5. Commitments and Contingencies

Facility Leases

In March 2017, the Company entered into an operating facility lease agreement for approximately 34,500 rentable square feet located at 1020 Marsh Road, Menlo Park, California (1020 Space) and for approximately 17,400 rentable square feet located on the second floor of the building located at 1060 Marsh Road. In September 2017, the Company terminated its lease specific to 1060 Marsh Road. The 1020 space serves as the Company’s corporate headquarters.

The delivery of the 1020 Space to the Company occurred in April 2017. The 1020 Space lease commenced on August 8, 2017 for a period of 86 months, with one renewal option for a five-year term. The total obligation under this lease for the Company is approximately $18.4 million as of June 30, 2018.

As an inducement to enter the lease, the Landlord provided the Company with an approximately $1.9 million tenant improvement allowance for the 1020 Space. In January 2018, the Company received approximately $1.5 million, or 80% of the tenant improvement allowance. The remaining 20% of $0.4 million was received in May 2018. The Company has provided the Landlord with a letter of credit to secure its obligations under the lease in the initial amount of approximately $2.4 million, reported as restricted cash on the balance sheet, which is subject to reductions in future years if certain financial hurdles are met.

Future minimum lease payments under all of the Company’s noncancelable operating and facility leases, as of June 30, 2018, were as follows (in thousands):

Year Ended December 31,
2018	$	1,363
2019		2,780
2020		2,854
2021		2,930
2022		3,009
Thereafter		5,449
Total	$	18,385

Build-to-Suit

In March 2017, the Company entered into an operating facility lease agreement, as described above, to lease office space located in Menlo Park, California in a building to be constructed by the landlord. The company began occupying the 1020 Space in August 2017. The lease has a term of 86 months from the commencement date as defined in the lease agreement with the Company’s option to extend the term of the lease for an additional five years. The Company is obligated to make lease payments totaling approximately $20.0 million over the initial term of the lease. The obligation under this lease is approximately $18.4 million as of June 30, 2018. In connection with this lease, the landlord provided a tenant improvement allowance of approximately $1.9 million for the 1020 Space, for costs associated with the design, development and construction of the Company’s improvements. The Company funded all costs incurred in excess of the tenant improvement allowance. As of June 30, 2018, the Company received all of the tenant improvement allowance. The $1.9 million inducement payment received increased the build-to-suit lease obligation to $7.3 million as of June 30, 2018.

Under the terms of the lease agreement, the Company has indemnified the landlord during the construction period. Accordingly, for accounting purposes, the Company has concluded that they were deemed the owner of the building during the construction period and the Company capitalized approximately $8.8 million within property and equipment and recognized a $7.3 million corresponding build-to-suit obligation in non-current liabilities in the condensed consolidated balance sheet as of June 30, 2018. Of the $8.8 million, approximately $3.5 million has been recorded as a build-to-suit asset related to construction costs incurred as of June 30, 2018.

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. 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 June 30, 2018 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.