Restructuring, Impairment and Other Costs of Terminated Program

12 Months Ended

Dec. 31, 2022

Restructuring and Related Activities [Abstract]

Restructuring, Impairment and Other Costs of Terminated Program

As discussed in Note 1, because our registrational trials in bempegaldesleukin did not meet their primary endpoints, we decided to discontinue all of our ongoing clinical trials of bempegaldesleukin in combination with checkpoint inhibitors and tyrosine kinase inhibitors, and, during April 2022, we announced the 2022 Restructuring Plan to prioritize key Phase 2 development programs, to advance our early stage research pipeline and to reduce our workforce by approximately 70% from approximately 735 to approximately 225 employees. In connection with these events, we reported the following costs in restructuring, impairment and other costs of terminated program for the year ended December 31, 2022:

•Clinical trial expense, other third-party costs and employee costs for the wind down of the bempegaldesleukin program, net of the reimbursement from BMS;

•Severance and related benefit costs pursuant to the 2022 Restructuring Plan;

•Impairment of sublease assets, including right-of-use assets and property, plant and equipment resulting from the 2022 Restructuring Plan, reflecting excess office and laboratory leased spaces in San Francisco, CA;

•(Gain) loss on sale or disposal of property, plant and equipment; and

•Contract termination and other costs associated with the wind down of the bempegaldesleukin program.

In prior periods through March 31, 2022, we reported the clinical trial costs, other third-party costs and employee costs related to the bempegaldesleukin program primarily in research and development expense.

Restructuring, impairment and other costs of terminated program includes the following (in thousands):


	Year Ended December 31, 2022
Clinical trial expense, other third-party and employee costs for the wind down of the bempegaldesleukin program	$	31,693
Severance and benefit expense	30,904
Impairment of right-of-use assets and property, plant and equipment	65,761
(Gain) loss on sale or disposal of property, plant and equipment, net	(3,326)
Contract termination and other restructuring costs	10,898
Restructuring, impairment and other costs of terminated program	$	135,930

Clinical trial expense, other third-party and employee costs for the wind down of the bempegaldesleukin program

The clinical costs associated with winding down the bempegaldesleukin program primarily include clinical trial and other development expenses to transition patients from our sponsor-led trials to standard of care or our post-trial access program, as well as direct employee costs supporting these efforts. We recorded a reduction of expense of $20.8 million for the net reimbursement from BMS primarily for such costs.

Severance and Benefit Expense

Employees affected by the reduction in force under our 2022 Restructuring Plan were entitled to receive severance payments and certain Company funded benefits. We recognized severance and benefit expense in full for employees who were notified of their termination in April 2022 and had no requirements for future service, and we recognized expense for employees who were required to render services to receive their severance ratably over the service period. This service period began in April 2022 with all affected employees terminated on or before December 31, 2022, and therefore we will recognize no further expense. The following table provides details regarding the severance and other termination benefit expense. We present the liability, which we paid in January 2023, in accrued compensation on our Consolidated Balance Sheet (in thousands):


	Year Ended December 31, 2022
	No service period		Service period required		Total
Liability balance as of March 31, 2022	$	—	$	—	$	—
Expense recognized during the period	22,993		7,911		30,904
Payments during the period	(22,993)		(4,612)		(27,605)
Liability balance as of December 31, 2022	$	—	$	3,299	$	3,299

Impairment of Right-of-Use Assets and Property, Plant and Equipment

In connection with our 2022 Restructuring Plan, we have consolidated our San Francisco operations in our Mission Bay Facility, and we have vacated our Third St. Facility and certain laboratory and office spaces at our Mission Bay Facility. We are seeking to sublease the vacated spaces, while still maintaining sufficient office and laboratory space to allow our team to develop our proprietary programs.

As a result of these plans, we reviewed each of our vacated spaces for impairment as of May 31, 2022, when management had determined which spaces we would seek to sublease, and subsequently at each reporting date or as facts and circumstances changed. As part of our impairment evaluation of each vacated space, we separately compared the estimated undiscounted income to the net book value of the related long-term assets, which include right-of-use assets and certain property, plant and equipment, primarily leasehold improvements (collectively, sublease assets). We estimated sublease income using market participant assumptions, including the length of time to enter into a sublease and sublease payments, which we evaluated using sublease negotiations or agreements when applicable, current real estate trends and market conditions. If such income exceeded the net book value of the related assets, we did not record an impairment charge. Otherwise, we recorded an impairment charge by reducing the net book value of the assets to their estimated fair value, which we determined by discounting the estimated sublease cash flows using the estimated borrowing rate of a market participant subtenant, which we estimated to be 6.4% and 7.9% as of May 31, 2022 and December 31, 2022, respectively. We recorded the substantial majority of our impairment charges as of May 31, 2022, primarily reflecting decreased rental recovery rates for our office lease space on Third St. However, as the office lease market in San Francisco deteriorated after May 31, 2022 in the fourth quarter of 2022, we recorded an additional impairment charge of $12.0 million in the three months ended December 31, 2022, for the Third St. Facility, reflecting an increase in our estimated time to enter into a sublease.

We recorded impairment charges as follows (in thousands):


	Year Ended December 31, 2022
	Operating Lease Right-of-Use Assets		Property, Plant and Equipment		Total
Net book value of impaired sublease assets as of May 31, 2022	$	72,481	$	16,348	$	88,829
Less: Fair value of impaired sublease assets — Level 3 of Fair Value Hierarchy	(16,174)		(4,780)		(20,954)
Book value in excess of fair value	56,307		11,568		67,875
Less: Amounts recorded as amortization between May 31 and December 31, 2022 for Third St. facility	(1,717)		(397)		(2,114)
Total impairment of sublease assets	$	54,590	$	11,171	$	65,761

We may record adjustments to impairment expense in future periods as we enter into sublease agreements or update our estimates as additional information becomes available to us.

(Gain) Loss on Sale or Disposal of Property, Plant and Equipment, Net

In connection with our 2022 Restructuring Plan, we terminated all research and development activities at our owned facility in India, which we sold in December 2022. We also recognized losses including excess equipment, net of sale proceeds, and the disposal of software to support the commercialization of bempegaldesleukin. We recorded the gains and losses as follows (in thousands):


	Year Ended December 31, 2022
Proceeds from sales		$	13,196
Net book value of assets		9,870
Total (gain) loss on sale or disposal of property, plan and equipment, net		(3,326)