6. Commitments and Contingencies

Operating Lease

On August 1, 2010, the Company entered into an operating lease for 38,536 square feet of office and laboratory space located at 38 Sidney Street, Cambridge, Massachusetts, which expires on April 14, 2016 (the “Lease”). At the end of the lease term, the Company has the option to extend the Lease for two additional consecutive terms of five years. The Lease agreement includes rent escalation clauses and a free rent period. The Company records rent expense on a straight-line basis over the effective term of the Lease, including any free rent periods. The Company was obligated to and has provided a standby letter of credit of $571,000 as security for the Lease. Accordingly, the Company classified $571,000 as restricted cash in the consolidated balance sheets.

Rent expense for each of the years ended December 31, 2013, 2012 and 2011 was $2.2 million. The operating lease requires the Company to share in prorated operating expenses and property taxes based upon actual amounts incurred; those amounts are not fixed for future periods and, therefore, are not included in the future commitments listed below.

Future annual minimum lease payments due under the operating lease at December 31, 2013 are as follows (in thousands):


Years ending December 31:
2014	$	2,309
2015		2,347
2016		787


Total minimum lease payments	$	5,443

Lead Program License Agreements

In August 2012, the Company entered into a license agreement pursuant to which the licensor granted the Company a worldwide exclusive license to certain intellectual property rights for the development of diagnostic products to detect the metabolism of certain cancers. The Company is obligated to pay the licensor up to $100,000 in milestone payments, contingent upon the issuance of certain patents. For each product developed under the agreement the Company has the right to elect to develop and commercialize the product or to grant the licensor an exclusive license to develop and commercialize the product. Under the agreement, the applicable party will pay to the other party a royalty based on worldwide net sales of products. To date, there have been no milestones achieved or any sales of products licensed.

The term of the agreement will continue, unless earlier terminated by either party, until the expiration of the last-to-expire issued patent. Either party may terminate the agreement in the event of the failure of the other party to make required payments under the agreement or an uncured material breach by the other party. In addition, the licensor may terminate the agreement if the Company becomes insolvent or challenges certain licensed patent rights.

Other Program License Agreements

The Company has entered into various cancelable license agreements for certain technology. None of the Company’s lead product candidates utilize technology covered by these licenses. In consideration for the licensed rights the Company made up-front payments totaling $470,000 and issued a total of 162,545 shares of common stock to certain licensors. During the year ended December 31, 2013, the Company paid annual maintenance payments totaling $35,000 to certain of the licensors, which are recorded as research and development expense. The Company has the option to renew these licenses on an annual basis in exchange for payments approximating $45,000 for 2014. The Company could be required to make patent-related, clinical development, regulatory and sales-based milestones of up to $0.2 million, $1.6 million, $5.4 million and $3.7 million, respectively, to the licensors. The license agreements also require the Company to remit royalties in amounts ranging from 0.5% to 2.5% based on net sales of products utilizing the licensed technology. The Company is also required to make payments in amounts ranging from 7.0% to 25.0% for non-royalty income received from any sublicense of the rights granted to the Company under the agreements. Total license expense incurred under the license agreements amounted to approximately $72,000, $30,000 and $30,000 during the years ended December 31, 2013, 2012 and 2011, respectively. The Company paid $25,000 in patent-based milestones in 2013. The Company did not pay any milestones in 2012 or 2011 and the Company has paid no royalties to date.

Milestone Payment Agreements

The Company entered into an agreement with a service provider to receive discounted upfront labor costs for a defined program in consideration of a milestone payment in five years from the Effective Date, as defined in the agreement. The milestone is dependent on the Company declaring a development candidate within the five year contract term and is dependent on the origins of the development candidate. If the development candidate is derived from a new chemical class created by the service provider, the milestone will be two times the discounted upfront labor costs. If the development candidate is not derived from a new chemical class created by the service provider, the milestone will be equal to the discount on services provided to date. No milestone payment is due if no development candidate is declared within the five year period. In addition, should no development candidate be declared within three years and the Company remains active with the program, the service provider may, at its discretion, elect to request reimbursement of the discount on services provided to date and forgo the milestone payment. The election must be provided in writing within thirty days of the end of the three year period. The accumulated discounted labor costs through December 31, 2013 are approximately $220,000. The Company has not accrued for the accumulated discount under the reimbursement option as the Company is currently unable to determine the probability of a development candidate being declared within a three-year period.

The Company entered into an agreement to utilize certain technologies and services in exchange for agreed upon rates over a period of time. The Company made an up-front payment of approximately $0.1 million upon execution of the agreement. The agreement includes milestone payments related to regulatory and preclinical events. The Company paid $0.2 million in preclinical milestones and $0.2 million in regulatory milestones in the year ended December 31, 2013. The Company did not pay any milestones in the years ended December 31, 2012 and 2011. Total expenses incurred under this agreement amounted to approximately $0.4 million in the years ended December 31, 2013 and 2011. There were no expenses incurred under this agreement in the year ended December 31, 2012. The remaining milestone payment requires the Company to pay $0.3 million upon the occurrence of a regulatory event. As of December 31, 2013, the event has not occurred and no accrual has been recorded.

Other Agreement

On November 10, 2009, the Company entered into a research funding agreement whereby the Company received upfront grant monies to be utilized in the development and testing of brain cancer therapies in exchange for three separate $178,538 milestone payments. The milestones can be earned over a ten year period from the agreement date and are dependent on the Company successfully commercializing a brain cancer therapy product. The Company will make separate milestone payments when it accumulates net profits of $5 million, $50 million and $250 million, respectively, from sales of the product. As of December 31, 2013, the Company has not commercialized a brain cancer therapy product.

Legal Contingencies

From time to time, the Company may be involved in disputes and legal proceedings in the ordinary course of its business. These proceedings may include allegations of infringement of intellectual property, employment or other matters. The Company has no legal proceedings ongoing that management estimates could have a material effect on the Company’s Consolidated Financial Statements.