Lease

6 Months Ended

Jun. 30, 2020

Lease

Lease

9. Lease

At the inception of an arrangement, we determine whether the arrangement is or contains a lease based on the unique facts and circumstances. Most leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. We elected not to recognize on the balance sheet leases with terms of one year or less. Lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, we utilize the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.

The components of a lease should be split into three categories: lease components (e.g. land, building, etc.), non-lease components (e.g. common area maintenance, maintenance, consumables, etc.) and non-components (e.g. property taxes, insurance, etc.). Then the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on fair values assigned to the lease components and non-lease components.

Our facilities operating leases have lease components, non-lease components and non-components, which we have separated because the non-lease components and non-components have variable lease payments and are excluded from the measurement of the lease liabilities. The lease component results in a right-of-use asset being recorded on the balance sheet and amortized as lease expense on a straight-line basis to the statements of operations.

We lease all of our office facilities in the U.S. and Europe. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Most leases include one or more options to renew. The exercise of lease renewal options is at our sole discretion. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

We have a finance lease for certain equipment at the dedicated production train at Lonza, our non-exclusive manufacturer of the Rubraca API.

The components of lease expense and related cash flows were as follows (in thousands):

	Three months ended June 30,		Three months ended June 30,
	2020		2019
Lease cost
Finance lease cost:
Amortization of right-of-use assets	$	474	$	356
Interest on lease liabilities		208		179
Operating lease cost		998		994
Short-term lease cost		116		48
Variable lease cost		472		645
Total lease cost	$	2,268	$	2,222
Operating cash flows from finance leases	$	208	$	179
Operating cash flows from operating leases	$	998	$	994
Financing cash flows from finance leases	$	364	$	255

	Six months ended June 30,		Six months ended June 30,
	2020		2019
Lease cost
Finance lease cost:
Amortization of right-of-use assets	$	947	$	712
Interest on lease liabilities		423		363
Operating lease cost		2,124		2,144
Short-term lease cost		222		97
Variable lease cost		1,070		1,369
Total lease cost	$	4,786	$	4,685
Operating cash flows from finance leases	$	423	$	363
Operating cash flows from operating leases	$	2,124	$	2,144
Financing cash flows from finance leases	$	720	$	505

The weighted-average remaining lease term and weighted-average discount rate were as follows:

	June 30, 2020		June 30, 2019
Weighted-average remaining lease term (years)
Operating leases		7.0		6.8
Finance leases		5.5		6.5
Weighted-average discount rate
Operating leases		8%		8%
Finance leases		8%		8%

Future minimum commitments due under these lease agreements as of June 30, 2020 are as follows (in thousands):

	Operating Leases		Finance Leases		Total
2020 (remaining six months)		2,814		1,143		3,957
2021		5,628		2,287		7,915
2022		5,177		2,287		7,464
2023		4,791		2,287		7,078
2024		4,798		2,287		7,085
Thereafter		14,619		2,287		16,906
Present value adjustment		(9,162)		(2,429)		(11,591)
Present value of lease payments	$	28,665	$	10,149	$	38,814