Fair Value Measurements

12 Months Ended

Dec. 31, 2022

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 15. Fair value measurements

We determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows:

•Level 1 inputs include unadjusted quoted prices in active markets for identical assets or liabilities;

•Level 2 inputs include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability; and

•Level 3 inputs include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Our Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The following tables summarizes the types of assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy (in millions):

	December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	169	$	-	$	-	$	169
U.S. treasury securities		-		314		-		314
Corporate securities and commercial paper		-		631		-		631
U.S. government agency securities		-		20		-		20
Certificate of deposit		-		4		-		4
Total assets measured at fair value	$	169	$	969	$	-	$	1,138
Liabilities
Liability for sale of future royalties	$	-	$	-	$	17	$	17
Total liabilities measured at fair value	$	-	$	-	$	17	$	17

	December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	148	$	-	$	-	$	148
U.S. treasury securities		-		112		-		112
Corporate securities and commercial paper		-		421		-		421
Total assets measured at fair value	$	148	$	533	$	-	$	681
Liabilities
Liability for sale of future royalties	$	-	$	-	$	5	$	5
Total liabilities measured at fair value	$	-	$	-	$	5	$	5

Liability for sale of future royalties

In 2021, we entered into an agreement with BVF Partners L.P. (BVF), under which BVF will fund the discovery and development of compounds for the treatment of inflammatory diseases (the Program) for $15 million in non-refundable payments paid in 2021 and 2022. In return, we are obligated to perform research and development activities in the Program, to make contingent payments upon the achievement of certain clinical and regulatory milestones of

up to $73 million or $160 million depending on whether the program is solely developed by us or with Gilead if they opt-in pursuant to the Gilead Collaboration Agreement. We will also pay mid- to high-single digit royalties on any net product sales generated by the Program. We account for the BVF Agreement as a liability primarily because we have significant continuing involvement in generating the cash flows due to BVF.

The liability is recorded at fair value by using probability-adjusted discounted cash flows, and we revalue this liability each reporting period until the related contingencies have been resolved. The fair value measurement of this liability is based on significant unobservable inputs reviewed quarterly by management. The inputs include, as applicable, estimated probabilities and the timing of achieving specified development, regulatory and commercial milestones as well as estimated annual sales. Significant changes that increase or decrease the probabilities of achieving the related development, regulatory and commercial events or that shorten or lengthen the time required to achieve such events or that increase or decrease estimated annual sales would result in corresponding increases or decreases in the fair values of the obligations, as applicable. Changes in the fair value of this liability related to interest accretion are recognized in Non-operating income (expense) in the Consolidated Statements of Operations.

The imputed effective interest rate on the unamortized portion of the liability was approximately 20.6% as of December 31, 2022. The liability for sale of future royalties is reported in Other noncurrent liabilities in the Consolidated Balance Sheets and changes were as follows (in millions):

	Year Ended December 31
	2022		2021
Beginning balance	$	5	$	-
Cash received		10		5
Interest accretion		2		-
Ending balance	$	17	$	5