Leases

9 Months Ended

Sep. 30, 2022

Office Space and Fleet Vehicle Leases

The Company has operating leases for its headquarters lease, certain other office space, and its fleet vehicles. 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 vehicles and headquarters leases.

The Company's 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.

As part of the Adamas Acquisition, the Company acquired a lease for office space. Adamas' operating lease for the office space term will continue until April 30, 2025. The lease contains an option to extend the term for one additional five-year period.

During a measurement period, changes in fair value due to measurement period adjustments are recorded against goodwill. The Company recorded in the first quarter of 2022 a measurement period adjustment associated with the valuation of the acquired Adamas lease which decreased the fair value estimate of the operating lease right of use asset by $1.6 million. Refer to Note 3, Acquisition.

Contract Manufacturing Lease

The Company has a contract manufacturing agreement with Merz Pharma GmbH & Co. KGaA (Merz), for the manufacture and supply of rimabotulinumtoxinB finished products (Merz Agreement). 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 MYOBLOC finished products on an annual basis. This minimum purchase requirement represents the in-substance fixed contract consideration associated with the dedicated manufacturing facility which the Company accounts for as an embedded lease.

The Company made an accounting policy election, by class of underlying asset, to not combine lease and non-lease components for the manufacturing facility. A portion of the in-substance fixed contract consideration was allocated to the lease component based on the stand-alone selling price. Accordingly, the Company classifies and accounts for the embedded lease as an operating lease.

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


	Balance Sheet Classification	September 30, 2022		December 31, 2021
		(unaudited)
Assets
Operating lease assets	Other assets	$	29,663	$	35,365
Total lease assets		$	29,663	$	35,365

Liabilities
Lease liabilities, current
Operating lease liabilities, current portion	Accounts payable and accrued liabilities	$	6,757	$	6,477
Lease liabilities, long-term
Operating lease liabilities, long-term	Operating lease liabilities, long-term	36,028		41,298
Total lease liabilities		$	42,785	$	47,775