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License, Collaboration, and Success Payment Agreements | 6 Months Ended
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Jun. 30, 2023
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
License, Collaboration, and Success Payment Agreements | icense, Collaboration and Success Payment Agreements Fred Hutch License Agreement - In 2018, the Company entered into a license agreement with Fred Hutchinson Cancer Center (“Fred Hutch”) that grants the Company a worldwide, sublicensable license under certain patent rights (exclusive) and certain technology (non-exclusive) to research, develop and commercialize products and processes for all fields of use utilizing chimeric antigen receptors (“CARs”) and/or T-cell receptors (“TCRs”), subject to certain exceptions. The Company is required to pay Fred Hutch annual license maintenance payments of $50,000 on the second anniversary of the effective date, and each anniversary of the effective date thereafter until the first commercial sale of a licensed product. Collaboration - In 2018, the Company entered into a research and collaboration agreement with Fred Hutch (“Fred Hutch Collaboration Agreement”) focused on research and development of cancer immunotherapy products. The Company funded aggregate research performed by Fred Hutch of $12.0 million under the Fred Hutch Collaboration Agreement, with the research conducted in accordance with a research plan and budget approved by the parties. The Fred Hutch Collaboration Agreement has a six-year term. The Company incurred $0.1 million and $0.5 million in expense in connection with the Fred Hutch Collaboration Agreement for the three months ended June 30, 2023 and 2022, respectively, and $0.4 million and $1.0 million for the six months ended June 30, 2023 and 2022, respectively. Success Payments - In 2018, the Company granted Fred Hutch rights to certain success payments, pursuant to the terms of the Fred Hutch Collaboration Agreement. The potential payments for the Fred Hutch success payments are based on multiples of increased value ranging from 10x to 50x based on a comparison of the per share fair market value of the Company’s common stock relative to the original $1.83 per share issuance price of the Company’s Series A convertible preferred stock, which converted into an equal number of shares of the Company’s common stock in connection with the Company’s initial public offering (“IPO”). The aggregate success payments to Fred Hutch are not to exceed $200.0 million, which would only occur upon a 50x increase in value. Each threshold is associated with a success payment, ascending from $10.0 million at $18.29 per share to $200.0 million at $91.44 per share, payable if such threshold is reached during the measurement period. Any previous success payments made are credited against the success payment owed as of any valuation date, such that Fred Hutch does not receive multiple success payments in connection with the same threshold. The term of the success payment agreement ends on the earlier to occur of (i) the nine-year anniversary of the date of the agreement and (ii) a change in control transaction. The following table summarizes the aggregate potential success payments, which are payable to Fred Hutch in cash or cash equivalents, or at the Company’s discretion, publicly-tradeable shares of the Company’s common stock:
Multiple of initial equity value at issuance | 10x |  | 20x |  | 30x |  | 40x |  | 50x
Per share common stock price required for payment | $ | 18.29 |  |  | $ | 36.58 |  |  | $ | 54.86 |  |  | $ | 73.15 |  |  | $ | 91.44 |
Aggregate success payment(s) (in millions) | $ | 10 |  |  | $ | 40 |  |  | $ | 90 |  |  | $ | 140 |  |  | $ | 200 |
The success payments will be owed if the per share fair value of the Company’s common stock on the contractually specified valuation measurement dates during the term of the success payment agreement equals or exceeds the above outlined multiples. The valuation measurement dates are triggered by the following events: the one-year anniversary of the Company’s IPO and each two-year anniversary of the Company’s IPO thereafter, the closing of a change in control transaction and the last day of the term of the success payment agreement, unless the term has ended due to the closing of a change of control transaction. As of June 30, 2023, no success payments have been incurred as the per share fair value of the Company’s common stock was below the price required for payment. The success payment liability was estimated at fair value at inception and at each subsequent reporting period and the associated expense was accreted over the service period of the success payment obligations as research and development expense through 2022. As of December 31, 2022, the Company’s associated success payment liability was fully accreted to fair value as Fred Hutch had provided the requisite service obligation to earn the potential success payment consideration under the continued collaboration. For the three and six months ended June 30, 2023 and future periods, the change in the Fred Hutch success payment liability fair value is recognized in other (expense) income, net, as the requisite service obligation had been met. The success payment liability was $1.9 million and $2.5 million as of June 30, 2023 and December 31, 2022, respectively. With respect to the Fred Hutch Collaboration Agreement success payment obligations, the Company recognized expense of $0.5 million and $2.2 million for the three months ended June 30, 2023 and 2022, respectively, and gains of $0.6 million for both the six months ended June 30, 2023 and 2022. Stanford License Agreement - In 2019, the Company entered into a license agreement with The Board of Trustees of the Leland Stanford Junior University (“Stanford”) to license specified patent rights. The Company is required to pay Stanford annual license maintenance payments of $50,000 on the second anniversary of the effective date, and each anniversary of the effective date thereafter until the date of the first commercial sale of a licensed product. Milestone payments to Stanford of up to a maximum of $3.7 million per target are payable upon achievement of certain specified clinical and regulatory milestones. The Company is also obligated to pay Stanford $2.5 million collectively for all licensed products upon the achievement of a certain commercial milestone. Additionally, low single‑digit tiered royalties based on annual net sales of the licensed products are payable to Stanford. Collaboration Agreement - In October 2020, the Company entered into a research and collaboration agreement with Stanford (“Stanford Collaboration Agreement”), focused on research and development of cellular immunotherapy products. The Stanford Collaboration Agreement has a four-year term. The Company is committed to fund aggregate research performed by Stanford of $12.0 million under the Stanford Collaboration Agreement, and the research will be conducted in accordance with a research plan and budget approved by the parties. The Company incurred $0.7 million and $0.8 million in expense in connection with the Stanford Collaboration Agreement for the three months ended June 30, 2023 and 2022, respectively, and $1.5 million for both the six months ended June 30, 2023 and 2022. Success Payments - In October 2020, the Company granted Stanford rights to certain success payments, pursuant to the terms of the Stanford Collaboration Agreement. The potential payments for the Stanford Collaboration Agreement success payments are based on multiples of increased value ranging from 10x to 50x based on a comparison of the per share fair market value of the Company’s common stock relative to the original $1.83 issuance price of the Company’s Series A convertible preferred stock, which converted into an equal number of shares of the Company’s common stock in connection with the Company’s IPO. The aggregate success payments to Stanford are not to exceed $200.0 million, which would only occur upon a 50x increase in value. Each threshold is associated with a success payment, ascending from $10.0 million at $18.29 per share to $200.0 million at $91.44 per share, payable if such threshold is reached during the measurement period. Any previous success payments made are credited against the success payment owed as of any valuation date, so that Stanford does not receive multiple success payments in connection with the same threshold. The term of each success payment agreement ends on the earlier to occur of (i) the nine-year anniversary of the date of the agreement and (ii) a change in control transaction. The following table summarizes the aggregate potential success payments, which are payable to Stanford in cash or cash equivalents, or at the Company’s discretion, publicly-tradeable shares of the Company’s common stock:
Multiple of initial equity value at issuance | 10x |  | 20x |  | 30x |  | 40x |  | 50x
Per share common stock price required for payment | $ | 18.29 |  |  | $ | 36.58 |  |  | $ | 54.86 |  |  | $ | 73.15 |  |  | $ | 91.44 |
Aggregate success payment(s) (in millions) | $ | 10 |  |  | $ | 40 |  |  | $ | 90 |  |  | $ | 140 |  |  | $ | 200 |
The success payments will be owed if the per share fair value of the Company’s common stock on the contractually specified valuation measurement dates during the term of the success payment agreement equals or exceeds the above outlined multiples. The valuation measurement dates are triggered by the following events: the one-year anniversary of the Company’s IPO and each two-year anniversary of the Company’s IPO thereafter, the closing of a change in control transaction and the last day of the term of the success payment agreement, unless the term has ended due to the closing of a change of control transaction. As of June 30, 2023, no success payments have been incurred as the per share fair value of the Company’s common stock was below the price required for payment. The estimated fair values of the success payments to Stanford as of June 30, 2023 and December 31, 2022 were $2.7 million and $3.3 million, respectively. The success payment liability is estimated at the fair value at inception and at each subsequent reporting period and the expense is accreted over the service period of the Stanford Collaboration Agreement as research and development expense. The success payment liability was $1.9 million as of both June 30, 2023 and December 31, 2022. With respect to the Stanford Collaboration Agreement success payment obligations, the Company recognized expense of $0.6 million and $1.4 million for the three months ended June 30, 2023 and 2022, respectively, and expense of approximately zero and $0.4 million for the six months ended June 30, 2023 and 2022, respectively. GSK In 2019, the Company entered into the GSK Agreement with GSK for potential T‑cell therapies that apply the Company’s platform technologies and cell therapy innovations with TCRs or CARs under distinct collaboration programs. The GSK Agreement defined two initial collaboration targets, LYL331 and LYL132, and allowed GSK to nominate seven additional targets through July 2024, though no additional targets were nominated over the life of the GSK Agreement. The Company was expected to perform research and development services for each selected target up until a defined point (the “GSK Option Point”), at which time GSK would decide whether or not to exercise an option to obtain a license from the Company (“License Option”) and take over the future development and commercialization. In April 2021, GSK exercised the License Option on LYL331 (NY-ESO-1 TCR with c-Jun) and assumed sole responsibility for future development and commercialization of the program at its own cost and expense. The investigational new drug (“IND”) application for LYL132 was cleared in January 2022, though no patients were treated, and the IND for LYL331 was not submitted to the U.S. Food and Drug Administration. GSK terminated the GSK Agreement effective December 24, 2022, and Lyell has also discontinued any further work on these programs. There are no future performance obligations associated with the GSK Agreement. The Company received a non-refundable upfront payment of $45.0 million under the GSK Agreement. In connection with the GSK Agreement, in May 2019, the Company also entered into a stock purchase agreement with GSK, pursuant to which the Company agreed to sell 30,253,189 shares of Series AA convertible preferred stock at a price of $6.78 per share, which was above the issuance date estimated fair value of $4.84 per share. The difference between the per share values resulted in $58.6 million additional deemed consideration, bringing the total upfront consideration of the GSK Agreement to $103.6 million. The GSK Agreement was deemed to be within the scope of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, because GSK engaged the Company to initially provide research and development services, which were outputs of its ongoing activities, in exchange for consideration. In June 2022, the Company recorded an adjustment to revenue related to a change in estimate in connection with the GSK Agreement due to GSK and the Company mutually agreeing to conclude research activities on an undisclosed target for hematological cancers. The change in estimate decreased the related estimated project costs, which resulted in an increase in the measure of proportional cumulative performance. This adjustment increased revenue by $35.3 million, decreased net loss by $35.3 million and resulted in a $0.14 reduction in the Company’s basic and diluted net loss per common share for the three and six months ended June 30, 2022. The Company recognized revenue related to the research and development services related to the two initial targets of zero and $35.7 million for the three months ended June 30, 2023 and 2022, respectively, and zero and $36.3 million for the six months ended June 30, 2023 and 2022, respectively. The Company had no deferred revenue related to the GSK Agreement as of both June 30, 2023 and December 31, 2022. As of June 30, 2023 and December 31, 2022, there were no contract assets or contract liabilities related to the license contract. PACT In June 2020, the Company entered into a commitment agreement (“PACT Commitment Agreement”) with PACT Pharma, Inc. (“PACT”) to jointly develop and test a next generation personalized anti-cancer T-cell therapy against solid tumors. The Company paid PACT an upfront non-refundable payment of $50.0 million upon execution of the PACT Commitment Agreement. In November 2020, the parties agreed to suspend research and development activity under the PACT Commitment Agreement, and neither party would be required to conduct any further work under the development plan (including manufacturing development) nor incur any financial obligations (including milestone payments) that might otherwise arise, for as long as the parties continued to negotiate in good faith to resolve the issues that had arisen between them relating to the PACT Commitment Agreement. In June 2020 in connection with the entry into the PACT Commitment Agreement, the Company also entered into a stock purchase agreement with PACT (“PACT SPA”), pursuant to which the Company purchased 17,806,901 shares of PACT Series C-1 convertible preferred stock at a purchase price of $2.81 per share. As of the purchase date, the estimated fair value of the Series C-1 convertible preferred stock was $2.05 per share, and the difference between the estimated fair value of the preferred stock as of the purchase date and the purchase price of $13.6 million was deemed to be additional consideration for the PACT Commitment Agreement and recognized as research and development expense. As a result, the total upfront consideration paid in connection with the PACT Commitment Agreement was $63.6 million and was included in research and development expenses. The remaining $36.4 million associated with the PACT Series C-1 convertible preferred stock was recorded in other investments. In the fourth quarter of 2021, the Company fully impaired the remaining balance of $36.4 million. In February 2021, the Company filed a demand for arbitration seeking, among other things, rescission of the PACT Commitment Agreement and the PACT SPA and recovery of the consideration paid thereunder. Arbitration hearings occurred in March and April 2022. On October 1, 2022, the Company entered into a settlement agreement with PACT, pursuant to which the parties agreed to resolve their outstanding legal dispute. In connection with the settlement agreement, the parties also entered into a stock purchase agreement, pursuant to which PACT issued shares of PACT’s Series D convertible preferred stock to the Company in exchange for the Company’s tender of its PACT Series C-1 convertible preferred stock and resolution of the arbitration. The issuance of PACT’s Series D convertible preferred stock, which are non-voting, have limited conversion rights and carry no right to appoint directors, resulted in the Company’s ownership increasing to approximately 80% of PACT’s fully diluted shares outstanding. The settlement agreement also included the termination of the PACT Commitment Agreement. The Company recorded a gain of $2.9 million in October 2022 for the estimated fair value of the PACT Series D convertible preferred stock received as part of the settlement agreement. The PACT Series D convertible preferred stock was recorded at its estimated fair value as of the settlement date and was included in other investments in the Company’s Condensed Consolidated Balance Sheets. In connection with the preparation of the financial statements for the three and six months ended June 30, 2023, the Company performed a qualitative assessment of potential indicators of impairment, resulting in the impairment of the $2.9 million PACT Series D convertible preferred stock investment. See Note 5, Other Investments, for additional details regarding the PACT investment impairment.

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