Leases

12 Months Ended

Dec. 31, 2020

Leases [Abstract]

Leases

Leases

Operating Leases

The Company has operating leases for its former headquarters office and lab space at 1550 East Gude Drive in Rockville, MD, its new headquarters lease, and its fleet vehicles. The Company’s leases for its former headquarters office and lab space ended in April 2020. With respect to the fleet vehicle leases, given the volume of individual leases involved in the overall arrangement, the Company applies a portfolio approach to effectively account for the operating lease assets and liabilities. The Company also elected to combine the lease and non-lease components for the fleet vehicle and headquarters leases.

Headquarters Lease

The Company entered into a lease agreement, effective January 31, 2019, with Advent Key West, LLC (Landlord), for its new headquarters in Rockville, MD (Premises). The term of the new headquarters lease commenced on February 1, 2019 (the Commencement Date) and will continue until April 30, 2034, unless earlier terminated in accordance with the terms of the lease. The lease includes options to extend the lease for up to 10 years. Fixed rent with respect to the Premises began on the Commencement Date; however, the Landlord agreed to a rent abatement from the Commencement Date through April 30, 2020.

The initial fixed rental rate is approximately $195,000 per month for the first 12 months and will automatically increase by 2% on each anniversary of the Commencement Date. Under the terms of the Lease, the Company provided a security deposit and will be required to pay all utility charges for the Premises in addition to its pro rata share of any operating expenses and real estate taxes.

The lease also provides for a tenant improvement allowance of $10.2 million in aggregate. All tenant improvement allowances have been utilized as of December 31, 2019.

Finance Lease

Contemporaneous with the USWM Acquisition, USWM Enterprises adopted ASC 842, Leases. USWM Enterprises had an existing contract manufacturing agreement with Merz Pharma GmbH & Co. KGaA (Merz) for the manufacture and supply of MYOBLOC, NeuroBloc and NerBloc (finished products). Pursuant to the Merz Agreement, Merz agreed to provide a dedicated manufacturing facility that included a stand-alone building, dedicated cleanroom suites, dedicated manufacturing, and purification equipment, and filling and packaging production lines (collectively, the manufacturing facility) to manufacture finished products. The Merz Agreement will expire in July 2027 unless the Company and Merz mutually agree to extend the terms. The Merz Agreement may not be terminated for convenience.

Under the terms of the agreement, the Company is required to purchase a minimum quantity of finished products on an annual basis. This minimum purchase requirement represents the in-substance fixed contract consideration associated with the dedicated manufacturing facility. Refer to Note 21, Commitments and Contingencies.

As of the Closing Date, the finance ROU lease asset and corresponding ROU lease liability relating to the dedicated manufacturing facility was $22.7 million. The ROU lease asset and ROU lease liability represent the present value of estimated future payments; i.e., the minimum purchase obligations as of the Closing Date.

The embedded lease is preliminarily classified as a finance lease. The in-substance fixed contract consideration was allocated to the lease component since the Company has preliminarily elected not to separate lease and non-lease components. Refer to Note 3 for further discussion of the USWM Acquisition.

The Company recognized $1.9 million of fixed lease costs on the finance lease for the year ended December 31, 2020. Purchases of MYOBLOC in excess of the annual minimum purchase obligations will be recorded as variable lease cost. There were no purchases made during the year in excess of the annual minimum purchase obligations.

Operating and finance lease assets and lease liabilities as reported on the consolidated balance sheets are as follows (dollars in thousands):

		December 31,
	Balance Sheet Classification	2020		2019
Assets
Operating lease assets	Other assets	$	20,231	$	21,279
Finance lease asset	Property and equipment, net	20,874		—
Total lease assets		$	41,105	$	21,279
Liabilities
Lease liabilities, current
Operating lease liabilities, current portion	Accounts payable and accrued liabilities	$	3,760	$	2,825
Finance lease liability, current portion	Other current liabilities	3,761		—
Lease liabilities, long term
Operating lease liabilities, long term	Operating lease liabilities, long term	28,579		30,440
Finance lease liability, long term	Other liabilities	20,235		—
Total lease liabilities		$	56,335	$	33,265

The components of operating and finance lease costs are as follows (dollars in thousands):

	December 31,
	2020		2019
Operating lease cost:
Fixed lease cost	$	5,333	$	4,990
Variable lease cost	2,145		1,887
Total	$	7,478	$	6,877
Finance lease cost:
Amortization on finance lease asset	$	1,873	$	—
Interest on lease liability	333		—
Total	$	2,206	$	—

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

	December 31,
	2020		2019
Cash paid for operating leases	$	6,949	$	5,337
Cash paid for finance lease	802		—
Lease assets and tenant receivables obtained for new operating leases	2,478		35,594
Lease assets obtained for new finance lease	22,747		—

Weighted average lease term, and weighted average discount rate for operating and finance leases as of December 31, 2020, are as follows:

Operating leases
Weighted-average remaining lease term (years)	11.7
Weighted-average discount rate	4.33	%
Finance lease
Weighted-average remaining lease term (years)	6.4
Weighted-average discount rate	2.47	%

Future minimum lease payments under noncancellable operating and finance leases as of December 31, 2020, are as follows (dollars in thousands):

	Operating Leases		Finance Lease
Year ending December 31:
2021	$	5,066	$	3,946
2022	4,474		3,665
2023	2,701		3,665
2024	2,587		3,665
2025	2,638		3,665
Thereafter	24,145		7,329
Total future minimum lease payments	$	41,611	$	25,935
Less: Imputed interest (1)	(9,272)		(1,939)
Present value of lease liabilities	$	32,339	$	23,996

(1) Calculated using the interest rate for each lease.

Lessee, Finance Leases

Leases

Operating Leases

The Company has operating leases for its former headquarters office and lab space at 1550 East Gude Drive in Rockville, MD, its new headquarters lease, and its fleet vehicles. The Company’s leases for its former headquarters office and lab space ended in April 2020. With respect to the fleet vehicle leases, given the volume of individual leases involved in the overall arrangement, the Company applies a portfolio approach to effectively account for the operating lease assets and liabilities. The Company also elected to combine the lease and non-lease components for the fleet vehicle and headquarters leases.

Headquarters Lease

The Company entered into a lease agreement, effective January 31, 2019, with Advent Key West, LLC (Landlord), for its new headquarters in Rockville, MD (Premises). The term of the new headquarters lease commenced on February 1, 2019 (the Commencement Date) and will continue until April 30, 2034, unless earlier terminated in accordance with the terms of the lease. The lease includes options to extend the lease for up to 10 years. Fixed rent with respect to the Premises began on the Commencement Date; however, the Landlord agreed to a rent abatement from the Commencement Date through April 30, 2020.

The initial fixed rental rate is approximately $195,000 per month for the first 12 months and will automatically increase by 2% on each anniversary of the Commencement Date. Under the terms of the Lease, the Company provided a security deposit and will be required to pay all utility charges for the Premises in addition to its pro rata share of any operating expenses and real estate taxes.

The lease also provides for a tenant improvement allowance of $10.2 million in aggregate. All tenant improvement allowances have been utilized as of December 31, 2019.

Finance Lease

Contemporaneous with the USWM Acquisition, USWM Enterprises adopted ASC 842, Leases. USWM Enterprises had an existing contract manufacturing agreement with Merz Pharma GmbH & Co. KGaA (Merz) for the manufacture and supply of MYOBLOC, NeuroBloc and NerBloc (finished products). Pursuant to the Merz Agreement, Merz agreed to provide a dedicated manufacturing facility that included a stand-alone building, dedicated cleanroom suites, dedicated manufacturing, and purification equipment, and filling and packaging production lines (collectively, the manufacturing facility) to manufacture finished products. The Merz Agreement will expire in July 2027 unless the Company and Merz mutually agree to extend the terms. The Merz Agreement may not be terminated for convenience.

Under the terms of the agreement, the Company is required to purchase a minimum quantity of finished products on an annual basis. This minimum purchase requirement represents the in-substance fixed contract consideration associated with the dedicated manufacturing facility. Refer to Note 21, Commitments and Contingencies.

As of the Closing Date, the finance ROU lease asset and corresponding ROU lease liability relating to the dedicated manufacturing facility was $22.7 million. The ROU lease asset and ROU lease liability represent the present value of estimated future payments; i.e., the minimum purchase obligations as of the Closing Date.

The embedded lease is preliminarily classified as a finance lease. The in-substance fixed contract consideration was allocated to the lease component since the Company has preliminarily elected not to separate lease and non-lease components. Refer to Note 3 for further discussion of the USWM Acquisition.

The Company recognized $1.9 million of fixed lease costs on the finance lease for the year ended December 31, 2020. Purchases of MYOBLOC in excess of the annual minimum purchase obligations will be recorded as variable lease cost. There were no purchases made during the year in excess of the annual minimum purchase obligations.

Operating and finance lease assets and lease liabilities as reported on the consolidated balance sheets are as follows (dollars in thousands):

		December 31,
	Balance Sheet Classification	2020		2019
Assets
Operating lease assets	Other assets	$	20,231	$	21,279
Finance lease asset	Property and equipment, net	20,874		—
Total lease assets		$	41,105	$	21,279
Liabilities
Lease liabilities, current
Operating lease liabilities, current portion	Accounts payable and accrued liabilities	$	3,760	$	2,825
Finance lease liability, current portion	Other current liabilities	3,761		—
Lease liabilities, long term
Operating lease liabilities, long term	Operating lease liabilities, long term	28,579		30,440
Finance lease liability, long term	Other liabilities	20,235		—
Total lease liabilities		$	56,335	$	33,265

The components of operating and finance lease costs are as follows (dollars in thousands):

	December 31,
	2020		2019
Operating lease cost:
Fixed lease cost	$	5,333	$	4,990
Variable lease cost	2,145		1,887
Total	$	7,478	$	6,877
Finance lease cost:
Amortization on finance lease asset	$	1,873	$	—
Interest on lease liability	333		—
Total	$	2,206	$	—

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

	December 31,
	2020		2019
Cash paid for operating leases	$	6,949	$	5,337
Cash paid for finance lease	802		—
Lease assets and tenant receivables obtained for new operating leases	2,478		35,594
Lease assets obtained for new finance lease	22,747		—

Weighted average lease term, and weighted average discount rate for operating and finance leases as of December 31, 2020, are as follows:

Operating leases
Weighted-average remaining lease term (years)	11.7
Weighted-average discount rate	4.33	%
Finance lease
Weighted-average remaining lease term (years)	6.4
Weighted-average discount rate	2.47	%

Future minimum lease payments under noncancellable operating and finance leases as of December 31, 2020, are as follows (dollars in thousands):

	Operating Leases		Finance Lease
Year ending December 31:
2021	$	5,066	$	3,946
2022	4,474		3,665
2023	2,701		3,665
2024	2,587		3,665
2025	2,638		3,665
Thereafter	24,145		7,329
Total future minimum lease payments	$	41,611	$	25,935
Less: Imputed interest (1)	(9,272)		(1,939)
Present value of lease liabilities	$	32,339	$	23,996

(1) Calculated using the interest rate for each lease.