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Liabilities Related to the Sales of Future Royalties | 12 Months Ended
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Dec. 31, 2023
Liability Related To Sale Of Potential Future Royalties [Abstract] |
Liabilities Related to the Sales of Future Royalties | Note 5 — 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, 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. As of December 31, 2023, our prospective effective interest rate used to amortize the liability is 30%. We were required to pay RPI an aggregate $10.0 million as a result of worldwide net sales of MIRCERA® during the years 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. 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 approximatel y $84.7 million. As a result, we recognized a non-cash loss of $23.5 million on the revaluation of the prior liability in the three months ended December 31, 2021, and we wrote off 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. Although we sold all of our rights to receive royalties from these products up to the cap, 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 account for the transaction as debt and recognize these non-cash royalties as revenue. 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, 2023, our prospective effective interest rate used to amortize the liability is 17%. The 2020 Purchase and Sale Agreement was to automatically expire, and the payment of the 2020 Transaction Royalties to HCR would cease, when HCR 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). On March 4, 2024, Nektar and HCR amended the 2020 Purchase and Sale Agreement to remove the cap on the royalties in exchange for $15.0 million. Accordingly, HCR will receive all future royalties of these products, and none of these royalties will return to Nektar. The following table shows the activity within the liability account of each arrangement (in thousands):
|  | Year-Ended December 31, 2023 |  |  | Period from inception to December 31, 2023 |
|  | 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 |  | $ | 55,167 |  |  | $ | 102,294 |  |  | $ | 157,461 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Royalty monetization proceeds |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 124,000 |  |  |  | 150,000 |  |  |  | 274,000 |
Non-cash royalty revenue |  |  | (37,323 | ) |  |  | (31,598 | ) |  |  | (68,921 | ) |  |  | (353,847 | ) |  |  | (118,319 | ) |  |  | (472,166 | )
Non-cash interest expense |  |  | 6,373 |  |  |  | 18,961 |  |  |  | 25,334 |  |  |  | 240,542 |  |  |  | 57,976 |  |  |  | 298,518 |
Payments to RPI |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (10,000 | ) |  |  | — |  |  |  | (10,000 | )
Loss on revaluation of liability related to the sale of future royalties |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 23,522 |  |  |  | — |  |  |  | 23,522 |
Liabilities related to the sales of future royalties – ending balance |  |  | 24,217 |  |  |  | 89,657 |  |  |  | 113,874 |  |  |  | 24,217 |  |  |  | 89,657 |  |  |  | 113,874 |
Less: unamortized transaction costs |  |  | — |  |  |  | (1,249 | ) |  |  | (1,249 | ) |  |  | — |  |  |  | (1,249 | ) |  |  | (1,249 | )
Liabilities related to the sales of future royalties, net |  | $ | 24,217 |  |  | $ | 88,408 |  |  | $ | 112,625 |  |  | $ | 24,217 |  |  | $ | 88,408 |  |  | $ | 112,625 |
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. 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 prospectively adjust the imputed interest rate and the related amortization of the appropriate Royalty Obligation.

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