COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2022

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 on 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 was 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.

On November 23, 2021, the Company amended the Cambridge Lease to extend the term through December 31, 2024. No other terms within the Cambridge Lease were amended. The amendment 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 5.97%, which resulted in an increase of $486 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 September 30,				Nine Months Ended September 30,
Lease cost (In thousands)	2022		2021		2022		2021
Operating lease cost	$	113	$	99	$	339	$	284
Short-term lease cost		2		—		3		4
Variable lease cost		35		24		133		83
Total lease cost	$	150	$	123	$	475	$	371
Other information (In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from short term leases	$	2	$	—	$	3	$	4
Operating cash flows from operating leases		106		103		300		297
Total cash paid for leases	$	108	$	103	$	303	$	301
Weighted-average remaining lease term - operating leases		2.25 Years		2.25 Years		2.25 Years		2.25 Years
Weighted-average discount rate - operating leases		6.0%		5.7%		6.0%		5.7%

Maturities of the lease liability due under the Cambridge Lease as of September 30, 2022 are as follows:

Leases (In thousands)	As of September 30, 2022
2022 (excluding the nine months ended September 30, 2022)	$	108
2023		440
2024		568
Total lease payments		1,116
Less: imputed interest		(73)
Present value of lease liabilities	$	1,043

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

Leases (In thousands)	Classification	September 30, 2022		December 31,  2021
Assets
Lease asset, net	Operating	$	942	$	1,229
Total lease assets		$	942	$	1,229
Liabilities
Current	Operating	$	387	$	361
Non-current	Operating		656		949
Total lease liabilities		$	1,043	$	1,310

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 September 30, 2022, approximately $4.3 million remains to be paid on these contracts.