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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 0-32405 
SEAGEN INC.
(Exact name of registrant as specified in its charter) 
Delaware 91-1874389
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
21823 30th Drive SE
Bothell, Washington 98021
(Address of principal executive offices, including zip code)
(Registrant’s telephone number, including area code): (425527-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001SGENThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer   Accelerated filer 
Non-accelerated filer ☐   Smaller reporting company 
Emerging growth company    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   No  
As of October 25, 2021, there were 182,855,795 shares of the registrant’s common stock outstanding.


Seagen Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2021
INDEX
2

PART I. FINANCIAL INFORMATION
Item 1.    Condensed Consolidated Financial Statements
Seagen Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except par value)
September 30, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents$685,173 $558,424 
Short-term investments1,751,201 2,000,996 
Accounts receivable, net387,169 324,988 
Inventories181,375 116,136 
Prepaid expenses and other current assets109,695 61,840 
Total current assets3,114,613 3,062,384 
Property and equipment, net209,469 196,700 
Operating lease right-of-use assets59,653 61,480 
Long-term investments 100,830 
Intangible assets, net266,409 283,680 
Goodwill274,671 274,671 
Other non-current assets53,063 21,161 
Total assets$3,977,878 $4,000,906 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$109,957 $78,067 
Accrued liabilities and other588,477 310,071 
Total current liabilities698,434 388,138 
Long-term liabilities:
Operating lease liabilities, long-term58,878 61,884 
Other long-term liabilities55,611 62,784 
Total long-term liabilities114,489 124,668 
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000 shares authorized; none issued
  
Common stock, $0.001 par value, 250,000 shares authorized; 182,801 shares issued and outstanding at September 30, 2021 and 180,902 shares issued and outstanding at December 31, 2020
183 181 
Additional paid-in capital4,533,360 4,356,922 
Accumulated other comprehensive income823 565 
Accumulated deficit(1,369,411)(869,568)
Total stockholders’ equity3,164,955 3,488,100 
Total liabilities and stockholders’ equity$3,977,878 $4,000,906 
The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Seagen Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(In thousands, except per share amounts)
 Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Revenues:
Net product sales$366,459 $267,494 $1,016,385 $706,473 
Royalty revenues41,028 35,924 104,542 87,520 
Collaboration and license agreement revenues16,573 758,313 23,593 780,250 
Total revenues424,060 1,061,731 1,144,520 1,574,243 
Costs and expenses:
Cost of sales82,650 78,296 224,875 155,962 
Research and development459,092 217,670 924,378 610,945 
Selling, general and administrative180,281 127,579 505,253 375,470 
Total costs and expenses722,023 423,545 1,654,506 1,142,377 
 (Loss) income from operations(297,963)638,186 (509,986)431,866 
Investment and other income, net5,228 1,223 11,255 17,951 
(Loss) income before income taxes(292,735)639,409 (498,731)449,817 
Provision for income taxes1,112 3,242 1,112 3,242 
Net (loss) income$(293,847)$636,167 $(499,843)$446,575 
Net (loss) income per share - basic$(1.61)$3.65 $(2.75)$2.58 
Net (loss) income per share - diluted$(1.61)$3.50 $(2.75)$2.47 
Shares used in computation of per share amounts - basic182,303 174,460 181,696 173,409 
Shares used in computation of per share amounts - diluted182,303 181,877 181,696 180,939 
Comprehensive (loss) income:
Net (loss) income$(293,847)$636,167 $(499,843)$446,575 
Other comprehensive income (loss):
Unrealized gain (loss) on securities available-for-sale, net of tax37 (790)(10)441 
Foreign currency translation (loss) gain(6)172 268 180 
Total other comprehensive income (loss)31 (618)258 621 
Comprehensive (loss) income$(293,816)$635,549 $(499,585)$447,196 
The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Seagen Inc.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
(In thousands)
Common stock
SharesAmountAdditional
paid-in capital
Accumulated other comprehensive incomeAccumulated deficitTotal stockholders' equity
Balances as of December 31, 2019171,994 $172 $3,359,124 $229 $(1,483,238)$1,876,287 
Net loss— — — — (168,402)(168,402)
Other comprehensive income— — — 3,249 — 3,249 
Issuance of common stock for stock option exercises and employee stock purchase plan575 1 21,785 — — 21,786 
Restricted stock vested during the period, net
67  — — —  
Share-based compensation— — 32,698 — — 32,698 
Balances as of March 31, 2020172,636 173 3,413,607 3,478 (1,651,640)1,765,618 
Net loss— — — — (21,190)(21,190)
Other comprehensive loss— — — (2,010)— (2,010)
Issuance of common stock for stock option exercises and employee stock purchase plan858 1 31,484 — — 31,485 
Restricted stock vested during the period, net
371  — — —  
Share-based compensation— — 40,174 — — 40,174 
Balances as of June 30, 2020173,865 $174 $3,485,265 $1,468 $(1,672,830)$1,814,077 
Net income— — — — 636,167 636,167 
Other comprehensive loss— — — (618)— (618)
Premium for commitment to sell common stock— — (250,150)— — (250,150)
Issuance of common stock for stock option exercises and employee stock purchase plan427  19,502 — — 19,502 
Restricted stock vested during the period, net
896 1 (1)— —  
Share-based compensation— — 39,052 — — 39,052 
Balances as of September 30, 2020175,188 $175 $3,293,668 $850 $(1,036,663)$2,258,030 
Balances as of December 31, 2020180,902 $181 $4,356,922 $565 $(869,568)$3,488,100 
Net loss— — — — (121,420)(121,420)
Other comprehensive loss— — — (71)— (71)
Issuance of common stock for stock option exercises and employee stock purchase plan341 — 19,791 — — 19,791 
Restricted stock vested during the period, net
80  — — —  
Share-based compensation— — 38,224 — — 38,224 
Balances as of March 31, 2021181,323 181 4,414,937 494 (990,988)3,424,624 
Net loss— — — — (84,576)(84,576)
Other comprehensive income— — — 298 — 298 
Issuance of common stock for stock option exercises and employee stock purchase plan359 1 13,200 — — 13,201 
Restricted stock vested during the period, net184  — — —  
Share-based compensation— — 37,727 — — 37,727 
Balances as of June 30, 2021181,866 182 4,465,864 792 (1,075,564)3,391,274 
Net loss— — — — (293,847)(293,847)
Other comprehensive income— — — 31 — 31 
Issuance of common stock for stock option exercises and employee stock purchase plan384  22,440 — — 22,440 
Restricted stock vested during the period, net551 1 (1)— —  
Share-based compensation— — 45,057 — — 45,057 
Balances as of September 30, 2021182,801 $183 $4,533,360 $823 $(1,369,411)$3,164,955 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

Seagen Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 Nine Months Ended September 30,
 20212020
Operating activities:
Net (loss) income$(499,843)$446,575 
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities
Share-based compensation121,008 107,458 
Depreciation30,404 26,219 
Amortization of intangible assets17,271 10,541 
Amortization of right-of-use assets
9,530 7,945 
Amortization of premiums, accretion of discounts, and (gains) losses on debt securities
14,692 (426)
Gains on equity securities(9,895)(11,604)
Changes in operating assets and liabilities
Accounts receivable, net(62,181)(57,166)
Inventories(65,239)(10,795)
Prepaid expenses and other assets(57,903)(16,792)
Lease liability(10,906)(8,223)
Deferred revenue 300 
Other liabilities297,438 173,392 
Net cash (used) provided by operating activities(215,624)667,424 
Investing activities:
Purchases of securities(2,388,843)(811,274)
Proceeds from maturities of securities2,715,500 587,000 
Proceeds from sales of securities 194,733 
Purchases of property and equipment(38,755)(65,899)
Net cash provided (used) by investing activities287,902 (95,440)
Financing activities:
Proceeds from exercise of stock options and employee stock purchase plan55,432 72,773 
Net cash provided by financing activities55,432 72,773 
Effect of exchange rate changes on cash and cash equivalents(961)135 
Net increase in cash and cash equivalents126,749 644,892 
Cash and cash equivalents at beginning of period558,424 274,562 
Cash and cash equivalents at end of period$685,173 $919,454 
The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Seagen Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Summary of significant accounting policies
Basis of presentation
The accompanying unaudited condensed consolidated financial statements reflect the accounts of Seagen Inc. and its wholly-owned subsidiaries (collectively “Seagen,” “we,” “our,” or “us”). All intercompany transactions and balances have been eliminated. Management has determined that we operate in one segment: the development and sale of pharmaceutical products on our own behalf or in collaboration with others. Substantially all of our assets and revenues are related to operations in the U.S.; however, we have multiple subsidiaries in foreign jurisdictions, including several subsidiaries in Europe.
The condensed consolidated balance sheet data as of December 31, 2020 were derived from audited financial statements not included in this quarterly report on Form 10-Q. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or SEC, and generally accepted accounting principles in the United States of America, or GAAP, for unaudited condensed consolidated financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments that, in the opinion of management, are necessary for a fair statement of our financial position and results of our operations as of and for the periods presented.
These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC.
The preparation of financial statements in accordance with GAAP requires us to make estimates, assumptions, and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The results of our operations for the three and nine month periods ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year or any other interim period.
Non-cash activities
We had $10.4 million and $6.0 million of accrued capital expenditures as of September 30, 2021 and December 31, 2020, respectively. Accrued capital expenditures are treated as a non-cash investing activity and, accordingly, have not been included in the condensed consolidated statement of cash flows until such amounts have been paid in cash. During the nine months ended September 30, 2021 and 2020, we recorded $7.7 million and $7.0 million, respectively, of right-of-use assets in exchange for lease liabilities, which are treated as a non-cash operating activity. See Note 3 for additional information.
Investments
We hold certain equity securities which are reported at estimated fair value based on quoted market prices. Changes in the fair value of equity securities are recorded in income or loss. The cost of equity securities for purposes of computing gains and losses is based on the specific identification method.
We invest our available cash primarily in debt securities. These debt securities are classified as available-for-sale, which are reported at estimated fair value with unrealized gains and losses included in accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains, realized losses and declines in the value of debt securities judged to be other-than-temporary are included in investment and other income, net. The cost of debt securities for purposes of computing realized and unrealized gains and losses is based on the specific identification method. Amortization of premiums and accretion of discounts on debt securities are included in investment and other income, net. Interest and dividends earned are included in investment and other income, net. Accrued interest receivable as of September 30, 2021, was $2.0 million, and was included in prepaid expenses and other current assets. We classify investments in debt securities maturing within one year of the reporting date, or where management’s intent is to use the investments to fund current operations or to make them available for current operations, as short-term investments.
If the estimated fair value of a debt security is below its carrying value, we evaluate whether it is more likely than not that we will sell the security before its anticipated recovery in market value and whether evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. We also evaluate whether or not we intend to sell the investment. If the impairment is considered to be other-than-temporary, the security is written down to its estimated fair value. In addition, we consider whether credit losses exist for any securities. A credit loss exists if the present value of cash flows expected to be collected is less than the amortized cost basis of the security. Other-than-temporary declines in estimated fair value and credit losses are included in investment and other income, net.
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Intangible assets, net
Our intangible assets are primarily comprised of acquired TUKYSA technology. The following table presents the balances of our finite-lived intangible assets for the periods presented:
(dollars in thousands)September 30, 2021December 31, 2020
Gross carrying value$305,650 $305,650 
Less: accumulated amortization(39,241)(21,970)
Total$266,409 $283,680 
The following table presents our amortization expense related to acquired TUKYSA technology costs, included in cost of sales in our condensed consolidated statements of comprehensive income (loss), for the periods presented:
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2021202020212020
Amortization expense$5,819 $5,805 $17,271 $10,541 
The weighted average remaining useful life of our finite-lived intangible assets was 12 years as of September 30, 2021, and estimated future amortization expense related to acquired TUKYSA is $5.8 million for the three months ending December 31, 2021, and TUKYSA technology costs is $23.1 million for each of the years ending December 31, 2022 through December 31, 2026.
Revenue recognition - Net product sales
We sell our products primarily through a limited number of specialty distributors and specialty pharmacies in the U.S. The delivery of our products represents a single performance obligation for these transactions and we record net product sales at the point in time when title and risk of loss pass. The transaction price for net product sales represents the amount we expect to receive, which is net of estimated government-mandated rebates and chargebacks, distribution fees, estimated product returns, and other deductions. Accruals are established for these deductions, and actual amounts incurred are offset against applicable accruals. We reflect these accruals as either a reduction in the related account receivable from the distributor or as an accrued liability, depending on the nature of the sales deduction. Sales deductions are based on management’s estimates that consider payor mix in target markets and experience to-date. These estimates involve a substantial degree of judgment. We have applied a portfolio approach as a practical expedient for estimating net product sales.
Outside of the U.S., the transaction price for net product sales represents the amount we expect to receive, which is net of estimated discounts, estimated government mandated rebates, distribution fees, estimated product returns, and other deductions. Accruals are established for these deductions, and actual amounts incurred are offset against applicable accruals. These estimates involve judgment in estimating net product sales.
Government-mandated rebates and chargebacks: We have entered into a Medicaid Drug Rebate Agreement, or MDRA, with the Centers for Medicare & Medicaid Services. This agreement provides for a rebate based on covered purchases of our products. Medicaid rebates are invoiced to us by the various state Medicaid programs. We estimate Medicaid rebates using the expected value approach, based on a variety of factors, including payor mix and our experience to-date.
We have a Federal Supply Schedule, or FSS, agreement under which certain U.S. government purchasers receive a discount on eligible purchases of our products. In addition, we have entered into a Pharmaceutical Pricing Agreement with the Secretary of Health and Human Services, which enables certain entities that qualify for government pricing under the Public Health Services Act, or PHS, to receive discounts on their qualified purchases of our products. Under these agreements, distributors process a chargeback to us for the difference between wholesale acquisition cost and the applicable discounted price. We estimate expected chargebacks for FSS and PHS purchases based on the expected value of each entity’s eligibility for the FSS and PHS programs. We also review historical rebate and chargeback information to further refine these estimates.
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Distribution fees, product returns and other deductions: Our distributors charge a volume-based fee for distribution services that they perform for us. We allow for the return of product that is within a specified number of days of its expiration date or that is damaged. We estimate product returns based on our experience to-date using the expected value approach. We provide financial assistance to qualifying patients that are underinsured or cannot cover the cost of commercial coinsurance amounts through our patient support programs. Estimated contributions for commercial coinsurance under Seagen Secure are deducted from gross sales and are based on an analysis of expected plan utilization. These estimates are adjusted as necessary to reflect our actual experience.
Revenue recognition - Royalty revenues
Royalty revenues primarily reflect amounts earned under the ADCETRIS collaboration with Takeda Pharmaceutical Company Limited, or Takeda. These royalties include commercial sales-based milestones and sales royalties that relate predominantly to the license of intellectual property. Sales royalties are based on a percentage of Takeda’s net sales of ADCETRIS, with rates that range from the mid-teens to the mid-twenties based on annual net sales tiers. Takeda bears a portion of low single digit third-party royalty costs owed on its sales of ADCETRIS. This amount is included in royalty revenues. Amounts owed to our third-party licensors related to Takeda’s sales of ADCETRIS are recorded in cost of sales. These amounts are recognized in the period in which the related sales by Takeda occur. Royalty revenues also reflect amounts from Genentech, Inc., a member of the Roche Group, or Genentech, earned on net sales of Polivy, and amounts from GlaxoSmithKline earned on net sales of Blenrep.
Revenue recognition - Collaboration and license agreement revenues
We have collaboration and license agreements for our technology with a number of biotechnology and pharmaceutical companies. Under these agreements, we typically receive or are entitled to receive upfront cash payments and progress- and sales-dependent milestones for the achievement by our licensees of certain events, and annual maintenance fees and support fees for research and development services and materials provided under the agreements. We also are entitled to receive royalties on net sales of any resulting products incorporating our technology. Generally, our licensees are solely responsible for research, product development, manufacturing and commercialization of any product candidates under these collaborations, which includes the achievement of the potential milestones. Since we may not take a substantive role or control the research, development or commercialization of any products generated by some of our licensees, we may not be able to reasonably estimate when, if at all, any potential future milestone payments or royalties may be payable to us by our licensees. As such, the potential future milestone payments associated with certain of our collaboration and license agreements involve a substantial degree of uncertainty.
Collaboration and license agreements are initially evaluated as to whether the intellectual property licenses granted by us represent distinct performance obligations. If they are determined to be distinct, the value of the intellectual property licenses would be recognized up-front while the research and development service fees would be recognized as the performance obligations are satisfied. Variable consideration is assessed at each reporting period as to whether it is not subject to future reversal of cumulative revenue and, therefore, should be included in the transaction price. Assessing the recognition of variable consideration requires significant judgment. If a contract includes a fixed or minimum amount of research and development support, this also would be included in the transaction price. Changes to collaboration and license agreements, such as the extensions of the research term or increasing the number of targets or technology covered under an existing agreement, are assessed for whether they represent a modification or should be accounted for as a new contract.
We have concluded that the license of intellectual property in certain collaboration and license agreements is not distinct from the perspective of our customers at the time of initial transfer, since we often do not license intellectual property without related technology transfer and research and development support services. Such evaluation requires significant judgment since it is made from the customer's perspective. Our performance obligations under our collaborations may include such things as providing intellectual property licenses, performing technology transfer, performing research and development consulting services, providing reagents, ADCs, and other materials, and notifying the customer of any enhancements to licensed technology or new technology that we discover, among others. We determined our performance obligations under certain collaboration and license agreements as evaluated at contract inception were not distinct and represented a single performance obligation. For those agreements, revenue is recognized using a proportional performance model, representing the transfer of goods or services as activities are performed over the term of the agreement. Upfront payments are also amortized to revenue over the performance period. Upfront payment contract liabilities resulting from our collaborations do not represent a financing component as the payment is not financing the transfer of goods or services, and the technology underlying the licenses granted reflects research and development expenses already incurred by us. For agreements beyond the initial performance period, we have no remaining performance obligations. We may receive license maintenance fees and potential milestones and royalties based on collaborator development and regulatory progress, which are recorded in the period achieved in the case of milestones, and during the period of the related sales for royalties.
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When no performance obligations are required of us, or following the completion of the performance obligation period, such amounts are recognized upon transfer of control of the goods or services to the customer. Generally, all amounts received or due other than sales-based milestones and royalties are classified as collaboration and license agreement revenues. Sales-based milestones and royalties are recognized as royalty revenue in the period the related sale occurred.
We generally invoice our collaborators and licensees on a monthly or quarterly basis, or upon the completion of the effort or achievement of a milestone, based on the terms of each agreement. Deferred revenue arises from amounts received in advance of the culmination of the earnings process and is recognized as revenue in future periods as performance obligations are satisfied. Deferred revenue expected to be recognized within the next twelve months is classified as a current liability.
Recent accounting pronouncements adopted
In December 2019, the Financial Accounting Standards Board, or FASB, issued “ASU 2019-12, Simplifying the Accounting for Income Taxes.” The objective of the standard is to improve areas of GAAP by removing certain exceptions permitted by ASC Topic 740-- Income Taxes and clarifying existing guidance to facilitate consistent application. We adopted the standard on January 1, 2021. The adoption of this ASU does not have a material impact on our financial condition, results of operations, cash flows, or financial statement disclosures.

2. Revenue from contracts with customers
Our primary market in which we record our product revenues is the U.S. Royalty revenues primarily reflect royalties earned under the ADCETRIS collaboration with Takeda.
The following table presents our disaggregated revenue for the periods presented. In September 2021, we received FDA accelerated approval of TIVDAK for the treatment of adult patients with recurrent or metastatic cervical cancer with disease progression on or after chemotherapy.
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2021202020212020
ADCETRIS$184,791 $163,263 $529,275 $494,851 
PADCEV95,031 61,849 247,194 153,485 
TUKYSA86,571 42,382 239,850 58,137 
TIVDAK66  66  
Net product sales$366,459 $267,494 $1,016,385 $706,473 
Royalty revenues$41,028 $35,924 $104,542 $87,520 
Merck$541 $725,000 $541 $725,000 
Takeda1,037 7,013 2,888 22,925 
Other14,995 26,300 20,164 32,325 
Collaboration and license agreement revenues$16,573 $758,313 $23,593 $780,250 
Total revenues$424,060 $1,061,731 $1,144,520 $1,574,243 
We estimate an allowance for doubtful accounts based on our assessment of the collectability of customer accounts. We regularly review the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. We did not recognize any credit losses during any of the periods presented.
Merck LV and TUKYSA license and collaboration agreements, and stock purchase agreement
In September 2020, we entered into two license and collaboration agreements, and a stock purchase agreement, with subsidiaries of Merck.
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Under one of the license and collaboration agreements, referred to as the LV Agreement, we are pursuing a broad joint development program evaluating ladiratuzumab vedotin, or LV, as monotherapy and in combination with Merck’s anti-PD-1 therapy KEYTRUDA® (pembrolizumab) in triple-negative breast cancer, hormone receptor-positive breast cancer and other LIV-1-expressing solid tumors. Pursuant to the LV Agreement, we granted to Merck a co-exclusive worldwide development and commercialization license for LV, and agreed to jointly develop and commercialize LV on a worldwide basis. We received an upfront cash payment of $600.0 million, and we are eligible to receive up to $850.0 million in milestone payments upon the initiation of certain clinical trials and regulatory approval in certain major markets, and up to an additional $1.75 billion in milestone payments upon the achievement of specified annual global net sales thresholds of LV. Each company is responsible for 50% of global costs to develop and commercialize LV and will receive 50% of potential future profits. In connection with the LV Agreement, we entered into a stock purchase agreement with Merck, referred to as the Purchase Agreement, pursuant to which we agreed to issue and sell, and Merck agreed to purchase 5,000,000 newly-issued shares of our common stock, at a purchase price of $200 per share, for an aggregate purchase price of $1.0 billion.
Under the other license and collaboration agreement, referred to as the TUKYSA Agreement, we granted Merck exclusive rights to commercialize TUKYSA in Asia, the Middle East and Latin America and other regions outside of the U.S., Canada and Europe. Pursuant to the TUKYSA Agreement, Merck is responsible for marketing applications for approval in its territory, supported by the positive results from the HER2CLIMB clinical trial. We retained commercial rights in the U.S., Canada and Europe, where we will record sales. Merck is also co-funding a portion of the TUKYSA global development plan, which encompasses several ongoing and planned trials across HER2-positive cancers. We will continue to lead ongoing TUKYSA global development operational execution. Merck will solely fund and conduct country-specific clinical trials necessary to support anticipated regulatory applications in its territories. We received an upfront cash payment from Merck of $125.0 million and also received $85.0 million in prepaid research and development funding to be applied to Merck’s global development cost sharing obligations. We are eligible to receive progress-dependent milestone payments of up to $65.0 million, and are entitled to receive tiered royalties on sales of TUKYSA by Merck that begin in the low twenty percent range and escalate based sales volume by Merck in its territory.
We determined that these agreements are within the scope of ASC 808. Pursuant to ASC 808, we considered other authoritative guidance for distinct units of account related to these agreements, including ASC 606. Our performance obligations within the scope of ASC 606 consisted of the delivery of the LV license and transfer of regulatory information to enable the LV collaboration, the delivery of the TUKYSA license and transfer of regulatory materials for use by Merck in its territory, and supply of commercial TUKYSA inventory to Merck for use in its territory. The LV license and TUKYSA license are functional intellectual property and distinct from the other promises made under the contract. Since we also determined that Merck can benefit from the LV license and the TUKYSA licenses at the time of conveyance, the related performance obligations were satisfied at that point in time. Therefore, we recognized the license revenue under ASC 606 of $725.0 million in collaboration and license agreement revenues during the three and nine months ended September 30, 2020.
Potential development, regulatory, and sales-based milestones, and royalties, will be accounted for as variable transaction price related to the LV or TUKYSA licenses under ASC 606. Given the uncertain nature of these payments, we determined they were fully constrained upon entering the agreements and not included in the transaction price. We will re-evaluate the transaction price at each reporting period and as uncertain events are resolved or other changes in circumstances occur.
We and Merck will share equally in LV global development costs and profits, if any, and Merck is co-funding a portion of the TUKYSA global development plan. We consider the collaborative activities associated with the global development and commercialization of LV, and the global development of TUKYSA, to be units of account within the scope of ASC 808. We recognize development cost sharing proportionately with the performance of the underlying activities, and record Merck’s reimbursement of our expenses as a reduction of research and development expenses. Reimbursements from Merck for the LV Agreement and TUKYSA Agreement were not material during the three and nine months ended September 30, 2020. Merck’s prepayment of $85.0 million towards the TUKYSA global development plan was recorded as a co-development liability in other long-term liabilities on our condensed consolidated balance sheet as of September 30, 2020. As joint development expenses are incurred, we recognize the portion of Merck’s prepayment as a reduction of our research and development expenses on our condensed consolidated statements of comprehensive income (loss). As of September 30, 2021, $63.8 million was recorded as the remaining co-development liability. Sales of TUKYSA drug product supplied to Merck were included in collaboration and license agreement revenues.
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The fair market value of 5,000,000 shares of our common stock was $749.9 million, based on the closing price of the last trading day prior to the Purchase Agreement being executed. We accounted for the associated premium of $250.1 million as a freestanding equity-linked instrument under ASC 815. The premium was determined to be variable consideration in the calculation of the total transaction price related to the LV license, and recorded in deferred revenue as of September 30, 2020, due to the substantive contingency associated with closing of the sale of shares under the Purchase Agreement. The closing of the sale of the shares pursuant to the Purchase Agreement occurred in October 2020. Upon closing, we recorded the fair market value of the shares issued in stockholders’ equity on our condensed consolidated balance sheet. The variable consideration restraint was removed upon the closing of the sale of shares pursuant to the Purchase Agreement, and the premium was recognized in collaboration and license agreement revenues in the quarter and year ended December 31, 2020.

3. Leases
Our current operating leases for our office and laboratory facilities with terms that expire from 2022 through 2029. During the nine months ended September 30, 2021 and 2020, we recorded $7.7 million and $7.0 million of right-of-use assets in exchange for lease liabilities, respectively. All of our significant leases include options for us to extend the lease term. None of our options to extend the rental term of any existing leases were considered reasonably certain as of September 30, 2021.
In June 2021, we entered into a lease agreement for an approximately 258,000 square feet building complex to be constructed by the landlord on approximately 20.5 acres of land in Everett, Washington. We intend to use the building for future manufacturing, laboratory, and office space. Under the terms of the lease, base rent is payable at an initial rate of $4.0 million per year, subject to annual escalations of 3% during the initial term of 20 years. The lease commences on the date when construction and delivery of the building shell and related improvements by the landlord have been substantially completed. We will record a lease liability and right-of-use assets on our condensed consolidated balance sheet on the lease commencement date. We have an option to renew the lease for two additional terms of ten years each. In addition, we have an option to purchase the premises in the future.
Supplemental information for lease amounts recognized in our condensed consolidated financial statements was as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2021202020212020
Operating lease cost$4,070 $3,832 $12,147 $10,967 
Variable lease cost1,052 998 3,190 2,972 
Total lease cost$5,122 $4,830 $15,337 $13,939 
Cash paid for amounts included in measurement of lease liabilities$4,372 $3,327 $12,429 $10,223 
As of September 30,
20212020
Weighted average remaining lease term6.1 years6.3 years
Weighted average discount rate5.1 %5.2 %
Lease liabilities were recorded in the following captions of our condensed consolidated balance sheet as follows:
(dollars in thousands)September 30, 2021December 31, 2020
Accrued liabilities and other$13,760 $12,749 
Operating lease liabilities, long-term58,878 61,884 
Total$72,638 $74,633 

4. Net (loss) income per share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares include incremental common shares issuable upon the vesting of unvested restricted stock units and the exercise of outstanding stock options, calculated using the treasury stock method.
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Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands, except per share amounts)2021202020212020
Net (loss) income$(293,847)$636,167 $(499,843)$446,575 
Shares used in computation of per share amounts - basic182,303 174,460 181,696 173,409 
Dilutive potential common shares 7,417  7,530 
Weighted average common shares outstanding - diluted182,303 181,877 181,696 180,939 
Net (loss) income per share - basic$(1.61)$3.65 $(2.75)$2.58 
Net (loss) income per share - diluted$(1.61)$3.50 $(2.75)$2.47 
We excluded the potential shares of common stock from the computation of diluted net income (loss) per share because their effect would have been antidilutive. The following table presents the weighted average number of shares that have been excluded for all periods presented:
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2021202020212020
Stock options and RSUs10,361 437 10,271 310 

5. Fair value
We have certain assets that are measured at fair value on a recurring basis according to a fair value hierarchy that prioritizes the inputs, assumptions and valuation techniques used to measure fair value. The three levels of the fair value hierarchy are:
Level 1:  Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2:  Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.
Level 3:  Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
The determination of a financial instrument’s level within the fair value hierarchy is based on an assessment of the lowest level of any input that is significant to the fair value measurement. We consider observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The fair value hierarchy of assets carried at fair value and measured on a recurring basis was as follows: 
 Fair value measurement using:
(dollars in thousands)Quoted prices
in active
markets for
identical assets
(Level 1)
Other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Total
September 30, 2021
Short-term investments—U.S. Treasury securities$1,751,201 $ $ $1,751,201 
Other non-current assets—equity securities19,161   19,161 
Total$1,770,362 $ $ $1,770,362 
December 31, 2020
Short-term investments—U.S. Treasury securities$2,000,996 $ $ $2,000,996 
Long-term investments—U.S. Treasury securities100,830   100,830 
Total$2,101,826 $ $ $2,101,826 
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Our short- and long-term debt investments portfolio only contains investments in U.S. Treasury and other U.S. government-backed securities. We review our portfolio based on the underlying risk profile of the securities and have a zero loss expectation for these investments. We also regularly review the securities in an unrealized loss position and evaluate the current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions. During the three and nine months ended September 30, 2021 and 2020, we recognized no year-to-date credit loss related to our short- and long-term investments, and had no allowance for credit loss recorded as of September 30, 2021 or December 31, 2020.
Our debt securities consisted of the following:
(dollars in thousands)Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
September 30, 2021
U.S. Treasury securities$1,751,186 $46 $(31)$1,751,201 
Contractual maturities (at date of purchase):
Due in one year or less$1,550,559 $1,550,536 
Due in one to two years200,627 200,665 
Total$1,751,186 $1,751,201 
December 31, 2020
U.S. Treasury securities$2,101,801 $259 $(234)$2,101,826 
Contractual maturities (at date of purchase):
Due in one year or less$1,791,399 $1,791,239 
Due in one to two years310,402 310,587 
Total$2,101,801 $2,101,826 

6. Investment and other income, net
Investment and other income, net consisted of the following:
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2021202020212020
Gain on equity securities$4,966 $ $9,895 $11,604 
Investment and other income, net262 1,223 1,360 6,347 
Total investment and other income, net$5,228 $1,223 $11,255 $17,951 
Gain on equity securities includes the realized and unrealized holding gains and losses on our equity securities.

7. Inventories
Inventories consisted of the following:
(dollars in thousands)September 30, 2021December 31, 2020
Raw materials$139,822 $99,049 
Finished goods41,553 17,087 
Total$181,375 $116,136 
We capitalize our commercial inventory costs. Inventory that is deployed into clinical, research or development use is charged to research and development expense when it is no longer available for use in commercial sales.

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8. Accrued liabilities
Accrued liabilities consisted of the following: 
(dollars in thousands)September 30, 2021December 31, 2020
Employee compensation and benefits$104,178 $96,902 
Clinical trial and related costs107,408 69,756 
Technology acquisition fee200,000  
Gross-to-net deductions and third-party royalties68,907 52,565 
Other 107,984 90,848 
Total$588,477 $310,071 
9. Share-based compensation
The following table presents our total share-based compensation expense for the periods presented:
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2021202020212020
Research and development$20,991 $20,112 $55,187 $54,263 
Selling, general and administrative24,066 18,940 65,821 53,195 
Total share-based compensation expense$45,057 $39,052 $121,008 $107,458 
As of September 30, 2021, there was $267.2 million of unrecognized compensation cost related to unvested options and restricted stock unit awards, excluding our LTIPs and performance-based awards, net of forfeitures.
The estimated unrecognized compensation expense related to our performance-based LTIPs was approximately $78 million as of September 30, 2021. In September 2021, an LTIP milestone was achieved related to FDA approval of TIVDAK, which triggered a cash payment and an RSU grant to eligible participants.

10. RemeGen license agreement
Effective in September 2021, we and RemeGen Co., Ltd., or RemeGen, entered into an exclusive worldwide licensing agreement to develop and commercialize disitamab vedotin, a novel HER2-targeted ADC. Disitamab vedotin combines the drug-linker technology originally developed by us with RemeGen’s novel HER2 antibody. Disitamab vedotin received FDA Breakthrough Therapy designation in 2020 for use in second-line treatment of patients with HER2-expressing, locally advanced or metastatic urothelial cancer who have previously received platinum-containing chemotherapy. Also in 2020, RemeGen announced FDA’s clearance of an Investigational New Drug application for a phase II clinical trial in locally advanced or metastatic urothelial cancer. Disitamab vedotin is conditionally approved for treating locally advanced metastatic gastric cancer in China, and in July 2021 the National Medical Products Administration of China also accepted a New Drug Application for disitamab vedotin in locally advanced or metastatic urothelial cancer.
Under the terms of the agreement, we obtained exclusive license rights to disitamab vedotin for global development and commercialization outside of RemeGen’s territory for an upfront payment of $200.0 million. RemeGen retains development and commercialization rights for Asia, excluding Japan and Singapore. We will lead global development and RemeGen will fund and operationalize the portion of global clinical trials attributable to its territory. RemeGen will also be responsible for all clinical development and regulatory submissions specific to its territory. We will pay RemeGen up to $195.0 million in potential milestone payments across multiple indications and products based upon the achievement of specified development goals, and up to $2.2 billion in potential milestone payments based on the achievement of specified regulatory and commercialization goals. RemeGen will be entitled to a tiered, high single digit to mid-teen percentage royalty based on net sales of disitamab vedotin in our territory.
As of September 30, 2021, we recorded $200.0 million in accrued liabilities in our condensed consolidated balance sheet for the upfront payment owed to RemeGen pursuant to the license agreement. The license was accounted for as an asset acquisition and the upfront payment was included in research and development expenses for the three and nine months ended September 30, 2021. The amount was paid to RemeGen in October 2021.

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11. Income taxes
For the three and nine months ended September 30, 2021, we recorded an income tax provision of $1.1 million, primarily related to the generation of taxable profits in foreign jurisdictions as a result of our global expansion. For the nine months ended September 30, 2021, our effective tax rate of approximately 0.2% differed from the federal statutory rate primarily because we have provided a valuation allowance against substantially all our deferred tax assets.
For the three and nine months ended September 30, 2020, we recorded an income tax provision of $3.2 million. The income tax provision recorded was related to estimated state tax liabilities, for which there were limitations on the use of existing state carryforwards against estimated taxable income. We had existing federal tax carryforwards sufficient to offset estimated taxable income. Our effective tax rate of approximately