8. Commitments and Contingencies

Facility Leases

In March 2014, the Company entered into an operating facility lease agreement to lease approximately 12,900 square feet in Menlo Park, California for its new headquarters building for a period of thirty-nine months. The total obligation for the Company under this lease is approximately $0.5 million as of December 31, 2016.

In December 2015, the Company entered into an operating sublease agreement to lease additional office space in Menlo Park for a period of twenty-four months. The total obligation for the Company under this sublease is approximately $0.6 million as of December 31, 2016.

Rent expense was $1,290,000, $763,000, and $520,000 for the years ended December 31, 2016, 2015, and 2014, respectively.

As of December 31, 2016, the aggregate future minimum lease payments under the noncancellable operating lease arrangements are as follows (in thousands):

Year Ended December 31, 2016
2017		$ 1,085
2018		—
2019		—
2020		—
2021		—
Thereafter		—
		$ 1,085

Boehringer Ingelheim Commercial Supply Agreement

In December 2016, through the Company’s subsidiary, Versartis GmbH, entered into a Commercial Supply Agreement with Boehringer Ingelheim Biopharmaceuticals GmbH (“BI”), pursuant to which the Company engaged BI as a contract manufacturer to manufacture the bulk drug substance for our proprietary long-acting human growth hormone, somavaratan, fill it into the final container and closure and supply such drug product to us for commercial use.

Under the agreement, each calendar year the Company is required to reserve minimum drug substance manufacturing capacity, order from BI a minimum number of batches of drug substance, and purchase and take possession of a minimum number of batches of drug product. If the Company does not order and purchase these minimum quantities, it will need to pay fees to BI based on the shortfalls in its product orders or purchases, unless there is a supply failure or supply interruption by BI. The agreement includes customary terms and conditions relating to, among other things, forecast, ordering, delivery, inspection, acceptance and product warranties.

The initial term of the agreement continues for a period of eight years and, after the initial term, the agreement will automatically renew for periods of three years each. The agreement may be earlier terminated by either party for technical reasons if BI is unable to implement or consistently perform the manufacturing process on a commercial scale. The Company has the right to terminate this agreement if the Company is unable to achieve the clinical targets or target product profile for somavaratan or if it is unable to obtain regulatory approval of the product. The agreement may also be terminated by either party for the other party’s uncured material breach, insolvency, and certain change of control and force majeure events. In addition, either party may terminate the agreement without cause upon three years’ advance notice.

Upon termination of the agreement or if the Company’s demand for the product exceeds the maximum capacity reservation at BI, the Company has the right to add an additional manufacturing site or transfer the entire manufacturing process to itself or it’s designee.

Owen Mumford Manufacture and Supply Agreement

In May 2016, the Company entered into a Manufacture and Supply Agreement with Owen Mumford Limited, a leading medical device manufacturer, pursuant to which the Company engaged Owen Mumford to: (1) manufacture a proprietary disposable autoinjector device and (2) assemble and supply a final combination product including the device and somavaratan, its proprietary long-acting form of human growth hormone. The Company will supply somavaratan in prefilled syringes to Owen Mumford for incorporation into the final combination product.

Under the agreement, Owen Mumford agrees to manufacture the autoinjector device used in the product exclusively for the Company in the field of human growth hormone deficiency treatment, subject to a minimum purchase obligation. The Company is required to purchase its entire requirement of the final combination product from Owen Mumford, except that after a specified time period after regulatory approval in the European Union (“EU”), the Company may purchase from third parties a portion of its requirement for the European Economic Area. In addition, after a specified time period after regulatory approval in any major jurisdiction, the Company is required to purchase from Owen Mumford a minimum quantity of the product in each year. If the Company does not purchase such minimum quantity, it may pay a shortfall payment to Owen Mumford to maintain the scope of its exclusivity. If the Company fails to purchase the minimum and decline to pay the shortfall payment, the exclusivity will be limited to long-acting human growth hormone products. The agreement also includes customary terms and conditions relating to forecast, ordering, delivery, inspection and acceptance, among other matters.

The initial term of the agreement continues until ten (10) years after the Company’s acceptance of the first shipment of the final combination product, and may be renewed for an additional time period by mutual agreement of the parties. The agreement may be earlier terminated by either party for the other party’s uncured material breach or insolvency. In addition, either party may terminate the agreement without cause upon twelve (12) months advance notice. If terminated by Owen Mumford without cause, Owen Mumford must continue to supply the autoinjector device and assemble the final combination product until the Company is able to identify, appoint, and qualify through all necessary regulatory approvals an alternate manufacturer.

Purchase Commitments

The Company conducts research and development programs through a combination of internal and collaborative programs that include, among others, arrangements with contract manufacturing organizations and contract research organizations. The Company had contractual arrangements with these organizations including license agreements with milestone obligations and service agreements with obligations largely based on services performed.

In the normal course of business, the Company enters into various firm purchase commitments related to certain preclinical and clinical studies. At December 31, 2016 the noncancellable portion of these commitments, in aggregate, totaled approximately $7.1 million and is expected to be paid within the next fiscal year.

Contingencies

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

As of December 31, 2016 the Company is contingently committed to make development and sales-related milestone payments of up to $30.0 million under certain circumstances, and other payments of $10.0 million, as well as royalties relating to potential future product sales under the License Agreement with Amunix. The amount, timing and likelihood of these payments are unknown as they are dependent on the occurrence of future events that may or may not occur, including approval by the FDA of potential drug candidates.

Indemnification

In accordance with the Company’s amended and restated Certificate of Incorporation and amended and restated bylaws, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. There have been no claims to date and the Company has a director and officer insurance policy that may enable it to recover a portion of any amounts paid for future claims.

Litigation

The Company may from time to time be involved in legal proceedings arising from the normal course of business. There are no pending or threatened legal proceedings as of December 31, 2016.