Commitments and Contingencies

Operating Leases

We lease laboratory and office space under an operating lease in Seattle, Washington. Our previous lease commenced February 2013 and ended December 31, 2016. In January 2016, we entered into a new lease agreement for approximately 20,133 square feet of office and laboratory space, which includes and expands on the space previously subleased. The lease commenced on January 1, 2017 with a term of five years and an option to extend the term for an additional three years. The annual base rent is $1.1 million for the first year and increases by 2.5% each year thereafter. We recognize rent expense on a straight-line basis over the lease period and accrue for rent expense incurred but not paid. The lease also requires us to pay for operating and maintenance expenses. Through December 31, 2017 and 2016, we incurred $183,000 and $156,000, respectively, in leasehold improvements and accumulated amortization of $147,000 and $123,000, respectively. Also under the terms of the lease, in January 2017 we provided a $200,000 letter of credit as a security deposit.

We also lease 9,640 square feet of office space under an operating lease in South San Francisco, California. The lease commenced in January 2015 and continues through January 2020, with an option to extend for an additional five years. The terms of the office lease provide for rental payments on a monthly basis and on a graduated scale. We recognize rent expense on a straight-line basis over the lease period and accrue for rent expense incurred but not paid. The lease also requires us to pay additional amounts for operating and maintenance expenses beginning January 2016. In connection with the lease, we were required to provide a $121,000 letter of credit as a security deposit. As of December 31, 2017, no funds had been drawn down on the letter of credit.

As of December 31, 2017, future minimum lease payments are as follows (in thousands):



2018	$	1,486
2019	1,525
2020	1,203
2021	1,200
2022	—
Total future minimum lease payments	$	5,414

Rent expense under operating leases was approximately $1.5 million, $713,000 and $849,000, for the years ended December 31, 2017, 2016 and 2015, respectively.

In May 2017, we entered into a sublease agreement with a third party subtenant, pursuant to which we are subleasing 5,048 square feet of our Seattle laboratory and office space for a period of three years. The annual base rent payable under this sublease is $273,000 for the first year and will increase by 2.5% each year thereafter. Rent under this sublease agreement is reflected in other income.

Contingencies

In June 2015, we entered into a clinical supply agreement with NanoPass Technologies LTD (NanoPass) for the use of their intradermal delivery device in certain of our clinical trials. In July 2015, in connection with the execution of the agreement, we paid an upfront fee of $600,000 for access and rights to use their device. In December 2015, we initiated a Phase 2 clinical trial using the device which triggered a milestone payment of $500,000. Both the upfront fee and milestone payments were capitalized to prepaid expenses on the accompanying balance sheet and are being amortized to research and development expense over the related milestone periods. As of December 31, 2017, the upfront and milestone payments have been fully amortized to research and development expense. In October 2016, we entered into a letter agreement with NanoPass which amended our clinical supply agreement to expand the field of use to include all oncology immunotherapy applications, which provided for additional milestone payments to NanoPass upon achievement of future clinical milestones. Per the terms of the letter agreement, we paid NanoPass an additional one-time non-refundable payment of $150,000. In addition, we agreed to pay certain future milestone fees up to an aggregate of $8.8 million upon the achievement of certain clinical milestones. However, pursuant to our current clinical protocol, we do not plan to use the NanoPass intradermal delivery device in our Phase 3 clinical trial studying CMB305 in patients with synovial sarcoma.

Under our license agreements with the Infectious Disease Research Institute (IDRI), we are contingently obligated to pay any potential future milestone payments, which could total up to $2.3 million and $1.3 million, respectively, for the first and each subsequent exclusive licensed product we develop, and $1.3 million and $625,000, respectively, for the first and each subsequent non-exclusive licensed product we develop. We are also contingently obligated to pay potential future milestone payments to third parties as part of certain collaboration and licensing agreements, which could total up to $7.7 million in aggregate payments for the ZVex products we develop. We also have potential future royalty payments we may be required to make under our licensing agreements as described in Note 10.

Payments under these agreements are uncertain due to the occurrence of the events requiring payment under these agreements, including our share of potential future milestone and royalty payments. These payments generally become due and payable only upon achievement of certain clinical development, regulatory or commercial milestones.