Condensed Consolidated Financial Statement Details

6 Months Ended

Jun. 30, 2024

Condensed Consolidated Financial Statement Details

Note 3 — Condensed Consolidated Financial Statement Details

Inventory

Inventory consists of the following (in thousands):


	June 30, 2024		December 31, 2023
Raw materials	$	1,719	$	1,861
Work-in-process		10,590		12,880
Finished goods		2,156		1,360
Total inventory, net	$	14,465	$	16,101

We manufacture finished goods inventory upon receipt of firm purchase orders, and we may manufacture certain intermediate work-in-process materials and purchase raw materials based on purchase forecasts from our partners. We include direct materials, direct labor, and manufacturing overhead in inventory and determine cost on a first-in, first-out basis for raw materials and on a specific identification basis for work-in-process and finished goods. We value inventory at the lower of cost or net realizable value, and we write down defective or excess inventory to net realizable value based on historical experience or projected usage. We expense inventory related to our research and development activities as manufactured by us or when purchased.

As of June 30, 2024 and December 31, 2023, we recorded aggregate provisions of $3.1 million and $2.0 million, respectively, for the net realizable value of our batches. Our manufacturing agreement with UCB Pharma (UCB) provides for a fixed selling price which we had negotiated in exchange for a higher royalty rate. Accordingly, when evaluating the net realizable value of our inventory for UCB, we include the negotiated increase of the royalties in our analysis, and the aggregate revenue has historically been greater than our manufacturing cost. Due to the decreases in the royalty rate for 2024 and 2025 as a result of a settlement agreement with UCB, the aggregate revenue is expected to be less than our manufacturing cost for these years, and therefore we recorded a provision for net realizable value. On July 31, 2024, we entered into an extension agreement with UCB that increases the selling price of the reagent beginning in 2025. At the increased selling price, beginning in 2025, we no longer expect the aggregate revenue to be less than our manufacturing costs.

Other Current Assets

Other current assets consist of the following (in thousands):


	June 30, 2024		December 31, 2023
Prepaid research and development expenses	$	4,214	$	4,325
Interest and other non-trade receivables		1,703		1,047
Other prepaid expenses		2,375		4,407
Total other current assets	$	8,292	$	9,779

Property, Plant and Equipment

Property, plant and equipment consists of the following (in thousands):


	June 30, 2024			December 31, 2023
Building and leasehold improvements	$	41,867		$	43,184
Computer equipment and computer software		22,118			22,438
Manufacturing equipment		23,980			24,315
Laboratory equipment		14,385			14,537
Furniture, fixtures and other		541			541
Depreciable property, plant and equipment at cost		102,891			105,015
Less: accumulated depreciation		(88,428	)		(86,898	)
Depreciable property, plant and equipment, net		14,463			18,117
Construction in process		724			739
Property, plant and equipment, net	$	15,187		$	18,856

Due to the weakening lease markets during the three months ended June 30, 2024, we recorded additional non-cash impairment charges of $1.0 million for property, plant and equipment for the three months ended June 30, 2024, which we report in restructuring, impairment and costs of terminated program in our Condensed Consolidated Statement of Operations. See Note 7 for additional information.

Accrued Expenses

Accrued expenses consist of the following (in thousands):


	June 30, 2024		December 31, 2023
Accrued compensation	$	8,715	$	5,553
Accrued research and development expenses		11,060		10,118
Accrued contract termination costs		3,357		3,020
Other accrued expenses		6,382		3,471
Total accrued expenses	$	29,514	$	22,162

Liabilities Related to the Sales of Future Royalties

In 2012 and 2020, we sold to RPI Finance Trust (RPI) and HCR, respectively, our rights to receive royalties under our license and manufacturing agreements with certain pharmaceutical partners under the 2012 Purchase and Sale Agreement and the 2020 Purchase and Sale Agreement, respectively. We account for these transactions as debt and recognize non-cash royalty revenue and non-cash interest expense to amortize the proceeds over the lives of the respective arrangements. We periodically update our prospective non-cash interest rate based on our estimates of future royalties. As of June 30, 2024, our imputed interest rates for the arrangements with RPI and HCR were 35% and 19%, respectively.

The original 2020 Purchase and Sale Agreement was to expire -- and wherein the right to receive royalties would revert to us -- if HCR received aggregate royalties of $210.0 million on or prior to December 31, 2025 (the 2025 Threshold), or, if the 2025 Threshold was not achieved by December 31, 2025, when HCR received aggregate royalties of $240.0 million. On March 4, 2024, Nektar and HCR amended the original 2020 Purchase and Sale Agreement (the Amendment), pursuant to which the parties agreed to remove our reversionary rights in the royalties in exchange for a $15.0 million payment from HCR. Accordingly, HCR will receive all future royalties of the products, and none of these royalties will return to Nektar. We concluded that we should account for the Amendment as a modification of the existing arrangement, and therefore recorded the $15.0 million proceeds as an increase to the liability.

The following is a reconciliation of the changes in our liabilities related to the sales of future royalties for the six months ended June 30, 2024 (in thousands):


	Six Months Ended June 30, 2024
	2012 Purchase and Sale Agreement			2020 Purchase and Sale Agreement			Total
Liabilities related to the sales of future royalties, net – beginning balance	$	24,217		$	88,408		$	112,625
Non-cash royalty revenue		(14,104	)		(18,194	)		(32,298	)
Non-cash interest expense		3,488			8,451			11,939
Amortization of transaction costs		—			240			240
Proceeds from the Amendment		—			15,000			15,000
Liabilities related to the sales of future royalties, net – ending balance	$	13,601		$	93,905		$	107,506

Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in accumulated other comprehensive income (loss) by component (in thousands):


	Foreign currency translation			Available-for-sale securities			Accumulated Other Comprehensive Income
Balance at December 31, 2023	$	30		$	50		$	80
Foreign currency translation adjustments		(8	)		—			(8	)
Unrealized gain on available-for-sale securities		—			(475	)		(475	)
Balance at March 31, 2024	$	22		$	(425	)	$	(403	)
Foreign currency translation adjustments		(1	)		—			(1	)
Unrealized gain on available-for-sale securities		—			(90	)		(90	)
Balance at June 30, 2024	$	21		$	(515	)	$	(494	)


	Foreign currency translation			Available-for-sale securities			Accumulated Other Comprehensive Income
Balance at December 31, 2022	$	(5,131	)	$	(1,776	)	$	(6,907	)
Foreign currency translation adjustments		139			—			139
Unrealized gain on available-for-sale securities		—			1,087			1,087
Balance at March 31, 2023	$	(4,992	)	$	(689	)	$	(5,681	)
Foreign currency translation adjustments		13			—			13
Unrealized gain on available-for-sale securities		—			244			244
Reclassification adjustments to income		(1,026	)		—			(1,026	)
Balance at June 30, 2023	$	(6,005	)	$	(445	)	$	(6,450	)

The reclassification from accumulated other comprehensive loss relates to the closure of one of our foreign subsidiaries and has been included within other income (expense), net in our Condensed Consolidated Statement of Operations.