Debt and Lease Obligations

3 Months Ended

Mar. 31, 2020

Debt And Lease Obligations [Abstract]

9. Debt and Lease Obligations

Debt

The Company’s debt as of March 31, 2020 and December 31, 2019, consists of the following (in thousands):

	March 31,		December 31,
	2020		2019
Current portion of mortgage	$	674	$	686
Current portion of finance and capital lease obligations		197		194
Current portion of operating lease obligations		2,791		3,010
Long-term portion of finance and capital lease obligations		177		227
Long-term portion of operating lease obligations		7,226		7,620
Chongqing Maliu Credit Agreement		6,055		5,731
Senior secured loan, net of debt discount and financing fees of $3,336 and $3,592, respectively		46,664		46,408
Total	$	63,784	$	63,876

The mortgage payments, assumed in connection with the acquisition of CDE, extend through December 31, 2020.

During 2018, Perceptive issued a senior secured loan to the Company with a principal value of $50.0 million and a maturity date of June 30, 2023. The loan bears interest at a floating per annum rate equal to LIBOR (with a floor of 2.0%) plus 9.0%. The Company is required to make monthly interest-only payments with a bullet payment of the principal at maturity. Provided that, in the event LIBOR can no longer be determined, the parties shall mutually establish an alternative rate of interest and until such time that rate is agreed, the reference rate for purposes of the loan shall be the Wall Street Journal Prime Rate.

During the first quarter of 2019, the Company was issued an unsecured, subordinated bank loan from China Merchants Bank to fund operations in China. This loan had a principal value of $0.7 million, a maturity date of December 11, 2019, and bore interest at a fixed rate of 5.7% annually. The loan was paid in full as of December 31, 2019.

During the second quarter of 2019, the Company entered into a credit agreement which amended the existing partnership agreement with Chongqing Maliu Riverside Development and Investment Co., LTD (“CQ”), for a Renminbi ¥50.0 million (USD $7.2 million at March 31, 2020) line of credit to be used for the construction of the new active pharmaceutical ingredient (“API”) plant in China. The Company is required to repay the principal amount with accrued interest within three years after the plant receives the U.S. Current Good Manufacturing Practices (“cGMP”) certification, with 20% of the total loan with accrued interest is due within the first twelve months following receiving the certification, 30% of the total loan with accrued interest due within twenty-four months, and the remaining balance with accrued interest due within thirty-six months. Interest accrues at the three-year loan interest rate by the People’s Bank of China for the same period on the date of the deposit of the full loan amount. If the Company fails to obtain the cGMP certification within three years upon the acceptance of the plant, it shall return all renovation costs with the accrued interest to CQ in a single transaction within the first ten business days. As of March 31, 2020, the balance due to CQ was $6.1 million.

Lease Obligations

The Company has operating leases for office and manufacturing facilities in several locations in the U.S., Asia, and Latin America and has three finance leases for manufacturing equipment used in its facilities near Buffalo, NY. The components of lease expense are as follows (in thousands):

	Three Months Ended March 31, 2020		Three Months Ended March 30, 2019
Operating lease cost	$	755	$	781
Finance lease cost:
Amortization of assets		34		12
Interest on lease liabilities		6		9
Total net lease cost	$	795	$	802

The Company has elected to exclude short-term leases from its operating lease right-of-use (“ROU”) assets and lease liabilities. Lease costs for short-term leases were not material to the financial statements for the three months ended March 31, 2020. Variable lease costs for the three months ended March 31, 2020 were not material to the financial statements.

Supplemental balance sheet information related to leases is as follows (in thousands, except lease term and discount rate):

	March 31, 2020
Finance leases:
Property and equipment, at cost	$	688
Accumulated amortization, net		(143	)
Property and equipment, net	$	545

Current obligations of finance leases	$	197
Long-term portion of finance leases		177
Total finance lease obligations	$	374

Weighted average remaining lease term (in years):
Operating leases		5.04
Finance leases		1.86

Weighted average discount rate:
Operating leases		12.9	%
Finance leases		5.9	%

Supplemental cash flow information related to leases is as follows (in thousands):

	Three Months Ended March 31, 2020
Cash paid for amount included in the measurements of lease liabilities:
Operating cash flows from operating leases	$	(820	)
Operating cash flows from finance leases		(6	)
Financing cash flows from finance leases		(47	)

ROU assets derecognized from modification of operating lease obligations		(468	)
ROU assets recognized in exchange for operating lease obligations	$	353

Future minimum payments and maturities of leases is as follows (in thousands):

Year ending December 31:	Operating Leases			Finance Leases
2020 (remaining nine months)	$	2,278		$	161
2021		2,837			214
2022		2,617			21
2023		2,096			—
2024		2,002			—
Thereafter		1,950			—
Total lease payments		13,780			396
Less: Imputed interest		(3,763	)		(22	)
Total lease obligations		10,017			374
Less: Current obligations		(2,791	)		(197	)
Long-term lease obligations	$	7,226		$	177

Pursuant to the public-private partnership agreements with the State of New York and CQ, the Company will rent the manufacturing facilities in Dunkirk, NY and Chongqing, China, respectively. In 2019, construction of the API plant was completed. However, neither lease term had commenced as of March 31, 2020, as neither of the facilities were operational, and no lease costs were incurred in the first quarter of 2020.

The Company exercises judgment in determining the discount rate used to measure the lease liabilities. When rates are not implicit within an operating lease, the Company uses its incremental borrowing rate as its discount rate, which is based on yield trends in the biotechnology and healthcare industry and debt instruments held by the Company with stated interest rates. The Company re-assesses its incremental borrowing rate when new leases arise, or existing leases are modified.