Commitments and Contingencies

3 Months Ended

Mar. 31, 2024

Commitments and Contingencies Disclosure [Abstract]

Lease Obligations

In May 2018, the Company entered into an operating lease for its corporate headquarters in South San Francisco (the "Headquarters Lease"), as further described in Note 8, "Commitments and Contingencies," to the consolidated financial statements in the Company's 2023 Annual Report on Form 10-K. In August 2021, the Company entered into an operating lease for laboratory, office and warehouse premises in Salt Lake City, Utah (the “SLC Lease”). In March 2023, the Company terminated the SLC Lease, which resulted in the recognition of $7.9 million of accelerated depreciation on leasehold improvements in the three months ended March 31, 2023.

In April 2023, the Company entered into a new operating lease in Salt Lake City for a 59,336 square foot laboratory, office and warehouse premises with a contractual term of approximately 15 years upon commencement, and future undiscounted lease payments of approximately $13.4 million, which was subsequently amended in October 2023. For accounting purposes, this new lease has not yet commenced, and as such, no lease liability or ROU asset is recorded on the Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023, and no operating lease expense has been recorded on the Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024.

Management exercised judgment in applying the requirements of ASC 842, including the determination as to whether certain contracts contain a lease, the lease consideration, and the commencement date of the lease, and for leases identified under the standard, the discount rate used to determine the measurement of the lease liability. The discount rates of our operating leases are an approximation of the Company's incremental borrowing rate and are dependent upon the term and economics of the agreement. To estimate the incremental borrowing rate, management considers observable debt yields of comparable market instruments, as well as benchmarks within the lease agreement that may be indicative of the rate implicit in the lease. There were no changes to the terms of the leases recognized under ASC 842 during the three months ended March 31, 2024.

Operating lease costs, including variable costs recognized under ASC 842, was $2.9 million for both the three months ended March 31, 2024 and 2023. The following table contains a summary of other information pertaining to the Company’s operating lease for the periods presented (in thousands):


	Three Months Ended March 31,
	2024			2023

Cash paid for amounts included in measurement of lease liabilities	$	2,793		$	2,996

	As of March 31,
	2024			2023
Weighted average remaining lease term	5.1 years			6.1 years
Weighted average discount rate	9.0		%	9.0		%

The following table reconciles the undiscounted cash flows for the next five years and total of the remaining years to the operating lease liabilities recorded in the Condensed Consolidated Balance Sheet as of March 31, 2024 (in thousands):


Year Ended December 31:
2024 (nine months)	$	8,624
2025	11,793
2026	12,182
2027	12,584
2028	13,001
Thereafter	4,381
Total undiscounted lease payments	62,565
Present value adjustment	(12,019)
Net operating lease liability	$	50,546

Indemnification

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to vendors, lessors, business partners, board members, officers, and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company, negligence or willful misconduct of the Company, violations of law by the Company, or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon the Company to provide indemnification under such agreements, and thus, there are no claims that the Company is aware of that could have a material effect on the Company’s Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations and Comprehensive Loss, or Condensed Consolidated Statements of Cash Flows.

Commitments

Effective September 2017, the Company entered into a Development and Manufacturing Services Agreement as amended (“DMSA”) with Lonza Sales AG (“Lonza”) for the development and manufacture of biologic products. Under the DMSA, the Company will execute purchase orders based on project plans authorizing Lonza to provide development and manufacturing services with respect to certain of the Company's antibody and enzyme products, and will pay for the services provided and batches delivered in accordance with the DMSA and project plan. Unless earlier terminated, the DMSA will expire when all development and manufacturing services are completed, which is not expected to be before November 2029. As of March 31, 2024 and December 31, 2023, the Company had total non-cancellable purchase commitments under the DMSA of $33.1 million and $37.6 million, respectively.

During the three months ended March 31, 2024 and 2023, the Company incurred costs of $16.4 million and $5.2 million, respectively, and made payments of $13.5 million and $3.8 million, respectively, for the development and manufacturing services rendered under the DMSA.

In the normal course of business, the Company enters into other firm purchase commitments primarily related to research and development activities. The Company had contractual obligations under certain clinical and manufacturing agreements other than the DMSA of $34.5 million and $34.8 million, as of March 31, 2024 and December 31, 2023, respectively, with certain amounts subject to cost sharing with Takeda.

Contingencies

From time to time, the Company may be involved in lawsuits, arbitration, claims, investigations and proceedings consisting of intellectual property, employment and other matters which arise in the ordinary course of business. The Company records accruals for loss contingencies to the extent that the Company concludes that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated.