Condensed Consolidated Financial Statement Details

9 Months Ended

Sep. 30, 2023

Condensed Consolidated Financial Statement Details

Note 3 — Condensed Consolidated Financial Statement Details

Inventory

Inventory consists of the following (in thousands):


	September 30, 2023		December 31, 2022
Raw materials	$	1,918	$	2,575
Work-in-process		12,291		10,749
Finished goods		921		5,878
Total inventory, net	$	15,130	$	19,202

We manufacture finished goods inventory upon receipt of firm purchase orders, and we may manufacture certain intermediate work-in-process materials and purchase raw materials based on purchase forecasts from our partners. We include direct materials, direct labor, and manufacturing overhead in inventory and determine cost on a first-in, first-out basis for raw materials and on a specific identification basis for work-in-process and finished goods. We value inventory at the lower of cost or net realizable value, and we write down defective or excess inventory to net realizable value based on historical experience or projected usage. We expense inventory related to our research and development activities as manufactured by us or when purchased.

During the three months ended September 30, 2023, we recorded a provision for inventory obsolescence of $3.7 million for certain production batches manufactured in our Huntsville, Alabama facility. As a result of our identification of a quality concern of a solvent obtained from a third party that was used in the manufacturing of these batches, the batches are currently being held from further processing pending an investigation and assessment. If the results of the investigation and assessment determine that the held batches can be used for further processing, we may release these batches to our partner.

Other Current Assets

Other current assets consist of the following (in thousands):


	September 30, 2023		December 31, 2022
Prepaid research and development expenses	$	2,014	$	7,398
Non-trade receivables and other		1,226		2,423
Other prepaid expenses		5,793		5,987
Total other current assets	$	9,033	$	15,808

Property, Plant and Equipment

Property, plant and equipment consists of the following (in thousands):


	September 30, 2023			December 31, 2022
Building and leasehold improvements	$	42,641		$	74,889
Computer equipment and computer software		24,586			26,205
Manufacturing equipment		25,352			25,052
Laboratory equipment		14,592			24,243
Furniture, fixtures and other		533			4,263
Depreciable property, plant and equipment at cost		107,704			154,652
Less: accumulated depreciation		(88,243	)		(124,731	)
Depreciable property, plant and equipment, net		19,461			29,921
Construction in process		488			2,530
Property, plant and equipment, net	$	19,949		$	32,451

As a result of the sustained decrease in the fair value of our single reporting unit during the three months ended March 31, 2023, plans to sublease all of our laboratory and office space, and the weakening sublease markets, we have recorded non-cash impairment charges of $6.1 million for property, plant and equipment for the nine months ended September 30, 2023, which we report in restructuring, impairment and costs of terminated program in our Condensed Consolidated Statement of Operations. See Note 6 for additional information.

Goodwill

The following is a reconciliation of the changes in our goodwill for the nine months ended September 30, 2023 (in thousands):


	Nine months ended September 30, 2023
Goodwill – beginning balance	$	76,501
Impairment of goodwill		(76,501	)
Goodwill – ending balance	$	—

As a result of the decrease in the fair value of our single reporting unit during the three months ended March 31, 2023, we recorded a non-cash goodwill impairment charge of $76.5 million, which we report as impairment of goodwill in our Condensed Consolidated Statement of Operations. We had previously recognized goodwill primarily from our acquisitions of Shearwater Corp. and Aerogen, Inc. in 2001 and 2005, respectively. See Note 6 for additional information.

Accrued Expenses

Accrued expenses consist of the following (in thousands):


	September 30, 2023		December 31, 2022
Accrued compensation	$	11,477	$	9,582
Accrued clinical trial expenses		4,236		12,262
Liability to collaboration partners		4,444		3,808
Accrued contract termination costs		2,624		3,902
Other accrued expenses		6,948		7,003
Total accrued expenses	$	29,729	$	36,557

Liabilities Related to the Sales of Future Royalties

In 2012 and 2020, we sold to RPI Finance Trust (RPI) and entities managed by Healthcare Royalty Management, LLC (collectively, HCR), respectively, our rights to receive royalties under our license and manufacturing agreements with certain pharmaceutical partners under the 2012 Purchase and Sale Agreement and the 2020 Purchase and Sale Agreement, respectively. We account for these transactions as debt and recognize non-cash royalty revenue and non-cash interest expense to amortize the proceeds over the lives of the respective arrangements. We periodically update our prospective non-cash interest rate based on our estimates of future royalties. As of September 30, 2023, our imputed interest rates for the arrangements with RPI and HCR were 10% and 20%, respectively.

The following is a reconciliation of the changes in our liabilities related to the sales of future royalties for the nine months ended September 30, 2023 (in thousands):


	Nine Months Ended September 30, 2023
	2012 Purchase and Sale Agreement			2020 Purchase and Sale Agreement			Total
Liabilities related to the sales of future royalties, net – beginning balance	$	55,167		$	100,211		$	155,378
Non-cash royalty revenue		(28,035	)		(22,825	)		(50,860	)
Non-cash interest expense		3,551			14,916			18,467
Amortization of transaction costs		—			625			625
Liabilities related to the sales of future royalties, net – ending balance	$	30,683		$	92,927		$	123,610

Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in accumulated other comprehensive income (loss) by component (in thousands):


	Foreign currency translation			Available-for-sale securities			Accumulated Other Comprehensive Income
Balance at December 31, 2022	$	(5,131	)	$	(1,776	)	$	(6,907	)
Foreign currency translation adjustments		139			—			139
Unrealized gain on available-for-sale securities		—			1,087			1,087
Balance at March 31, 2023	$	(4,992	)	$	(689	)	$	(5,681	)
Foreign currency translation adjustments		13			—			13
Unrealized gain on available-for-sale securities		—			244			244
Reclassification adjustments to income		(1,026	)		—			(1,026	)
Balance at June 30, 2023	$	(6,005	)	$	(445	)	$	(6,450	)
Foreign currency translation adjustments		(98	)		—			(98	)
Unrealized gain on available-for-sale securities		—			196			196
Balance at September 30, 2023	$	(6,103	)	$	(249	)	$	(6,352	)

The reclassification from accumulated other comprehensive loss relates to the closure of one of our foreign subsidiaries and has been included within interest income and other income (expense), net in our Condensed Consolidated Statement of Operations for the nine months ended September 30, 2023.