Leases

6 Months Ended

Jun. 30, 2022

Leases

Leases

8. Leases

At the inception of an arrangement, we determine whether the arrangement is or contains a lease based on the unique facts and circumstances. 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 US 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.

Prior to June 30, 2021, we had a finance lease and operating lease for certain equipment at the production train at Lonza, our non-exclusive manufacturer of the Rubraca API. Pursuant to the terms of Amendment 2 discussed in Note

14, Commitments and Contingencies, we derecognized the lease components recognized under the original agreement with Lonza. This includes the operating lease liabilities and right-of-use (“ROU”) assets, finance lease liabilities and ROU assets and leasehold improvement assets and liability.

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

	Three months ended June 30,		Three months ended June 30,
	2022		2021
Lease cost
Finance lease cost:
Amortization of right-of-use assets	$	—	$	474
Interest on lease liabilities		—		178
Operating lease cost		1,207		1,280
Short-term lease cost		75		80
Variable lease cost		638		640
Total lease cost	$	1,920	$	2,652
Operating cash flows from finance leases	$	—	$	178
Operating cash flows from operating leases	$	1,207	$	1,280
Financing cash flows from finance leases	$	—	$	394

	Six months ended June 30,		Six months ended June 30,
	2022		2021
Lease cost
Finance lease cost:
Amortization of right-of-use assets	$	—	$	947
Interest on lease liabilities		—		363
Operating lease cost		2,421		2,533
Short-term lease cost		152		160
Variable lease cost		1,276		1,163
Total lease cost	$	3,849	$	5,166
Operating cash flows from finance leases	$	—	$	363
Operating cash flows from operating leases	$	2,421	$	2,533
Financing cash flows from finance leases	$	—	$	780

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

	June 30, 2022		June 30, 2021
Weighted-average remaining lease term (years)
Operating leases		5.4		6.2
Finance leases		N/A		N/A
Weighted-average discount rate
Operating leases		8%		8%
Finance leases		N/A		N/A

Future minimum commitments due under these lease agreements as of June 30, 2022 are as follows (in thousands):

	Operating Leases
2022 (remaining six months)		2,749
2023		4,936
2024		4,600
2025		4,752
2026		4,881
Thereafter		4,760
Present value adjustment		(5,178)
Present value of lease payments	$	21,500