Quarterly report pursuant to Section 13 or 15(d)

Commitments and Contingencies

v3.21.2
Commitments and Contingencies
9 Months Ended
Sep. 30, 2021
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

7. Commitments and Contingencies

In June 2021, the Company entered into a third amendment (the “Third Amendment”) to its manufacturing facility lease, dated May 18, 2011, as amended, by and between Alemany Plaza LLC, located in San Carlos, California (the “San Carlos Lease”), as an extension to the term of the San Carlos Lease for a period of five years (the “Lease Extension Period”). Pursuant to the Third Amendment, the San Carlos Lease will expire on July 31, 2026, and it includes an option to renew the San Carlos Lease for an additional five years. The aggregate estimated base rent payments due over the Lease Extension Period is approximately $4.2 million, subject to certain terms contained in the San Carlos Lease.

In June 2021, the Company entered into a first amendment (the “First Amendment”) to its manufacturing support facility lease, dated May 4, 2015, as amended, by and between 870 Industrial Road LLC, located in San Carlos, California (the “Industrial Lease”), as an extension to the term of the Industrial Lease for a period of five years (the “Industrial Lease Extension Period”). Pursuant to the first Amendment, the Industrial Lease will expire on June 30, 2026, and it includes an option to renew the Industrial Lease for an additional five years. The aggregate estimated base rent payments due over the Industrial Lease Extension Period is approximately $4.3 million, subject to certain terms contained in the Industrial Lease.

In September 2020, the Company entered into a sublease agreement (the “Sublease”) with Five Prime Therapeutics, Inc. (the “Sublessor”), for approximately 115,466 square feet, located in South San Francisco, California (the “Premises”). The Company expects to use the Premises as its new corporate headquarters and to conduct (or expand) research and development activities. The commencement date for the first 85,755 square feet of the Premises (“Initial Premises”) per sublease was in July 2021, at which time the Company commenced making monthly payments under the Sublease, with occupancy of such space commencing in August 2021. The Company was provided early access to the Sublease commencing in the fourth quarter of 2020 to conduct certain planning and tenant improvement work. The Sublease is subordinate to the lease agreement, effective December 12, 2016, between the Sublessor and HCP Oyster Point III LLC (the “Landlord”). The commencement date for the remaining 29,711 square feet of the Premises (the “Expansion Premises”) is expected to be 24 months following the commencement date on the Initial Premises, although the Company has the right to accelerate the commencement date on the Expansion Premises to an earlier date upon six months’ prior written notice to the Sublessor. The Sublease for both the Initial Premises and Expansion Premises will expire on December 31, 2027. With a commencement date on the Initial Premises of July 1, 2021, the aggregate estimated base rent payments due over the term of the Sublease are approximately $39.1 million, including the approximately $5.2 million

in potential financial benefit to the Company of base rent abatement to be provided by Sublessor, subject to certain terms contained in the Sublease. The Sublease contains customary provisions requiring the Company to pay its pro rata share of utilities and a portion of the operating expenses and certain taxes, assessments and fees of the Premises and provisions allowing the Sublessor to terminate the Sublease upon the termination of the lease with the Landlord or if the Company fails to remedy a breach of certain of its obligations within specified time periods. Additionally, the Company posted a security deposit of $0.9 million, which is reflected as restricted cash in non-current assets on the Company’s balance sheet as of September 30, 2021 and December 31, 2020.

The Company recognizes rent expense for these operating leases on a straight-line basis over the lease period. The components of lease costs, which the Company includes in operating expenses in the condensed statements of operations, were as follows (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2021

 

Operating lease cost

 

$

2,266

 

 

$

6,396

 

Short-term lease cost

 

 

22

 

 

 

73

 

Variable lease cost

 

 

754

 

 

 

1,513

 

Total lease costs

 

$

3,042

 

 

$

7,982

 

 

During the nine months ended September 30, 2021, the Company recorded operating lease expense of $6.4 million and paid $4.0 million of operating lease payments related to the lease liabilities, which the Company includes in net cash used in operating activities in the condensed statements of cash flows.

As of September 30, 2021, the weighted-average remaining lease term was 5.9 years and the weighted-average discount rate used to determine the operating lease liability was 10.8%.

As of September 30, 2021, the maturities of the Company’s operating lease liabilities were as follows (in thousands):

 

Year Ending December 31,

 

Amount

 

 

 

(in thousands)

 

Remaining in 2021

 

$

2,142

 

2022 (1)

 

 

1,643

 

2023

 

 

8,002

 

2024

 

 

9,219

 

2025

 

 

9,533

 

Thereafter

 

 

17,282

 

Total lease payments

 

 

47,821

 

Less: imputed interest

 

 

(14,303

)

Operating lease liabilities

 

 

33,518

 

Less: current portion

 

 

(1,445

)

Total lease liabilities, non-current

 

$

32,073

 

 

 

(1)

Includes approximately $5.2 million in potential financial benefit to the Company of base rent abatement to be provided by sublessor for months 7 – 18 of the sublease period, subject to certain terms contained in the Sublease.

 

 

Under the historical guidance of ASC 840, the deferred rent balance on December 31, 2020 totaled $1.3 million and our future minimum lease payments for our operating leases on December 31, 2020 were as follows (in thousands):

 

Year Ending December 31,

 

Amount

 

 

 

(in thousands)

 

2021

 

$

5,742

 

2022 (1)

 

 

5,183

 

2023

 

 

6,310

 

2024

 

 

7,476

 

2025 and thereafter

 

 

24,034

 

Total future minimum lease payments

 

$

48,745

 

 

(1)

Excludes approximately $5.2 million in potential financial benefit to the Company of base rent abatement to be provided by sublessor for months 7 – 18 of the sublease period, subject to certain terms contained in the Sublease.

Rent expense was $0.9 million and $2.7 million for the three and nine months ended September 30, 2020, respectively.

Indemnification & Other

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to vendors, lessors, business partners, board members, officers, and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company, negligence or willful misconduct of the Company, violations of law by the Company, or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon the Company to provide indemnification under such agreements, and thus, there are no claims that the Company is aware of that could have a material effect on the Company’s balance sheets, statements of operations, or statements of cash flows. The Company currently has directors’ and officers’ liability insurance.

In addition, the Company enters into agreements in the normal course of business, including with contract research organizations for clinical trials, contract manufacturing organizations for certain manufacturing services, and vendors for preclinical studies and other services and products for operating purposes, which are generally cancelable upon written notice.