Critical accounting judgements and key sources of estimation uncertainty

There were no significant changes in our critical accounting judgements and key sources of estimation uncertainty compared to those used in the most recent annual consolidated financial statements of 31 December 2023 except for the following new critical accounting judgements and key sources of estimation uncertainty.

Transfer Jyseleca® business to Alfasigma – transition services

During a certain transition period after the closing of the sale of the Jyseleca® business to Alfasigma on 31 January 2024, we will still perform certain activities for the benefit of Alfasigma, in accordance with the transition agreement. Critical accounting judgements were made for the following areas:

• As part of the transition services we will continue to sell the products to end-customers in certain countries during a transition period. We will collect the cash from the customers but will transfer the net profit generated by these sales to Alfasigma. All of this is done for the benefit and at the risk of Alfasigma. As such we present revenues on a net basis in our consolidated income statement (within discontinued operations).
• Sale of inventories to Alfasigma: we concluded that we are still in full control of our inventories and therefore present the revenues and cost of sales relating to the sale of inventories (API, brite stock and finished products) to Alfasigma on a gross basis in our results from continuing operations. Revenues from the supply of these products to Alfasigma are recognized upon transfer of the control relating to these products. 

Transfer Jyseleca® business to Alfasigma – Determination of the fair value of the contingent earn-outs

The contingent consideration included in the total consideration for the sale of the Jyseleca® business to Alfasigma was recorded at fair value at the completion date (31 January 2024) and is updated at each reporting date. The fair value is based on our best estimate of the expected royalties and sales milestones in the future, considering probability adjusted sales forecasts of Jyseleca® discounted using an appropriate discount rate. The fair value is reviewed at each reporting date and any changes are reflected in our consolidated income statement, in the line 'Net profit from discontinued operations, net of tax'.

Determination of fair value of equity instruments

As there is no active market for any of our equity instruments and most of the companies we invest in are early stage R&D organizations, we establish the fair value by using other valuation techniques. The fair value has been determined mainly by reference to the initial transaction price and fluctuations will be driven by a variety of factors, such as the evolution of the underlying company’s pipeline.

The inputs used are categorized as Level 3 inputs.

Adaptimmune collaboration 

Under the terms of the Collaboration and Exclusive License Agreement, we paid an upfront exclusivity payment of $70.0 million and $15.0 million in R&D funding to Adaptimmune at signing of the collaboration. A further $15.0 million in R&D funding will follow subject to the start of dosing in the proof-of-concept trial.

We capitalized the $70.0 million as intangible asset (as an exclusive right) and amortize it over the expected exclusivity period. At each reporting period, we will reassess this period. The expected exclusivity period is depending on the evolution of the program and any changes thereto can lead to changes in the amortization period. 

The $15.0 million has been recognized as deferred expense and will gradually be released in R&D expenses over the R&D period, which can fluctuate as well overtime, depending on the progress of the program.