December 31, 2013 and 2012 not reaching certain minimum thresholds. The 2012 Purchase and Sale Agreement does not include any other potential payments related to minimum net sales thresholds and, therefore, we do not expect to make any further payments to RPI related to this agreement. As royalties are remitted to RPI and HCR by our licensees, the balances of the respective Royalty Obligations will be effectively repaid over the lives of the agreements. To determine the amortization of the Royalty Obligations, we are required to estimate the total amount of future royalty payments to be received by RPI and HCR, respectively. The sum of these amounts less the net proceeds we received will be recorded as non-cash interest expense, as well as the loss on the revaluation described above, over the lives of the respective Royalty Obligations. We periodically assess the estimated royalty payments to RPI and HCR from our licensees and to the extent the amount or timing of such payments is materially different than our original estimates, we will prospectively adjust the imputed interest rate and the related amortization of the appropriate Royalty Obligation. There are a number of factors that could materially affect the amount and timing of royalty payments from our licensees, most of which are not within our control. Such factors include, but are not limited to, changing standards of care, the introduction of competing products, manufacturing or other delays, biosimilar competition, intellectual property matters, adverse events that result in governmental health authority imposed restrictions on the use of the drug products, significant changes in foreign exchange rates as the royalties remitted to RPI or HCR are made in U.S. dollars (USD) while significant portions of the underlying sales of the products of our licensees are made in currencies other than USD, and other events or circumstances that could result in reduced royalty payments from our licensees, all of which would result in a reduction of non-cash royalty revenues and the non-cash interest expense over the life of the respective Royalty Obligation. Conversely, for the 2012 Purchase and Sale Agreement, if sales of these products are more than expected, the non-cash royalty revenues and the non-cash interest expense recorded by us would be greater over the term of the 2012 Royalty Obligation.

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