Right-of-use asset and lease liabilities

6 Months Ended

Jun. 30, 2020

Right-of-use asset and lease liabilities

Right-of-use asset and lease liabilities

5 Right-of-use assets and lease liabilities

The Company’s most significant leases relate to office and laboratory space under the following operating lease agreements:

Lexington, Massachusetts / United States

In July 2013, the Company entered into a lease for a facility in Lexington, Massachusetts, United States. In November 2018, the term was expanded by five years from 2024 to June 2029. The lease is renewable for two subsequent five-year terms. Additionally, the lease was expanded to include an additional 30,655 square feet within the same facility and for the same term. The lease of the expansion space commenced on June 1, 2019.

Amsterdam / The Netherlands

In March 2016, the Company entered into a 16-year lease for a facility in Amsterdam, the Netherlands, and amended this agreement in June 2016. The lease for this facility terminates in February 2032, with an option to extend in increments of five-year periods. The lease contract includes variable lease payments related to annual increases in payments based on a consumer price index.

On December 1, 2017, the Company entered into an agreement to sub-lease three of the seven floors of its Amsterdam facility for a ten-year term ending on December 31, 2027, with an option for the sub-lessee to extend until December 31, 2031. In February 2020, the Company amended the agreement to sub-lease to take back one of the three floors effective March 1, 2020. The fixed lease payments to be received during the remaining term under the agreement to sub-lease amount to $6.4 million (EUR 5.7 million) as of June 30, 2020.

The table below presents the components of the Company’s lease costs for the periods indicated:

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
	(in thousands)				(in thousands)
Operating lease cost	$	1,289	$	1,022	$	2,579	$	1,919
Variable lease cost		153		101		298		182
Sublease income		(209)		(264)		(457)		(532)
Total lease cost	$	1,233	$	859	$	2,420	$	1,569

The table below presents the lease-related assets and liabilities recorded on the Consolidated balance sheets for the periods indicated.

	June 30,		December 31,
	2020		2019
	(in thousands)
Assets
Operating lease right-of-use assets	$	26,139		26,797
Liabilities
Current
Current operating lease liabilities		5,495		5,865
Non-current
Non-current operating lease liabilities		30,279		31,133
Total lease liabilities	$	35,774		36,998

Other information

The weighted-average remaining lease term as of June 30, 2020 is 9.8 years, compared to 10.3 years as of December 31, 2019 and the weighted-average discount rate as of June 30, 2020 is 11.33%, compared to 11.33% as of December 31, 2019. The Company derived the weighted-average discount rate, adjusted for differences such as in the term and payment patterns, from the Company’s loan from Hercules Capital which was refinanced immediately prior to the January 1, 2019 adoption date in December 2018.

Cash paid for amounts included in the measurement of lease liabilities for the periods indicated below was as follows:

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
	(in thousands)				(in thousands)
Operating cash flows for operating leases	$	1,731	$	603	$	3,155	$	2,016

The Company did not obtain any right-of-use assets in exchange for lease obligations in the three and six months ended June 30, 2020. Besides the initial recognition of operating right-of-use assets of $19.0 million upon adoption of the new lease standards on January 1, 2019, the Company obtained $8.6 million of additional right-of-use assets in exchange for lease obligations in the three and six months ended June 30, 2019.

Undiscounted cash flows

The table below reconciles the undiscounted cash flows as of June 30, 2020, for each of the first five years and the total of the remaining years to the operating lease liabilities recorded on the Consolidated balance sheet as of June 30, 2020.

	Lexington		Amsterdam1)		Other1)		Total
	(in thousands)
2020 (six months remaining)	$	1,697	$	947	$	61	$	2,705
2021		3,455		1,894		141		5,490
2022		3,552		1,894		—		5,446
2023		3,650		1,894		—		5,544
2024		4,146		1,894		—		6,040
Thereafter		20,745		13,100		—		33,845
Total lease payments	$	37,245	$	21,623	$	202	$	59,070
Less: amount of lease payments representing interest payments		(13,790)		(9,498)		(8)		(23,296)
Present value of lease payments		23,455		12,125		194		35,774
Less: current operating lease liabilities		(3,407)		(1,894)		(194)		(5,495)
Non-current operating lease liabilities	$	20,048	$	10,231	$	—	$	30,279

(¹⁾ Payments are due in EUR and have been translated at the foreign exchange rate as of June 30, 2020, of $1.12/ €1.00).