XML 23 R13.htm IDEA: XBRL DOCUMENT
v3.23.3

Restructuring, Impairment and Costs of Terminated Program, and Impairment of Goodwill | 9 Months Ended
--- | ---
Sep. 30, 2023
Restructuring and Related Activities [Abstract] |
Restructuring, Impairment and Costs of Terminated Program, and Impairment of Goodwill | Note 6 — Restructuring, Impairment and Costs of Terminated Program, and Impairment of Goodwill Restructuring, Impairment and Costs of Terminated Program In connection with our 2022 and 2023 Restructuring Plans, we report the following costs in restructuring, impairment and costs of terminated program: • Clinical trial expense, other third-party costs and employee costs for the wind down of the bempegaldesleukin program, net of the reimbursement from BMS, initiated in 2022; • Severance and related benefit costs pursuant to the 2022 and 2023 Restructuring Plans; • Non-cash impairment of right-of-use assets and property, plant and equipment; 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. Beginning in the second quarter of 2022, we began reporting clinical trial, other third-party costs and employee costs for the wind down of the bempegaldesleukin program in restructuring, impairment and costs of terminated program. 2022 Restructuring Plan As discussed in Note 1, because our registrational trials in bempegaldesleukin did not meet their primary endpoints, we decided to discontinue all development of bempegaldesleukin and wind down the clinical trials studying bempegaldesleukin. In April 2022, we announced the 2022 Restructuring Plan pursuant to which we completed an approximate 70% reduction of our workforce during 2022. We also sold our research facility in India in December 2022 and decided to sublease certain of our leased premises in San Francisco, CA, including all of our office leased space on Third St. and portions of our office and laboratory space on Mission Bay Blvd. South. Restructuring, impairment and other costs of terminated program pertaining to the 2022 Restructuring Plan includes the following (in thousands):
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Clinical trial expense, other third-party and employee costs for the wind down of the bempegaldesleukin program |  | $ | 652 |  |  | $ | 8,530 |  |  | $ | 3,606 |  |  | $ | 28,938 |
Severance and benefits expense |  |  | — |  |  |  | 2,077 |  |  |  | — |  |  |  | 29,827 |
Impairment of right-of-use assets and property, plant and equipment |  |  | 1,467 |  |  |  | 1,200 |  |  |  | 14,728 |  |  |  | 58,521 |
Contract termination and other restructuring costs |  |  | — |  |  |  | 5,023 |  |  |  | 878 |  |  |  | 7,064 |
Restructuring, impairment and costs of terminated program |  | $ | 2,119 |  |  | $ | 16,830 |  |  | $ | 19,212 |  |  | $ | 124,350 |
The clinical trial expense, other third-party and employee costs for the wind down of the bempegaldesleukin program for the three and nine months ended September 30, 2022 includes reductions of $8.3 million and $16.7 million, respectively, for the net reimbursement from BMS. The net reimbursement payable to BMS for the three and nine months ended September 30, 2023 was not significant. Non-cash impairment charges of lease assets pertaining to the 2022 Restructuring Plan include the following (in thousands):
|  | Three-months Ended |
Sublease Spaces |  | June 30, 2022 |  |  | September 30, 2022 |  |  | December 31, 2022 |  |  | March 31, 2023 |  |  | June 30, 2023 |  |  | September 30, 2023 |  |  | Total |
Mission Bay Blvd. South |  | $ | 3,000 |  |  | $ | 1,200 |  |  | $ | 361 |  |  | $ | — |  |  | $ | 7,055 |  |  | $ | 1,467 |  |  | $ | 13,083 |
Third St |  |  | 49,200 |  |  |  | — |  |  |  | 12,000 |  |  |  | — |  |  |  | 6,200 |  |  |  | — |  |  |  | 67,400 |
Total impairment of lease assets |  | $ | 52,200 |  |  | $ | 1,200 |  |  | $ | 12,361 |  |  | $ | — |  |  | $ | 13,255 |  |  | $ | 1,467 |  |  | $ | 80,483 |
• T he non-cash impairment charges for the three months ended June 30, 2022 for our office lease on Third St. reflects our initial estimates of sublease income. As the San Francisco office lease market has continued to deteriorate over the past year, we have recognized additional non-cash impairment charges for the Third St. space in the three months ended December 31, 2022, and in the three months ended June 30, 2023. • The non-cash impairment charges for the three months ended June 30, 2022 for our office and laboratory space on Mission Bay Blvd. South reflects our initial estimates of sublease income. As the life sciences lease market has deteriorated during 2023, we recorded additional non-cash impairment charges in the three months ended June 30, 2023 and in the three months ended September 30, 2023. Through September 30, 2023, we have recognized $11.8 million cumulatively for contract termination and other costs for the 2022 Restructuring Plan. 2023 Restructuring Plan As discussed in Note 1, pursuant to plans approved by our Board in March 2023, we announced the 2023 Restructuring Plan to further reduce our San Francisco-based workforce by approximately 60%, which was substantially completed by June 30, 2023. In addition, under the 2023 Restructuring Plan, we decided to sublease our remaining office and laboratory space on Mission Bay Blvd. South, which we had not planned to sublease pursuant to the 2022 Restructuring Plan. Restructuring, impairment and other costs of terminated program pertaining to the 2023 Restructuring Plan includes the following (in thousands):
|  | Three Months Ended September 30, 2023 |  |  | Nine Months Ended September 30, 2023 |
Severance and benefit expense |  | $ | 535 |  |  | $ | 7,961 |
Impairment of right-of-use assets and property, plant and equipment |  |  | 8,706 |  |  |  | 21,900 |
Contract termination and other restructuring costs |  |  | — |  |  |  | 34 |
Restructuring, impairment and costs of terminated program |  | $ | 9,241 |  |  | $ | 29,895 |
As further described below, the impairment charge in the nine months ended September 30, 2023, includes $20.6 million for the impairment of our remaining office and laboratory space on Mission Bay Blvd. South that we are currently seeking to sublease. We recorded an impairment charge of $11.5 million in the three months ended March 31, 2023, based on our initial estimates of sublease income. As the life sciences lease market has deteriorated during 2023, including a significant increase in available sublease space in San Francisco, California, we recorded an additional impairment charge of $9.1 million in the three months ended September 30, 2023 for this space. Severance and Benefit Expense Employees affected by the reduction in force under the 2022 and 2023 Restructuring Plans are entitled to receive severance payments and certain Company funded benefits. The restructuring charges are recorded at fair value. For the 2022 Restructuring Plan, we recognized severance and benefit expense in full for employees who had no requirements for future service upon approval of the 2022 Restructuring Plan by the Board in April 2022. We recognized severance and benefit expense for employees who were required to render services to receive their severance and benefits ratably over the service period. This service period began on the communication date in April 2022 and was completed for all employees during 2022. We recognized $30.9 million in total severance and benefit expense during 2022 and paid the remaining liability of $3.3 million in January 2023. For the 2023 Restructuring Plan, we recognized a liability of $5.5 million of severance and benefit expense as of March 31, 2023, reflecting severance and benefits which the employees had vested into and for which payment was probable and reasonably estimable as of March 31, 2023. During the three months ended June 30, 2023, we recognized an additional $1.9 million of severance and benefit expense. We do not expect to recognize significant severance expense for the remainder of 2023. The following table provides details regarding the severance and benefit expense for the three and nine months ended September 30, 2023 pursuant to the 2023 Restructuring Plan and a reconciliation of the severance and benefits liability for the three and nine months ended September 30, 2023 pursuant to the 2022 and 2023 Restructuring Plans, which we report within accrued expenses on our Condensed Consolidated Balance Sheet (in thousands):
|  | Nine Months Ended September 30, 2023 |
|  | 2023 Restructuring Plan |  |  | 2022 Restructuring Plan |  |  | Total |
Liability balance as of December 31, 2022 |  | $ | — |  |  | $ | 3,299 |  |  | $ | 3,299 |
Expense recognized during the period |  |  | 5,483 |  |  |  | — |  |  |  | 5,483 |
Payments during the period |  |  | — |  |  |  | (3,299 | ) |  |  | (3,299 | )
Liability balance as of March 31, 2023 |  | $ | 5,483 |  |  | $ | — |  |  | $ | 5,483 |
Expense recognized during the period |  |  | 1,943 |  |  |  | — |  |  |  | 1,943 |
Payments during the period |  |  | (6,624 | ) |  |  | — |  |  |  | (6,624 | )
Liability balance as of June 30, 2023 |  | $ | 802 |  |  | $ | — |  |  | $ | 802 |
Expense recognized during the period |  |  | 535 |  |  |  | — |  |  |  | 535 |
Payments during the period |  |  | (887 | ) |  |  | — |  |  |  | (887 | )
Liability balance as of September 30, 2023 |  | $ | 450 |  |  | $ | — |  |  | $ | 450 |
Impairment of Long-Lived Assets and Goodwill In connection with our 2022 Restructuring Plan, we 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 have sought to sublease these spaces. We also terminated all research and development activities at our owned facility in India, which we sold in December 2022. As a result of these plans, we reviewed each of our excess spaces for impairment during the three months ended June 30, 2022. 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, tenant improvement allowances and broker commissions, 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%. Additionally, we recorded an impairment expense primarily for software which we planned to abandon and certain excess equipment based on the estimated income from selling such assets. 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. During the three months ended March 31, 2023, our stock price and resulting market capitalization experienced a significant, sustained decline. Accordingly, we assessed our long-lived assets, including our property, plant and equipment, right-of-use assets and goodwill, for impairment. We had previously recognized goodwill primarily from our acquisitions of Shearwater Corp. and Aerogen, Inc. in 2001 and 2005, respectively. Accordingly, in accordance with ASC 350-20 Goodwill and ASC 820-10 Fair Value Measurement, we measured the fair value of our reporting unit utilizing both income and market approaches for our entity-wide asset impairment analysis. Based on this analysis, we wrote off all of our goodwill, resulting in a non-cash impairment charge of $76.5 million during the three months ended March 31, 2023, which we reported as impairment of goodwill in our Condensed Consolidated Statements of Operations for the nine months ended September 30, 2023. As part of our long-lived asset impairment analysis, we first assessed which long-lived assets have identifiable cash flows that are largely independent of the cash flows of other groups of assets. We concluded that the long-lived assets associated with our leased spaces we had previously decided to sublease under our 2022 Restructuring Plan continue to have cash flows that are independent of our entity-wide group. We concluded that these sublease assets, for which we had recognized impairment charges during 2022, were recoverable based on estimated sublease income, and therefore we did not record any impairment charges for these long-lived assets for the three months ended March 31, 2023. During the three months ended March 31, 2023, we next evaluated our remaining long-lived assets for impairment and performed a recoverability test using the undiscounted cash flows approach. We concluded that our net assets were not recoverable within the remaining useful lives. Accordingly, we estimated the fair value of each asset or asset group based on discounted future cash flows of the asset or asset group using a discount rate commensurate with the related risk. For the operating lease asset related to our Mission Bay facility, we estimated the fair value based on market participant assumptions related to sublease income as described above, including the length of time to enter into a sublease and sublease payments, tenant improvement allowances and broker commissions. We discounted the sublease income at rate of 7.9%, reflecting the estimated borrowing rate of a market participant subtenant. As a result of this analysis, we recorded a non-cash impairment charge of $11.5 million. We also recorded an additional non-cash impairment charge of $1.7 million for certain laboratory equipment in the three months ended Mach 31, 2023, which we sold in the three months ended September 30, 2023 and recognized an immaterial gain, resulting in a net impairment of $1.3 million for the nine months ended September 30, 2023. During the three months ended June 30, 2023, due to the weakening life sciences sublease market, we recorded a non-cash impairment charge of $7.1 million for our lease assets at our Mission Bay facility, and due to the continued depression of the office lease market, we recorded an impairment charge of $6.2 million for our lease assets at our Third. St. facility, based on market participant assumptions related to sublease income, discounted at a rate of 8.5%. We had decided to sublease both of these spaces under the 2022 Restructuring Plan. During the three months ended September 30, 2023, due to the continued weakening of the life sciences sublease market, we recorded additional non-cash impairment charges of $10.6 million for our lease assets at our Mission Bay facility based on market participant assumptions related to sublease income, discounted at a rate of 8.7%. We report the aggregate non-cash impairment charge of $10.2 million and $36.6 million for the three and nine months ended September 30, 2023, respectively, in restructuring, impairment and costs of terminated program in our Condensed Consolidated Statement of Operations. The following table presents a reconciliation of the non-cash impairment charges we recorded for these long-lived assets for the three and nine months ended September 30, 2023 (in thousands):
|  | Three Months Ended September 30, 2023 |
|  | Property, Plant and Equipment |  |  | Operating Lease Right-of-Use Assets |  |  | Total |
Net book value of impaired facilities before write-off |  | $ | 3,050 |  |  | $ | 18,830 |  |  | $ | 21,880 |
Less: Fair value of impaired facilities — Level 3 of Fair Value Hierarchy |  |  | (1,650 | ) |  |  | (9,663 | ) |  |  | (11,313 | )
Total impairment of right-of-use assets and property, plant and equipment |  | $ | 1,400 |  |  | $ | 9,167 |  |  | $ | 10,567 |
(Gain) on sale or disposal of property, plant and equipment, net |  |  | (394 | ) |  |  | — |  |  |  | (394 | )
Total impairment of right-of-use assets and property, plant and equipment |  | $ | 1,006 |  |  | $ | 9,167 |  |  | $ | 10,173 |
|  | Nine Months Ended September 30, 2023 |
|  | Property, Plant and Equipment |  |  | Operating Lease Right-of-Use Assets |  |  | Total |
Net book value of impaired facilities before write-off |  | $ | 10,257 |  |  | $ | 63,656 |  |  | $ | 73,913 |
Less: Fair value of impaired facilities — Level 3 of Fair Value Hierarchy |  |  | (5,486 | ) |  |  | (33,098 | ) |  |  | (38,584 | )
Impairment expense for facilities |  |  | 4,771 |  |  |  | 30,558 |  |  |  | 35,329 |
Impairment of other property, plant and equipment |  |  | 1,299 |  |  |  | — |  |  |  | 1,299 |
Total impairment of right-of-use assets and property, plant and equipment |  | $ | 6,070 |  |  | $ | 30,558 |  |  | $ | 36,628 |

X
- References No definition available. + Details
Name: | us-gaap_RestructuringAndRelatedActivitiesAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure of costs incurred for restructuring including, but not limited to, exit and disposal activities, remediation, implementation, integration, asset impairment, and charges against earnings from the write-down of assets. + References No definition available. + Details
Name: | us-gaap_RestructuringImpairmentAndOtherActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration