Commitments and Contingencies

3 Months Ended

Mar. 31, 2021

Commitments and Contingencies [Abstract]

11.	Commitments and Contingencies

The Company determines if an arrangement is a lease at inception. Operating and finance leases are presented in the Company’s consolidated balance sheet as right-of-use assets from leases, current lease liabilities and long-term lease liabilities. Certain of the Company’s lease agreements contain renewal options; however, the Company does not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that the Company is reasonably certain of renewing the lease at inception or when a triggering event occurs. As the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments using an estimate of the Company’s collateralized borrowing rate for debt with a similar term. The Company has utilized its incremental borrowing rate based on the long-term borrowing costs of comparable companies in the biotechnology industry. Since the Company elected to account for each lease component and its associated non-lease components as a single combined lease component, all contract consideration was allocated to the combined lease component. Some of the Company’s lease agreements contain rent escalation clauses (including index-based escalations). The Company recognizes the minimum rental expense on a straight-line basis based on the fixed components of a lease arrangement. The Company will amortize this expense over the term of the lease beginning with the lease commencement date. Variable lease components represent amounts that are not fixed in nature and are not tied to an index or rate and are recognized as incurred.

Finance Lease

The Company has a lease for a facility in Cranbury, New Jersey, consisting of 103,720 square feet of space including areas for offices, process development, research and development laboratories and 50,000 square feet dedicated to AAV Current Good Manufacturing Practice (cGMP) manufacturing facilities to support the Company’s pipeline. A smaller area within this facility was originally leased in August 2018, and the lease was amended in June 2019 to include the full building (such lease, as amended, the “NJ Lease Agreement”). The NJ Lease Agreement has a 15-year term from September 1, 2019, with an option to renew for two consecutive five-year renewal terms.

Estimated rent payments for the NJ Lease Agreement are $1.2 million per annum, payable in monthly installments, depending upon the nature of the leased space, and subject to annual base rent increases of 3%. The total commitment under the NJ Lease Agreement is estimated to be approximately $29.3 million over the 15-year term of the NJ Lease Agreement. The Company paid a cash security deposit of $0.3 million to the landlord in connection with the NJ Lease Agreement which has been reflected in deposits in the consolidated balance sheets as of March 31, 2021 and December 31, 2020.

The Company determined the lease commencement date was reached on March 15, 2020 when the construction of all landlord owned improvements had been substantially completed and when the Company began including its leasehold improvements on the balance sheet and move equipment into the space. Upon commencement of the NJ Lease Agreement in March 2020, the Company recognized total right-of-use assets of $47.7 million, with a corresponding lease liability of $20.2 million. The Company reclassified $26.5 million of construction costs in progress and $1.1 million of prepaid rent as part of the right of use asset upon the lease commencement date of March 15, 2020. During the three months ended March 31, 2021, the Company reclassified an additional $0.3 million bringing the aggregate reclassification to $32.4 million of construction costs in progress as part of the right of use asset.

Interest associated with the financing lease was $0.5 million and $0.2 million for the three months ended March 31, 2021 and 2020, respectively and is recorded as interest expense on the consolidated statements of operations.

Operating Leases

On June 7, 2018, the Company entered into a three-year lease agreement for office space in the Empire State Building in New York, NY (the “ESB Lease Agreement”). In connection with the ESB Lease Agreement, the Company established an irrevocable standby letter of credit (the “Empire LOC”) with a bank for $0.9 million which expired on June 30, 2020 and renewed automatically for a one-year period until its expiration date of July 31, 2021. On March 26, 2021, the Company entered in Amendment No. 1 to the ESB Lease Agreement (“ESB Lease Amendment”) that extended the term of the lease agreement to June 30, 2024, reduced the rent payments going forward, and reduced the Empire LOC down to $0.8 million. The Empire LOC serves as the Company’s security deposit on the lease in which the landlord is the beneficiary. The Company has accounted for the ESB Lease Amendment as a modification to the ESB Lease Agreement. The Company remeasured lease liability and adjusted the operating lease right of use asset by $1.1 million.

The Company has a certificate of deposit of $0.8 million and $0.9 million with a bank as collateral for the Empire LOC which is classified as part of restricted cash in the consolidated balance sheets as of March 31, 2021 and December 31, 2020. This security deposit was reduced to $0.8 million in March 2021 in connection with the ESB Lease Amendment.

On January 4, 2018, in connection with the Reverse Merger, the Company assumed an operating lease for Inotek’s former headquarters in Lexington, Massachusetts, with a term ending in February 2023. In July 2018, the Company signed an agreement to sublease a portion of the Lexington, Massachusetts space and in September 2018, the Company signed an agreement to sublease the remaining portion of the Lexington, Massachusetts space. Rental income received under the sublease agreement totaled $0.1 million and $0.1 million for the three months ended March 31, 2021 and 2020, respectively. Rental income is netted against rent expense in the consolidated statement of operations.

Rent expense was $0.3 million for the three months ended March 31, 2021 and 2020.

The total restricted cash balance for the Company’s operating and finance leases at March 31, 2021 and December 31, 2020 was $1.0 million and $1.1 million, respectively.

Lease cost	March 31, 2021
Operating lease cost	$	196
Finance lease cost
Amortization of right of use assets		535
Interest on lease liablities		459
Total lease cost	$	1,190

The following table summarizes the maturity of the Company’s operating and finance lease liabilities on an undiscounted cash flow basis and a reconciliation to the operating and finance lease liabilities as of March 31, 2021:

Maturity of operating lease liabilities	March 31, 2021
2021		544
2022		860
2023		488
2024		208
Total lease payments	$	2,100
Less: interest		(118	)
Total operating lease liabilities	$	1,982

Maturity of finance lease liability	March 31, 2021
2021		1,235
2022		1,689
2023		1,736
2024		1,791
Thereafter		48,768
Total lease payments	$	55,219
Less: interest		(34,536	)
Total finance lease liability	$	20,683

Leases	March 31, 2021

Operating right-of-use assets	$	1,787

Operating current lease liabilities		683
Operating noncurrent lease liabilities		1,299
Total operating lease liabilities	$	1,982

Finance right-of-use assets	$	50,311
Finance current lease liability		1,655
Finance noncurrent lease liability		19,028
Total finance lease liability	$	20,683

Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	226
Cash flows from finance lease	$	408
Weighted-average remaining lease term - operating leases	2.7 years
Weighted-average remaining lease term - finance lease	23.4 years
Weighted-average discount rate - operating leases		4.90	%
Weighted-average discount rate - finance lease		8.96	%

Litigation

From time to time, the Company may be subject to other various legal proceedings and claims that arise in the ordinary course of its business activities. Although the results of litigation and claims cannot be predicted with certainty, the Company does not believe it is party to any other claim or litigation the outcome of which, if determined adversely to the Company, would individually or in the aggregate be reasonably expected to have a material adverse effect on its business. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

Indemnification Arrangements

Pursuant to its bylaws and as permitted under Delaware law, the Company has indemnification obligations to directors, officers, employees or agents of the Company or anyone serving in these capacities. The maximum potential amount of future payments the Company could be required to pay is unlimited. The Company has insurance that reduces its monetary exposure and would enable it to recover a portion of any future amounts paid. As a result, the Company believes that the estimated fair value of these indemnification commitments is minimal.

Throughout the normal course of business, the Company has agreements with vendors that provide goods and services required by the Company to run its business. In some instances, vendor agreements include language that requires the Company to indemnify the vendor from certain damages caused by the Company’s use of the vendor’s goods and/or services. The Company has insurance that would allow it to recover a portion of any future amounts that could arise from these indemnifications. As a result, the Company believes that the estimated fair value of these indemnification commitments is minimal.