6. Leases

As discussed in Note 2, we adopted ASC 842 as of January 1, 2019. We have entered into operating leases for real estate. These leases have terms which range from 36 to 78 months, and include renewal terms which can extend the lease terms by 24 to 60 months, which are included in the lease term when it is reasonably certain that we will exercise the option. As of December 31, 2019, our operating leases had a weighted average remaining lease term of 68 months. These ROU assets are included in "Other assets" on our consolidated balance sheet as of December 31, 2019, and represent our right to use the underlying asset for the lease term. Our obligations to make lease payments are included in "Accrued expenses" and "Other long-term liabilities" on our consolidated balance sheet as of December 31, 2019. The ROU assets are initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred, less any lease incentives received. The ROU assets are subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Our ROU assets as of January 1, 2019 have been adjusted for $0.9 million in lease incentives.

Based on the present value of the lease payments for the remaining lease term of our existing leases, we initially recognized ROU assets of $2.5 million and lease liabilities for operating leases of $3.4 million during the first quarter of 2019. Operating lease right-of-use assets and liabilities commencing after January 1, 2019 are recognized at commencement date based on the present value of lease payments over the lease term. As of December 31, 2019, ROU assets and operating lease liabilities were $2.2 million and $3.5 million, respectively. We have entered into various short-term operating leases, primarily for clinical trial equipment, with an initial term of twelve months or less. These leases are not recorded on our consolidated balance sheets. All operating lease expense is recognized on a straight-line basis over the lease term. During the year ended December 31, 2019, we recognized $0.7 million in total lease costs, which included less than $0.1 million in short-term lease costs related to short-term operating leases.

Because the rate implicit in each lease is not readily determinable, we use our incremental borrowing rate to determine the present value of the lease payments. The weighted average incremental borrowing rate used to determine the initial value of ROU assets and lease liabilities was 11.0%, derived from a corporate yield curve based on a synthetic credit rating model using a market signal analysis. We have certain contracts for real estate which may contain lease and non-lease components which we have elected to treat as a single lease component.

ROU assets for operating leases are periodically reduced by impairment losses. We use the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment – Overall, to determine whether an ROU asset is impaired, and if so, the amount of the impairment loss to recognize. As of December 31, 2019, we have not recognized any impairment losses for our ROU assets.

We monitor for events or changes in circumstances that require a reassessment of one of our leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in profit or loss.

Maturities of operating lease liabilities as of December 31, 2019 were as follows (in thousands):




2020	$	807
2021		818
2022		807
2023		823
2024		840
Thereafter		642
		4,737
Less: imputed interest		(1,248)
Total lease liabilities	$	3,489

Current operating lease liabilities	$	446
Non-current operating lease liabilities		3,043
Total lease liabilities	$	3,489

Rental expense for the year ended December 31, 2018, prior to the adoption of ASC 842 as described in Note 2, was $0.2 million.

Annual future minimum lease payments as of December 31, 2018, prior to the adoption of ASC 842 as described in Note 2, were as follows (in thousands):


2019	$	298
2020		807
2021		819
2022		807
2023		823
Thereafter		1,482
Total minimum lease payments		5,036