Leases

12 Months Ended

Dec. 31, 2019

On January 1, 2019, the Company adopted ASC 842 using the modified retrospective approach. The Company recorded operating lease assets (right-of-use assets) of $1.6 million and operating lease liabilities of $1.8 million and reversed a lease liability of $0.2 million related to straight-line rent and incentives. There was no impact to accumulated deficit upon adoption of ASC 842. The underlying assets of the Company’s leases are primarily office space. The Company determines if an arrangement qualifies as a lease at its inception.

As a practical expedient permitted under ASC 842, the Company has elected to account for the lease and non-lease components as a single lease component for all leases of which it is the lessee. Lease payments, which may include lease and non-lease components, are included in the measurement of the Company’s lease liabilities to the extent that such payments are either fixed amounts or variable amounts that depend on a rate or index as stipulated in the lease contract.

When the Company cannot readily determine the rate implicit in the lease, the Company determines its incremental borrowing rate by using the rate of interest that it would have to pay to borrow on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. On January 1, 2019, the discount rate used on existing operating leases at adoption, which had remaining lease terms of 15 months, was 10.0%. For new or renewed leases starting in 2020, the discount rate is determined based on the Company’s incremental borrowing rate adjusted for the lease term including any reasonably certain renewal periods.

The Company enters into lease agreements with terms generally ranging from 2-8 years. Some of the Company’s lease agreements include Company options to either extend and/or early terminate the lease, the costs of which are included in its operating lease liabilities to the extent that such options are reasonably certain of being exercised. Leases with renewal options allow the Company to extend the lease term typically between 1 and 5 years. When determining the lease term, renewal options

reasonably certain of being exercised are included in the lease term. When determining if a renewal option is reasonably certain of being exercised, the Company considers several economic factors, including but not limited to, the significance of leasehold improvements incurred on the property, whether the asset is difficult to replace, underlying contractual obligations, or specific characteristics unique to that particular lease that would make it reasonably certain that the Company would exercise such option. Renewal and termination options were generally not included in the lease term for the Company’s existing operating leases.

Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of ASC 842, lease and non-lease components are combined.

The Company has a non‑cancellable operating lease for its laboratory and office space located at 480 Arsenal Way, Watertown, Massachusetts ("Headquarters Lease"). As part of the Headquarters Lease agreement, the landlord provided the Company a tenant improvement allowance of up to $0.7 million, which the Company fully utilized during 2012. The leasehold improvements are capitalized as a component of property and equipment. In connection with the Headquarters Lease, the Company secured a letter of credit for $0.3 million which renews automatically each year and is classified in restricted cash. In August 2016, the Company signed an amendment to the Headquarters Lease, which extends the term through March 31, 2020.

In October 2017, the Company entered into a lease for approximately 5,100 square feet of additional office space located at 75 North Beacon Street, Watertown, Massachusetts (the “75 North Beacon Lease”). On January 11, 2019, the Company vacated 75 North Beacon Street, Watertown, MA and consolidated all employees at its corporate headquarters at 480 Arsenal Way, Watertown, MA. The right-of-use asset carrying amount of $0.2 million attributable to the 75 North Beacon Lease was written down to zero during the first quarter of 2019.

The Company has a month‑to‑month facility agreement for its Moscow, Russia office. Rent expense is recognized as incurred.

As of December 31, 2018 and prior to the adoption of ASC 842, the aggregate future minimum lease payments related to leases are as follows (in thousands):



Year ending December 31,
2019	1,482
2020	375
Total minimum lease payments	$	1,857

In July 2019, the Company entered into a lease for 25,078 square feet of laboratory and office space located at 65 Grove Street, Watertown, Massachusetts (the “New Headquarters Lease”). The Company estimates that it will incur $0.8 million in non-reimbursable lessee-paid construction costs for lessor assets. None of these costs were incurred as of December 31, 2019. The lease begins in March 2020, consistent with when the Company takes control of the office space and the expected lease term is 8 years, therefore the right-of-use asset and lease liability is not recorded on the balance sheet as of December 31, 2019. Rent payments are expected to occur in May 2020, and the base rent for the first year is $0.2 million per month. The total minimum rental commitments for the New Headquarters Lease are $15.8 million. In connection with the New Headquarters Lease, the Company secured a letter of credit from Silicon Valley Bank for $1.4 million which renews automatically each year.

The Company's total minimum rental commitments for the New Headquarters Lease as of December 31, 2019 are as follows (in thousands):



	December 31,
	2019
2020	$	1,191
2021	1,811
2022	1,865
2023	1,921
2024	1,979
Thereafter	7,027
Total New Headquarters Lease commitment	$	15,794

The right-of-use asset and lease liability has not been recorded as of December 31, 2019 as lease commencement will occur in 2020.

Rent expense for the years ended December 31, 2019, 2018 and 2017 was $2.1 million, $2.0 million and $1.9 million respectively.

For the year ended December 31, 2019, the components of lease costs were as follows (in thousands):



	Year Ended December 31,
	2019
Operating lease expense	$	1,365
Variable lease expense	828
Short-term lease expense	16
Total lease expense	$	2,209

The maturity of the Company's operating lease liabilities as of December 31, 2019 were as follows (in thousands):



	December 31,
Operating leases:	2019
2020	375
Total future minimum lease payments	$	375
Less imputed interest	3
Total operating lease liabilities	$	372
Included in the condensed consolidated balance sheet:
Current operating lease liabilities	$	372
Non-current operating lease liabilities	—
Total operating lease liabilities	$	372

The following information represents supplemental disclosure for the statement of cash flows related to operating leases (in thousands):



	Year Ended December 31,
Operating leases:	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,482

The changes in the Company’s right-of-use asset and lease liability for the year ended December 31, 2019 are reflected in the changes in prepaid expenses, deposits and other assets and accrued expenses and other liabilities, respectively, in the consolidated statements of cash flows.

The following summarizes additional information related to operating leases:



	December 31,
Operating leases:	2019
Weighted-average remaining lease term	0.3 years
Weighted-average discount rate	10	%