Equity Method Investments

12 Months Ended

Dec. 31, 2022

Equity Method Investments and Joint Ventures [Abstract]

In July 2019, the Company and Bayer CropScience LP ("Bayer LP") formed Oerth Bio, a joint venture to research, develop and commercialize PROTAC targeted protein degraders for applications in the field of agriculture. Pursuant to the terms of the joint venture agreement, the Company made an in-kind intellectual property contribution to Oerth Bio in the form of a license to certain of the Company’s proprietary technology and Bayer LP committed and subsequently made cash contributions to Oerth Bio totaling $56.0 million, as well as an in-kind intellectual property contribution. The Company and Bayer LP each held an initial ownership interest in Oerth Bio representing 50% of the ownership interests. A 15% ownership interest of Oerth Bio was reserved for the future grants of incentive units to employees and service providers and, as a result, the Company's ownership interest totaled 46.5%, 48.4% and 49.4% as of December 31, 2022, 2021 and 2020, respectively, as a result of vested incentive units.

Under the joint venture agreement, the Company has no obligation to provide additional funding and the Company’s ownership interest will not be diluted from future contributions from Bayer LP. The activities of Oerth Bio are controlled by a management board under the joint control of the Company and Bayer LP. As Oerth Bio is jointly controlled by the Company and Bayer LP, the Company accounts for its interest using the equity method of accounting. The Company determined that Oerth Bio is a variable interest entity and, accordingly, the Company has evaluated the significant activities of Oerth Bio under the variable interest entity model and concluded that the significant activities consist primarily of research and development activities and, as the Company does not have the sole power to direct such activities, the Company is not the primary beneficiary.

The Company determined that the fair value of the equity interest it received in Oerth Bio in exchange for the license contributed totaled $49.4 million. The fair value of Oerth Bio was determined utilizing discounted cash flows based on reasonable estimates and assumptions of cash flows expected from Oerth Bio. The Company recognized revenue of $24.7 million in 2019 attributable to the license contributed to Oerth Bio. In 2019, the Company also recognized $24.7 million of equity in net losses of Oerth Bio reducing the carrying value of the Company’s investment to zero.

In connection with the preparation of the Company's consolidated financial statements for the year ended December 31, 2022, the Company identified a prior period error related to the accounting of its investment in Oerth Bio in 2019. Previously, the Company disclosed that revenue of $24.7 million was deferred and would be recognized if and when Oerth Bio recognized revenue associated with the license. The Company has now determined that the consideration received for the amounts associated with the deferred revenue should have been constrained, because at the time Bayer LP had contributed only a portion of its full cash commitment to Oerth Bio, and Bayer LP had the right to all the cash contributed, but not yet spent, upon liquidation of Oerth Bio. The constrained revenue should have been recognized upon both cash being contributed by Bayer LP and the related cash spent by Oerth Bio on research and development activities. As such, the recognition of revenue is accompanied by corresponding equity method losses of the same amount for all periods presented.

The Company evaluated the error and determined that the related impact did not materially misstate the previously issued condensed consolidated financial statements for the years ended December 31, 2021 and 2020. Although the Company concluded that the error was not material to its previously issued consolidated financial statements, the Company has determined it is appropriate to adjust its previously issued consolidated financial statements for the years ended December 31, 2021 and 2020 to correct the error and improve comparability.

The following illustrates the effect of the correction of the immaterial error for the period presented. There was no impact to the balance sheets, net loss per common share, statements of cash flows or changes in shareholders’ equity.


	Year ended December 31, 2021						Year ended December 31,2020
(dollars in millions)	as previously reported		adjustments		as adjusted		as previously reported		adjustments		as adjusted
Revenue	$	46.7	$	6.9	$	53.6	$	21.8	$	4.1	$	25.9
Loss from operations	$	(195.3)	$	6.9	$	(188.4)	$	(124.9)	$	4.1	$	(120.8)
Loss from equity method investment	$	—	$	(6.9)	$	(6.9)	$	—	$	(4.1)	$	(4.1)
Net loss	$	(191.0)	$	—	$	(191.0)	$	(119.3)	$	—	$	(119.3)
Net loss per common share - basic and diluted	$	(3.82)	$	—	$	(3.82)	$	(3.02)	$	—	$	(3.02)
Comprehensive loss	$	(196.2)	$	—	$	(196.2)	$	(118.8)	$	—	$	(118.8)

Operating expenses and net loss of Oerth Bio for the years ended December 31 2022, 2021 and 2020 totaled $22.9 million, $14.3 million and $8.3 million, respectively. The Company recognized equity method losses of $10.6 million, $6.9 million and $4.1 million for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, and 2021, the Company’s carrying value of the investment was zero.

The Company also provides Oerth Bio with compensated research and development and administrative services through a separate agreement. The services rendered by the Company during the years ended December 31, 2022, 2021 and 2020 were immaterial.