Restructuring, Impairment and Costs of Terminated Program

9 Months Ended

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 report $3.2 million 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