Leases

6 Months Ended

Jun. 30, 2020

Leases

Leases

8. Leases

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 June 30, 2020, our operating leases had a weighted average remaining lease term of 62 months.  These right-of-use (ROU) assets are included in "Other assets" on our interim balance sheets as of June 30, 2020 and 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 interim balance sheets as of June 30, 2020 and December 31, 2019.  The ROU assets were

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 June 30, 2020 and December 31, 2019 have been adjusted for $0.9 million in lease incentives.

As of June 30, 2020 and December 31, 2019, ROU assets were $2.1 million and $2.2 million, respectively, and operating lease liabilities were $3.3 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 balance sheets. All operating lease expense is recognized on a straight-line basis over the lease term. During the three and six months ended June 30, 2020 and 2019, we recognized $0.2 million, $0.3 million, $0.2 million and $0.4 million, respectively, 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 Accounting Standards Codification (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 June 30, 2020 and 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 our interim statements of operations and comprehensive loss.

Maturities of operating lease liabilities as of June 30, 2020 were as follows (in thousands):

Remaining six months of 2020	$	406
2021		818
2022		807
2023		823
2024		840
Thereafter		642
		4,336
Less: imputed interest		(1,062)
Total lease liabilities	$	3,274
Current operating lease liabilities	$	479
Non-current operating lease liabilities		2,795
Total lease liabilities	$	3,274