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Co-Development Agreement with SFJ Pharmaceuticals and Development Derivative Liability | 3 Months Ended
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Mar. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Co-Development Agreement with SFJ Pharmaceuticals and Development Derivative Liability | Co-Development Agreement with SFJ Pharmaceuticals and Development Derivative Liability On February 12, 2021, we entered into a Co-Development Agreement (the SFJ Agreement) with SFJ Pharmaceuticals XII, L.P., a SFJ Pharmaceuticals Group company (SFJ), pursuant to which SFJ would pay up to $150.0 million in committed funding to support a Phase 2/3 study of bempegaldesleukin in combination with Keytruda® (pembrolizumab) for first-line treatment of patients with metastatic or unresectable recurrent squamous cell carcinoma of the head and neck (the SCCHN Clinical Trial) whose tumors express PD-L1 (the SCCHN Indication). SFJ has primary responsibility for the clinical trial management of the SCCHN Clinical Trial, and we are the sponsor of the SCCHN Clinical Trial. The SFJ Agreement provided for us to pay up to $637.5 million in Success Payments in the event of FDA approval of bempegaldesleukin for the metastatic melanoma, the SCCHN Indication, or both, and in the event of FDA approval of one additional bempegaldesleukin indication. As discussed in Note 1, on March 14, 2022, we announced that the metastatic melanoma trial did not meet its primary endpoints and that we and BMS decided to discontinue the registrational trials in metastatic melanoma trial and adjuvant melanoma. On April 14, 2022, BMS and we announced that, due to the negative results of our trials for bempegaldesleukin in each of renal cell carcinoma and cisplatin-ineligible, locally advanced or metastatic urothelial cancer, BMS and we decided to end the development for bempegaldesleukin in combination with Opdivo® and that these studies and all other ongoing studies in the bempegaldesleukin program will be discontinued. On April 14, 2022, due to these results, SFJ and we agreed to discontinue the SCCHN Clinical Trial. Accordingly, SFJ will not be entitled to any Success Payments, and SFJ has the responsibility to wind down the SCCHN Clinical Trial at its sole cost. SFJ has no right to seek reimbursement from us for any costs incurred for the SCCHN Clinical Trial. We presented the SFJ Agreement as a Development derivative liability in our Condensed Consolidated Balance Sheets, which we remeasured to fair value at each reporting date. As SFJ conducted the SCCHN Clinical Trial, we recorded non-cash research and development expense with a corresponding increase to the development derivative liability, and as SFJ remitted funding to us to support our internal costs of conducting the trial, we also recorded a corresponding increase to the development derivative liability. We presented the gain (loss) from the remeasurement as change in fair value of development derivative liability in our Condensed Consolidated Statements of Operations. As of March 31, 2022, due to the negative results of the metastatic melanoma trial and initial discussions with SFJ, we concluded that it was remote that SFJ and we would continue the SCCHN Clinical Trial. Accordingly, the fair value of the development derivative liability was reduced to $0 as of March 31, 2022, and we recognized a corresponding gain in the Change in fair value of development derivative liability. The following table presents the changes in the development derivative liability for the three months ended March 31, 2022 and 2021:
|  |  |  | Three months ended March 31,
|  | Fair Value Hierarchy Level |  | 2022 |  | 2021
Fair value as of December 31, 2021 and February 12, 2021 (inception), respectively |  | 3 |  | $ | 27,726 |  |  | $ | — |
Non-cash research and development expense |  |  |  | 4,951 |  |  | 2,248 |
Cash receipts from SFJ |  |  |  | 750 |  |  | 750 |
Change in the fair value of development derivative liability |  |  |  | (33,427) |  |  | 1,599 |
Fair value at end of period |  | 3 |  | $ | — |  |  | $ | 4,597 |

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