Condensed Consolidated Financial Statement Details

3 Months Ended

Mar. 31, 2024

Condensed Consolidated Financial Statement Details

Note 3 — Condensed Consolidated Financial Statement Details

Inventory

Inventory consists of the following (in thousands):


	March 31, 2024		December 31, 2023
Raw materials	$	1,936	$	1,861
Work-in-process		9,962		12,880
Finished goods		4,340		1,360
Total inventory, net	$	16,238	$	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 March 31, 2024 and December 31, 2023, we recorded a provision of $2.4 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, and therefore we recorded a provision for net realizable value.

Other Current Assets

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


	March 31, 2024		December 31, 2023
Prepaid research and development expenses	$	4,767	$	4,325
Non-trade receivables and other		1,816		1,047
Other prepaid expenses		4,160		4,407
Total other current assets	$	10,743	$	9,779

Accrued Expenses

Accrued expenses consist of the following (in thousands):


	March 31, 2024		December 31, 2023
Accrued compensation	$	7,384	$	5,553
Accrued clinical trial expenses		4,233		4,321
Liability to collaboration partners		1,310		2,678
Accrued contract termination costs		3,043		3,020
Other accrued expenses		8,311		6,590
Total accrued expenses	$	24,281	$	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 March 31, 2024, our imputed interest rates for the arrangements with RPI and HCR were 30% 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. We included the effects of the Amendment in determining our imputed interest rate of 19% as of March 31, 2024.

The following is a reconciliation of the changes in our liabilities related to the sales of future royalties for the three months ended March 31, 2024 (in thousands):


	Three Months Ended March 31, 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		(6,944	)		(8,564	)		(15,508	)
Non-cash interest expense		1,831			3,700			5,531
Amortization of transaction costs		—			209			209
Proceeds from the Amendment		—			15,000			15,000
Liabilities related to the sales of future royalties, net – ending balance	$	19,104		$	98,753		$	117,857