Subleases

6 Months Ended

Jun. 30, 2024

Subleases

Subleases

6. Subleases

In March 2024, the Company entered into a non-cancelable agreement under which it subleased approximately 8,000 square feet of its South San Francisco office space to an unaffiliated company. The sublease term is for approximately two years expiring in April 2026, and the subtenant has no option to extend the sublease. Under the terms of the sublease, the Company is entitled to receive an initial monthly base rent of $38,000 with a 3% increase after the first year. The Company will recognize approximately $0.9 million in total sublease income on a straight-line basis over the two-year sublease term. Sublease income is recognized as a reduction to the Company’s facilities expense which is then allocated to selling, general and administrative expenses and R&D expenses in the condensed consolidated statements of operations.

As of June 30, 2024, the Company has subleased approximately 107,000 square feet of a total 162,000 square feet of its South San Francisco office and laboratory space under three separate subleases with unaffiliated companies. The Company’s sublease income from all three subleases is summarized below:

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2024		2023		2024		2023
Sublease income	$	2,204	$	2,090	$	4,294	$	4,180

Impairment of Long-Lived Assets

As of June 30, 2024, the Company had approximately 31,000 square feet of remaining vacant office and laboratory space in South San Francisco on the market for sublease primarily as a result of strategic actions taken in February 2023 (See “Note 8. Restructuring and Related Expenses” for more information). The Company evaluates the carrying value of its long-lived asset groups, which includes operating lease assets and leasehold improvements, for impairment when indicators exist that the carrying amounts of an asset may not be fully recoverable. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset or asset group are less than its carrying amount. Impairment, if any, is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

The Company determined that the ceased occupancy and current sublease marketing of the office and laboratory space were indicators of impairment. The Company operates within a single segment and identified three asset groups for the purposes of its long-lived impairment assessment which were comprised of (i) vivarium laboratory asset group; (ii) general laboratory asset group; and (iii) entity-wide asset group. The vacant office space, which the Company determined it may reoccupy in the future, was considered part of the entity-wide asset group.

Based on the Company’s impairment assessment as of June 30, 2024, the Company determined that the carrying values of two asset groups, consisting of the vacant vivarium laboratory space and vacant general laboratory

space (including related leasehold improvements) and comprising approximately 22,000 square feet, exceeded the estimated undiscounted future cash flows of the two asset groups under the current sublease market conditions. Under ASC 360, Property, Plant, and Equipment, the Company then proceeded to estimate the fair value of the two asset groups. The Company applied a discounted cash flow method to estimate the fair values of the two asset groups, which represents Level 3 non-recurring fair value measurements. The estimated fair values of the two asset groups were determined by discounting the estimated sublease net cash flows based on the Company’s estimates and assumptions including, but not limited to, expected sublease rental income of $3.3 million, an annual discount rate of 9.7%, and other variable lease-related expenses to be incurred during the subtenant search period. The Company’s estimates and assumptions used to determine the estimated fair values of the two asset groups are subject to risks, uncertainties, and changes in circumstances that may result in adjustments and material changes to the estimated fair values in future periods.

For the three and six months ended June 30, 2024, the Company recognized a non-cash impairment charge of $3.0 million based on the amount of excess carrying value of the two asset groups over its estimated fair values as described above. The impairment amount is presented in the Company’s condensed consolidated statements of operations within “Impairment of long-lived assets”. The Company will continue to update its long-lived asset impairment assessment each quarterly period.