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Restructuring, Impairment and Costs of Terminated Program | 9 Months Ended
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Sep. 30, 2024
Restructuring and Related Activities [Abstract] |
Restructuring, Impairment and Costs of Terminated Program | Note 7 — 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. Restructuring, impairment and costs of terminated program includes the following (in thousands):
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Clinical trial expense, other third-party and employee costs for the wind down of the bempegaldesleukin program |  | $ | — |  |  | $ | 652 |  |  | $ | — |  |  | $ | 3,606 |
Severance and benefit expense |  |  | — |  |  |  | 535 |  |  |  | — |  |  |  | 7,961 |
Impairment of right-of-use assets and property, plant and equipment |  |  | — |  |  |  | 10,173 |  |  |  | 8,329 |  |  |  | 36,628 |
Contract termination and other restructuring costs |  |  | 46 |  |  |  | — |  |  |  | 5,981 |  |  |  | 912 |
Restructuring, impairment and other costs of terminated program |  | $ | 46 |  |  | $ | 11,360 |  |  | $ | 14,310 |  |  | $ | 49,107 |
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, following our announcement to terminate the program, 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. For the three and nine months ended September 30, 2024, such amounts are immaterial and are included in research and development expense. 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 all expense in 2022 and paid the final liability of $3.3 million in the three months ended March 31, 2023. For the 2023 Restructuring Plan, we recognized $7.9 million in total expense in 2023 for the 2023 Restructuring Plan and paid the final liability of $0.2 million in the three months ended March 31, 2024. We do not expect to recognize any additional severance and benefits expense for the 2022 and 2023 Restructuring Plans. The following table provides details regarding the severance and benefit expense for the three and nine months ended September 30, 2024 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 |
|  | Nine Months Ended September 30, 2024 |
|  | 2023 Restructuring Plan |  |  | 2022 Restructuring Plan |  |  | Total |
Liability balance as of December 31, 2023 |  | $ | 196 |  |  | $ | — |  |  | $ | 196 |
Expense recognized during the period |  |  | — |  |  |  | — |  |  |  | — |
Payments during the period |  |  | (196 | ) |  |  | — |  |  |  | (196 | )
Liability balance as of September 30, 2024 |  | $ | — |  |  | $ | — |  |  | $ | — |
Impairment of Long-Lived Assets As a result of our 2022 and 2023 Restructuring Plans, we decided to seek a sublease for all of our leased spaces on Third Street and Mission Bay Blvd. South (the Third Street Facility and the Mission Bay Facility, respectively). Accordingly, we evaluate each space for impairment when management decides 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. During the three months ended March 31, 2023, we recorded an initial impairment charge of $11.5 million for our remaining office and laboratory leased space in our Mission Bay Facility, when we initially decided to sublease the space under the 2023 Restructuring Plan. We also recorded an additional impairment charge of $1.7 million for certain excess laboratory equipment which we subsequently 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. As the life sciences lease market has continued to deteriorate in the San Francisco Bay Area, we recorded additional non-cash impairment charges of $9.1 million in the three months ended September 30, 2023, and $3.9 million in the three months ended June 30, 2024, for this space. During the three months ended June 30, 2023 and September 30, 2023, we recorded additional non-cash impairment charges of $7.1 million and $1.5 million, respectively, for other sublease assets in our Mission Bay Facility that we sought to sublease under the 2022 Restructuring Plan. Due to the worsening office lease market, for the three months ended June 30, 2024 and 2023, we recorded non-cash impairment charges of $4.4 million and $6.2 million, respectively, for our sublease assets at our Third Street Facility. For these impairment charges, we developed our estimates of sublease income based on market participant assumptions as described above, and we discounted the sublease income using the estimated borrowing rate of a market participant subtenant, which we estimated to be 7.9% for the three months ended March 31, 2023, 8.5% for the three months ended June 30, 2023, 8.7% for the three months ended September 30, 2023, and 6.2% for the three months ended June 30, 2024. We recorded no impairment charges for the three months ended March 31, 2024 and the three months ended September 30, 2024. The following is a reconciliation of the impairment charges we recorded for the nine months ended September 30, 2024 and three and nine months ended September 30, 2023, including the net book values of the sublease assets before the impairment and the fair values of the sublease assets (in thousands):
|  | Nine Months Ended September 30, 2024 |
|  | Property, Plant and Equipment |  |  | Operating Lease Right-of-Use Assets |  |  | Total |
Net book value of impaired facilities before write-off |  | $ | 1,897 |  |  | $ | 12,506 |  |  | $ | 14,403 |
Less: Fair value of impaired facilities — Level 3 of Fair Value Hierarchy |  |  | (855 | ) |  |  | (5,219 | ) |  |  | (6,074 | )
Total impairment of right-of-use assets and property, plant and equipment |  | $ | 1,042 |  |  | $ | 7,287 |  |  | $ | 8,329 |
|  | 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 | )
Impairment expense for facilities |  |  | 1,400 |  |  |  | 9,167 |  |  |  | 10,567 |
(Gain) on sale or disposal of property, plant, and equipment |  |  | (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 |  | $ | 7,206 |  |  | $ | 46,292 |  |  | $ | 53,498 |
Less: Fair value of impaired facilities — Level 3 of Fair Value Hierarchy |  |  | (2,172 | ) |  |  | (14,364 | ) |  |  | (16,536 | )
Book value in excess of fair value |  |  | 5,034 |  |  |  | 31,928 |  |  |  | 36,962 |
Less: Amounts recorded as amortization between March 31, 2023 and September 30, 2023 for Mission Bay facility |  |  | (263 | ) |  |  | (1,370 | ) |  |  | (1,633 | )
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 |
Contract Termination and Other Costs We have incurred significant contract termination costs in connection with our Restructuring Plans. Because we continue to adjust the liability based on updates to our assumptions at each reporting date, we continue to recognize expense as our estimates change until settlement. The following are reconciliations of the contract termination and other costs for three and nine months ended September 30, 2024 and 2023. As of September 30, 2024 and December 31, 2023, we repor t $3.2 m illion and $3.0 million, respectively, within accrued expenses and the remaining within other long-term liabilities on our Condensed Consolidated Balance Sheets.
|  | For the Nine Months Ended September 30, |
|  | 2024 |  |  | 2023 |
Liability balances as of December 31, 2023 and 2022, respectively |  | $ | 5,542 |  |  | $ | 7,710 |
Expense recognized during the period |  |  | 975 |  |  |  | 912 |
Payments during the period |  |  | (928 | ) |  |  | (1,129 | )
Liability balances as of March 31, 2024 and 2023, respectively |  | $ | 5,589 |  |  | $ | 7,493 |
Expense recognized during the period |  |  | 4,960 |  |  |  | - |
Payments during the period |  |  | (887 | ) |  |  | (1,264 | )
Liability balances as of June 30, 2024 and 2023, respectively |  | $ | 9,662 |  |  | $ | 6,229 |
Expense recognized during the period |  |  | 46 |  |  |  | - |
Payments during the period |  |  | (886 | ) |  |  | (460 | )
Liability balances as of September 30, 2024 and 2023, respectively |  | $ | 8,822 |  |  | $ | 5,769 |

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- 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
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