LEASES

6 Months Ended

Jun. 30, 2022

LEASES

LEASES

NOTE 8. LEASES

Operating Leases

The Company leases corporate office space in California, including 49,918 square feet for its current corporate headquarters’ office space in San Carlos, California, manufacturing, research and development lab facilities and office space in Philadelphia, Pennsylvania, including 136,000 square feet of commercial manufacturing and lab space at the iCTC, and research and development lab facilities in Tampa, Florida. The determination if an arrangement is a lease occurs at inception, and for leases with terms greater than 12 months, the Company records a related right-of-use asset and lease liability at the present value of lease payments over the term. Many leases include fixed rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments when appropriate. The Company’s leases do not provide an implicit rate, and thus the Company estimated the incremental borrowing rate in calculating the present value of the lease payments.

The Company’s leases have remaining lease terms that range from less than one year to approximately 20 years. Some of our leases include one or more options to renew with renewal terms that can extend the lease for additional years, or options to terminate the leases, both at the Company’s discretion. The Company’s leases may include options to extend or terminate the lease, which is considered in the lease term when it is reasonably certain that the Company will exercise any such options. Lease expense for minimum lease payments is recognized on a straight-line basis based on the fixed components of a lease arrangement.

Variable lease cost is determined based on performance or usage in accordance with the contractual agreements, and not based on an index or rate. Such costs that are not fixed in nature are recognized as incurred.

The Company also leases certain furniture and equipment that has a lease term of 12 months or less. Since the lease agreement do not include an option to purchase the underlying asset, the Company elected not to apply the recognition requirements of Topic 842 for short-term leases, however, the lease costs that pertain to the short-term leases are disclosed in the components of lease costs table below.

Manufacturing Contracts

The Company uses contract manufacturing organizations (collectively the “CMOs” and each a “CMO”) to manufacture and supply TILs for clinical and commercial purposes. The CMO contractual obligations consist of the use of manufacturing facilities and minimum fixed commitment fees, such as personnel, general support fees, and minimum production or material fees. In addition to the minimum fixed commitment fees, the CMO contractual obligations include variable costs such as production and material costs in excess of the minimum quantity specified in each CMO agreement. During the term of each CMO agreement, the Company has access to and control of the use of a dedicated suite in each of the CMOs’ facilities for manufacturing activities. The contracts with CMOs generally contain embedded operating leases based on the fact that the suites are used for the Company’s production are implicitly identified, are used exclusively by the Company during the contractual term of the arrangements, and the CMOs have no substantive contractual rights to substitute the facilities used by the Company.

Further, the Company controls the use of the facilities by obtaining all of the economic benefits from the use of the facilities and direct the use of the facilities throughout the period of use. The terms of the CMO contracts include options to terminate the lease with an advance notice of five to six months. The termination clauses and extension clauses are included in the calculation of the lease term for each of the CMOs when it is reasonably certain that it will not exercise such options.

For contracts with multiple deliverables, Topic 842 requires the Company to first identify a lease deliverable and non-lease deliverable included in the arrangements, and then allocate the fixed contractual consideration to the lease deliverable(s) and the non-lease deliverable(s) on a relative standalone selling price basis to determine the amount of operating lease right-of-use assets and liabilities. The Company identified the use of a dedicated suite as a single lease deliverable, and related labor services as a single non-lease deliverable in each of the CMO arrangements. Judgment is required to determine the relative standalone selling price of each deliverable as the observable standalone selling prices are not readily available. Therefore, management uses estimates and assumptions in determining relative standalone selling price of lease of a suite and labor service using information that includes market and other observable inputs to the extent possible.

The balance sheet classification of the Company’s right-of-use asset and lease liabilities was as follows (in thousands):

	June 30,		December 31,
	2022		2021
Operating lease right-of-use assets	$	70,845	$	68,983
Operating lease liabilities
Current portion included in current liabilities		6,483		5,057
Long-term portion included in non-current liabilities		72,996		65,474
Total operating lease liabilities	$	79,479	$	70,531

The following table summarizes components of lease expenses, which were included in Total costs and expenses in the Company’s Condensed Consolidated Statements of Operations, and other information related to its operating leases as follows (in thousands except weighted-average remaining lease terms and discount rates):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Operating lease cost	$	4,399	$	3,380	$	8,954	$	6,777
Variable lease cost		1,236		1,578		2,216		2,288
Short-term lease cost		35		39		77		75
Total lease cost	$	5,670	$	4,997	$	11,247	$	9,140
Other information
Cash paid for amounts included in the measurement of lease liabilities included in Operating cash flows	$	3,262	$	2,512	$	7,073	$	4,834
Tenant improvement allowance received for amounts included in the measurement of lease liabilities included in Operating cash flows	$	2,085	$	—		5,200		—
Right-of-use assets obtained from entering new leases	$	553	$	—	$	553	$	—
Increase / (decrease) in right-of-use assets from lease modifications	$	(180)	$	(215)	$	7,493	$	1,943
Weighted-average remaining lease terms (years)						14.01		17.97
Weighted-average discount rates						7.3%		7.5%

As of June 30, 2022, the maturities of the Company’s operating lease liabilities were as follows (in thousands):

			CMO
	Facility		embedded
Year Ending December 31,	leases		leases		Total
2022	$	3,330	$	3,978	$	7,308
2023		8,220		3,120		11,340
2024		8,425		—		8,425
2025		8,205		—		8,205
2026		7,989		—		7,989
Thereafter		92,013		—		92,013
Total lease payments	$	128,182	$	7,098	$	135,280
Less: Present value adjustment		(54,106)		(284)		(54,390)
Less: Future tenant improvement reimbursement		(1,411)		—		(1,411)
Operating lease liabilities	$	72,665	$	6,814	$	79,479

For its corporate headquarters’ office, the lease agreement includes a tenant improvement allowance of $8.2 million. As of June 30, 2022, the Company has received total reimbursements associated with this tenant improvement allowance of $6.8 million, of which $2.1 million and $5.2 million was received during the three and six months ended June 30, 2022, respectively.