Commitments and Contingencies

9 Months Ended

Sep. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Operating Leases

We have two non-cancellable office leases (the “Office Leases”), with remaining lease terms of approximately one year, each of which are classified as operating leases. Both leases expire in 2021. Only one of our leases has remaining renewal

options, which includes three options to renew for one additional year. The exercise of lease renewal options is at our sole discretion, which we currently do not anticipate exercising and as such were not recognized as part of our right-of-use (“ROU”) asset and lease liabilities. Our lease payments are fixed, and we recognize lease expense for these leases on a straight-line basis over the lease term. Operating lease ROU assets and lease liabilities are recorded based on the present value of the future minimum lease payments over the lease term at commencement date. As our leases do not provide an implicit rate, we used our incremental borrowing rate based on the information available at effective date of adoption in determining the present value of future payments. The weighted-average discount rate used was 8.59%.

Our balance sheet includes our ROU assets and lease liabilities as follows (in thousands):


Leases	Classification on the Balance Sheet	September 30, 2020		December 31, 2019
Operating ROU assets	Other long-term assets	$	824	$	1,402
Operating lease liabilities	Other current liabilities	851		871
Operating lease liabilities	Other long-term liabilities	33		654

The following costs are included in our consolidated statements of cash flow (in thousands):


		Nine Months Ended September 30,
Leases	Classification on the Cash Flow	2020		2019
Operating lease cost	Operating	$	660	$	660
Cash paid for amounts included in the measurement of lease liabilities	Operating	722		698

At September 30, 2020, the future minimum annual obligations for the Office Leases in excess of one year are as follows (in thousands):


Years Ending December 31,
2020	$	247
2021	676
2022	—
2023	—
2024	—
Thereafter	—
Total minimum payments required	923
Less imputed interest	(39)
Total	$	884

On May 4, 2020, we entered into a lease agreement (the “Lease Agreement”) with Wateridge Property Owner, LP, with respect to facilities in the building at 10770 Wateridge Circle, San Diego, California 92121. Under the Lease Agreement, we agreed to lease approximately 45,000 square feet of space in the 10770 Wateridge Circle Building for a term of 124 months, beginning on March 1, 2021 (or on such later date as described in the Lease Agreement). The terms of the Lease Agreement provide us with an option to extend the term of the lease for an additional five years, as well as a one-time option to terminate the lease after seven years with the payment of a termination fee. The monthly base rent will be $4.20 per rentable square foot and will be increased by 3% annually. Under the Lease Agreement, we are also responsible for our pro rata share of real estate taxes, building insurance, maintenance, direct expenses, and utilities. As of September 30, 2020, we have recorded $0.2 million in prepaid rent and $0.3 million as a security deposit in accordance with the terms of the Lease Agreement.

Shareholder Lawsuit

On March 25, 2020, a putative securities class action was filed in the United States District Court for the Southern District of California naming the Company and certain of its current or former officers as defendants. The complaint purports to assert claims under Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Exchange Act Rule 10b-5, and Section 20(a) of the Exchange Act, on behalf of persons and entities who acquired our common stock between October 10, 2017 and November 7, 2019 (the “Class Period”). An amended complaint was filed on September 30, 2020 alleging that, during the Class Period, the defendants made material misrepresentations or omissions regarding our etokimab product candidate that artificially inflated our stock price. The plaintiff seeks, among other things, damages in an unspecified amount, as well as costs and expenses. We believe that the plaintiff’s allegations are without merit and intend to vigorously defend against the claims. On September 1, 2020, a related shareholder derivative complaint was filed based on allegations substantially similar to those in the class action, and asserting claims against current or former officers and directors for contribution under Sections 10(b) and 21D of the Exchange Act, breach of fiduciary duty, unjust enrichment and corporate waste. Because the Company is in the early stages of this litigation matter, we are unable to estimate a reasonably possible loss or range of loss, if any, that may result from these matters.