COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2021

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

5. COMMITMENTS AND CONTINGENCIES

Operating Leases

On May 3, 2018, the Company entered into a sublease for 5,104 square feet of space for its corporate offices and laboratory space in Cambridge, Massachusetts (the “Cambridge Sublease”). The Cambridge Sublease commenced on May 3, 2018 and was scheduled to expire October 31, 2023. In May 2021, the Company entered into an agreement to terminate the Cambridge Sublease (the “Sublease Termination”). In connection with the Sublease Termination, the $60 thousand standby letter of credit was cancelled and returned to the Company.

Concurrent with the Sublease Termination, the Company entered into a new lease for the same space with ARE-MA (the “Cambridge Lease”). The Cambridge Lease commenced on June 1, 2021 and is scheduled to expire on December 31, 2023. The Cambridge Lease contains rent escalation clauses. In connection with the Cambridge Lease, a new standby letter of credit was established for $100 thousand. Under the Cambridge Lease, the Company will be required to pay its proportionate share of certain operating costs and property taxes applicable to the leased premises in excess of new base year amounts. These costs are considered to be variable lease payments and are not included in the determination of the lease’s right-of-use asset or lease liability.

The Sublease Termination and concurrent execution of the Cambridge Lease was determined to be a lease modification that qualified as a change of accounting on the existing lease and not a separate contract. As such, the right-of-use assets and operating lease liabilities were remeasured using an incremental borrowing rate at the date of modification of 5.74%, which resulted in an increase of $143 thousand in both the right-of-use asset and operating lease liabilities.

The Company identified and assessed the following significant assumptions in recognizing its right-of-use assets and corresponding lease liabilities:

● As the Cambridge Lease does not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments.

● Since the Company elected to account for each lease component and its associated non-lease components as a single combined component, all contract consideration was allocated to the combined lease component.

● The expected lease terms include noncancelable lease periods.

The elements of lease expense are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
Lease cost (In thousands)	2021		2020		2021		2020
Operating lease cost	$	94	$	91	$	185	$	182
Short-term lease cost		2		5		4		13
Variable lease cost		32		51		59		76
Total lease cost	$	128	$	147	$	248	$	271
Other information (In thousands)
Increase in operating right-of-use assets and liabilities related to lease modifications	$	143	$	—	$	143	$	—
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from short term leases	$	2	$	5	$	4	$	13
Operating cash flows from operating leases		98		93		194		186
Total cash paid for leases	$	100	$	98	$	198	$	199
Weighted-average remaining lease term - operating leases		2.5 Years		3.3 Years		2.5 Years		3.3 Years
Weighted-average discount rate - operating leases		5.7%		7.0%		5.7%		7.0%

Maturities of the lease liability due under the Cambridge Lease as of June 30, 2021 are as follows:

Leases (In thousands)	As of June 30, 2021
2021 (excluding the 6 months ended June 30, 2021)	$	208
2022		427
2023		440
Total lease payments		1,075
Less: imputed interest		(71)
Present value of lease liabilities	$	1,004

Right-of-use lease assets and lease liabilities are reported in the Company’s consolidated balance sheets as follows:

Leases (In thousands)	Classification	June 30, 2021		December 31, 2020
Assets
Lease asset, net	Operating	$	919	$	928
Total lease assets		$	919	$	928
Liabilities
Current	Operating	$	375	$	327
Non-current	Operating		629		693
Total lease liabilities		$	1,004	$	1,020

Clinical Trial Commitments

The Company has engaged and executed contracts with clinical research organizations (“CROs”) to assist with the administration of its ongoing INSPIRE 1.0 and INSPIRE 2.0 clinical trials. As of June 30, 2021, approximately $3.6 million remains to be paid on these contracts. The timelines and related costs necessary to complete these trials may vary depending on a number of factors including the rate of patient enrollment into our INSPIRE 2.0 trial. In the event the Company were to terminate the INSPIRE 2.0 trial, certain financial penalties would become payable to the CROs for costs to wind down the terminated trial.