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Restructuring, Impairment and Costs of Terminated Program | 12 Months Ended
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Dec. 31, 2023
Restructuring and Related Activities [Abstract] |
Restructuring, Impairment and Costs of Terminated Program | Note 8 — Restructuring, Impairment and Costs of Terminated Program 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 in the Third Street Facility and portions of our office and laboratory space in the Mission Bay Facility. 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 in the Mission Bay Facility, which we had not planned to sublease pursuant to the 2022 Restructuring Plan. 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. Restructuring, impairment and costs of terminated program includes the following (in thousands):
| Year Ended December 31, |
| 2023 |  |  | 2022 |
| 2022 Restructuring Plan |  |  | 2023 Restructuring Plan |  |  | Total |  |  | 2022 Restructuring Plan |
Clinical trial expense, other third-party and employee costs for the wind down of the bempegaldesleukin program | $ | 5,492 |  |  | $ | — |  |  | $ | 5,492 |  |  | $ | 31,693 |
Severance and benefit expense |  | — |  |  |  | 7,885 |  |  |  | 7,885 |  |  |  | 30,904 |
Impairment of right-of-use assets and property, plant and equipment |  | 14,728 |  |  |  | 20,600 |  |  |  | 35,328 |  |  |  | 65,761 |
Loss (gain) on sale or disposal of other property, plant and equipment, net |  | — |  |  |  | 1,300 |  |  |  | 1,300 |  |  |  | (3,326 | )
Contract termination and other restructuring costs |  | 1,919 |  |  |  | 34 |  |  |  | 1,953 |  |  |  | 10,898 |
Restructuring, impairment and costs of terminated program | $ | 22,139 |  |  | $ | 29,819 |  |  | $ | 51,958 |  |  | $ | 135,930 |
Wind Down of the Bempegaldesleukin Program 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. The clinical trial expense, other third-party and employee costs for the wind down of the bempegaldesleukin program for the year ended December 31, 2022 includes reductions of $20.8 million, for the net reimbursement from BMS. The net reimbursement payable to BMS for the year ended December 31, 2023 was not significant. 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 recogn ized $7.9 million of severance and benefit expense for the year ended December 31, 2023 and paid the final liability of $0.2 million in January 2024. We do not expect to recognize any further severance expense for the 2023 Restructuring Plan. The following table provides details regarding the severanc e and benefit expense for the years ended December 31, 2023 and 2022 pursuant to the 2022 and 2023 Restructuring Plans and a reconciliation of the severance and benefits liability for the year ended December 31, 2023 pursuant to the 2022 and 2023 Restructuring Plans, which we report within accrued expenses on our Consolidated Balance Sheets (in thousands):
|  | 2023 Restructuring Plan |  |  | 2022 Restructuring Plan |  |  | Total |
Liability balance as of December 31, 2021 |  | $ | — |  |  | $ | — |  |  | $ | — |
Expense recognized during the period |  |  | — |  |  |  | 30,904 |  |  |  | 30,904 |
Payments during the period |  |  | — |  |  |  | (27,605 | ) |  |  | (27,605 | )
Liability balance as of December 31, 2022 |  | $ | — |  |  | $ | 3,299 |  |  | $ | 3,299 |
Expense recognized during the period |  |  | 7,885 |  |  |  | — |  |  |  | 7,885 |
Payments during the period |  |  | (7,689 | ) |  |  | (3,299 | ) |  |  | (10,988 | )
Liability balance as of December 31, 2023 |  | $ | 196 |  |  | $ | — |  |  | $ | 196 |
Impairment of Long-Lived Assets As a result of our 2022 and 2023 Restructuring Plans, we have decided to sublease all of our leased spaces in the Third Street Facility and the Mission Bay Facility. Accordingly, we evaluated each space for impairment when management decided to sublease the respective space and at each reporting date thereafter, as facts and circumstances change. The significant assumptions in our impairment analysis relate to sublease income, including the length of time to enter into a sublease, sublease rental payments, free rent periods, tenant improvement allowances and broker commissions. When available, we use sublease negotiations or agreements, but in the absence of such information, we develop our own subjective estimates based on current real estate trends and market conditions. Accordingly, our estimates are subject to significant risk, and the terms of sublease agreements, if any, and the resulting amount and timing of sublease income, if ever realized, may be materially different than our estimates. As part of our evaluation of each sublease space, we separately compare the estimated undiscounted sublease income, as described above, 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). If such sublease income exceeds the net book value of the sublease assets, we do not record an impairment charge. Otherwise, we record an impairment charge by reducing the net book value of the sublease 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 has ranged from 6.4% for the three months ended June 30, 2022 to 8.7% for the three months ended September 30, 2023. We recorded non-cash impairment charges of lease assets pertaining to the 2022 and 2023 Restructuring Plans as follows (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 |  |  | December 31, 2023 |  |  | Total |
Mission Bay Blvd. South |  | $ | 3,000 |  |  | $ | 1,200 |  |  | $ | 361 |  |  | $ | — |  |  | $ | 7,061 |  |  | $ | 1,467 |  |  | $ | — |  |  | $ | 13,089 |
Third St |  |  | 49,200 |  |  |  | — |  |  |  | 12,000 |  |  |  | — |  |  |  | 6,200 |  |  |  | — |  |  |  | — |  |  |  | 67,400 |
Total 2022 Restructuring Plan |  |  | 52,200 |  |  |  | 1,200 |  |  |  | 12,361 |  |  |  | — |  |  |  | 13,261 |  |  |  | 1,467 |  |  |  | — |  |  |  | 80,489 |
Mission Bay Blvd. South - 2023 Restructuring Plan |  | N/A |  |  | N/A |  |  | N/A |  |  |  | 11,500 |  |  |  | — |  |  |  | 9,100 |  |  |  | — |  |  |  | 20,600 |
Total impairment of lease assets |  | $ | 52,200 |  |  | $ | 1,200 |  |  | $ | 12,361 |  |  | $ | 11,500 |  |  | $ | 13,261 |  |  | $ | 10,567 |  |  | $ | — |  |  | $ | 101,089 |
• The non-cash impairment charges for the three months ended June 30, 2022 for our Third St. Facility reflects our initial estimates of sublease income when management first decided to sublease the spaces. As the San Francisco office lease market has continued to deteriorate, we have recognized additional non-cash impairment charges for the Third Street Facility 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 Mission Bay Facility 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. • The impairment charges under the 2023 Restructuring Plan include $20.6 million for the impairment of the Mission Bay Facility that we decided to sublease in 2023. 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 signific ant 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. The following are reconciliations of the impairment charges we recorded for the years ended December 31, 2023 and 2022, including the net book values of the sublease assets before the impairment and the fair values of the sublease assets. Since we recorded multiple impairment charges for certain spaces as a resulting of worsening lease markets, we present the net book value before the first impairment in such year and the fair value after the second impairment in such year (in thousands):
|  | Year Ended December 31, 2022 |
|  | Operating Lease |  |  | Property, Plant and |  |  |  |
|  | Right-of-Use Assets |  |  | Equipment |  |  | Total |
Net book value of impaired sublease assets |  | $ | 72,481 |  |  | $ | 16,348 |  |  | $ | 88,829 |
Less: Fair value of impaired sublease assets — Level 3 of Fair Value Hierarchy |  |  | (16,174 | ) |  |  | (4,780 | ) |  |  | (20,954 | )
Book value in excess of fair value |  |  | 56,307 |  |  |  | 11,568 |  |  |  | 67,875 |
Less: Amounts recorded as amortization between June 30, 2022 and December 31, 2022 for Third St. facility |  |  | (1,717 | ) |  |  | (397 | ) |  |  | (2,114 | )
Total impairment of sublease assets |  | $ | 54,590 |  |  | $ | 11,171 |  |  | $ | 65,761 |
|  | Year Ended December 31, 2023 |
|  | Operating Lease Right-of-Use Assets |  |  | Property, Plant and Equipment |  |  | Total |
Net book value of impaired facilities before write-off |  | $ | 46,292 |  |  | $ | 7,206 |  |  | $ | 53,498 |
Less: Fair value of impaired facilities — Level 3 of Fair Value Hierarchy |  |  | (14,364 | ) |  |  | (2,172 | ) |  |  | (16,536 | )
Book value in excess of fair value |  |  | 31,928 |  |  |  | 5,034 |  |  |  | 36,962 |
Less: Amounts recorded as amortization between March 31, 2023 and September 30, 2023 for Mission Bay facility |  |  | (1,371 | ) |  |  | (263 | ) |  |  | (1,634 | )
Total impairment of right-of-use assets and property, plant and equipment |  | $ | 30,557 |  |  | $ | 4,771 |  |  | $ | 35,328 |
(Gain) Loss on Sale or Disposal of Property, Plant and Equipment, Net In connection with our 2022 Restructuring Plan, we terminated all research and development activities at our owned facility in India, which we sold in December 2022. We also sold excess lab equipment and disposed of software to support the commercialization of bempegaldesleukin. In 2023, we sold additional lab equipment under the 2023 Restructuring Plan. We recorded the gains and losses as follows (in thousands):
|  | Year Ended December 31, |
|  | 2023 |  | 2022 |
Proceeds from sales |  | $ | 1,245 |  | $ | 13,196 |
Net book value of assets |  |  | 2,545 |  |  | 9,870 |
Total (gain) loss on sale or disposal of other property, plant and equipment, net |  | $ | 1,300 |  | $ | (3,326 | )
Contract Termination and Other Costs The following is a reconciliation of the contract termination and other costs for the 2022 Restructuring Plan and the related liability of which we report $3.0 million within accrued expenses and the remaining within other long-term liabilities on our Consolidated Balance Sheet as of December 31, 2023:
|  | Year Ended |
|  | December 31, 2023 |
Liability balance as of December 31, 2021 |  | $ | — |
Expense recognized during the period |  |  | 10,898 |
Payments during the period |  |  | (3,188 | )
Liability balance as of December 31, 2022 |  |  | 7,710 |
Expense recognized during the period |  |  | 1,919 |
Payments during the period |  |  | (4,087 | )
Liability balance as of December 31, 2023 |  | $ | 5,542 |

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