Significant Transactions

9 Months Ended

Sep. 30, 2021

Equity Method Investments and Joint Ventures [Abstract]

Significant Transactions

Significant Transactions

Zentera Therapeutics

In May 2020, we became a majority common shareholder of Zentera Therapeutics, Ltd., a Shanghai-based clinical-stage biopharmaceutical company focused on developing cancer therapeutics (“Zentera”), concurrent with its Series A convertible preferred stock offering. The financial position and results of operations of Zentera have been included in our consolidated financial statements from the date of the initial investment as a result of our control of the entity. In July 2021, Zentera completed a Series B convertible preferred stock offering which diluted our investment to a position of less than majority owned. Upon review of the facts and circumstances, together with the authoritative accounting literature, we determined that consolidation of Zentera is no longer appropriate. After the July 2021 Series B convertible preferred offering in which we did not participate, our review concluded that we ceased to have a controlling financial interest in Zentera, an additional board member was added to the Zentera

board of directors and we concluded that we no longer have the power to direct the activities that most significantly affect Zentera’s economic performance nor are we the primary beneficiary of Zentera.

Beginning in July 2021, the financial position and results of operations of Zentera are no longer included in our consolidated financial statements. An equity method investment of $39.3 million was recorded on our balance sheet representing the fair value of our common stock investment using the backsolve method with consideration for a lack of marketability at the time of deconsolidation. A corresponding deferred tax liability of $1.7 million representing the tax impact of the unrealized gain on deconsolidation was recorded during the three months ended September 30, 2021. A gain of $51.6 million, measured as the difference between the fair value of our retained noncontrolling interest together with the carrying amount of the Zentera noncontrolling interest, and the carrying amount of Zentera’s assets and liabilities was recognized during the third quarter of 2021.

In May 2020, each of our subsidiaries Zeno Alpha, Inc., K-Group Alpha, Inc., Zeno Management Inc., and K-Group Beta, Inc. entered into a collaboration and royalty-bearing license agreement with Zentera, which we refer to as the “Zentera Sublicenses,” pursuant to which we collaborate with Zentera on the development and commercialization of ZN-c3, ZN-c5 and ZN-d5, respectively, in the People’s Republic of China, Macau, Hong Kong and Taiwan, which is referred to as the “Zentera Collaboration Territory.” Under each Zentera Sublicense, Zentera will lead development, and upon regulatory approval, the commercialization, of the collaboration products in the Zentera Collaboration Territory.

Under the terms of the Zentera Sublicenses, Zentera is responsible for the costs of developing the Collaboration Products in the Zentera Collaboration Territory, and we are responsible for the costs of developing the Collaboration Products outside the Zentera Collaboration Territory, provided that Zentera will reimburse us for a portion of the costs for global data management, pharmacovigilance, safety database management, and chemistry, manufacturing and controls activities with respect to each Collaboration Product. Prior to the deconsolidation of Zentera, these costs were eliminated in consolidation. For the period subsequent to deconsolidation to September 30, 2021, the amounts incurred under this arrangement totaled $2.9 million and are presented as contra-research and development expense in the consolidated statement of operations. A corresponding receivable is recorded within prepaid expenses and other current assets on the consolidated balance sheet.