LEASES

3 Months Ended

Mar. 31, 2020

LEASES The Company accounts for leases under ASU No. 2016-02, Leases (Topic 842), adopted as of January 1, 2019.

In July 2014, the Company entered into a five-year noncancelable operating lease for its offices and laboratory space in South San Francisco, California that was scheduled to expire in June 2019, with an option for the Company to extend the lease for an additional three years. In August 2017, the Company entered into an amendment which extended the existing operating lease to June 2021 and added 13,258 square feet of additional lease space resulting in a total of 26,987 square feet being leased in the aggregate under the amended lease. In November 2017, the Company entered into a second amendment which reduced the common areas resulting in a total of 26,897 square feet being leased in aggregate under the second amendment.

On August 14, 2019, the Company entered into a third amendment to the existing operating lease which will extend the leased space by an additional 19,177 square feet, or Second Expansion Premises, which will result in a total of 46,074 square feet being leased in aggregate. The operating lease for the Second Expansion Premises will commence on the date they are delivered to the Company, which is expected to be September 1, 2020, or the Second Expansion Premises Commencement Date. In conjunction with the third amendment, the Company also agreed to lease 5,569 square feet of temporary office space effective August 15, 2019 to the Second Expansion Premises Commencement Date. The third amendment will extend the lease by 84 months from the Second Expansion Premises Commencement Date, with an option to extend the lease for an additional 36 months subject to certain conditions. The Company determined that the Second Expansion Premises shall be accounted for as a new lease at the Second Expansion Premises Commencement Date. Further, the Company determined that the amendment to the existing operating lease and temporary office space shall be accounted as a lease modification upon execution of the third amendment. The Company recognized an operating lease ROU asset of $8.1 million and operating lease liability of $8.1 million on its condensed balance sheet upon the execution of the third amendment on August 14, 2019, and will measure and record an additional ROU asset and operating lease liability for the Second Expansion Premises upon the Second Expansion Premises Commencement Date.

Operating lease cost was $0.5 million and $0.3 million for the three months ended March 31, 2020 and 2019, respectively. Variable lease cost was $0.2 million and $0.2 million for the three months ended March 31, 2020 and 2019, respectively. Operating cash flows for the three months ended March 31, 2020 and 2019 included $0.3 million and $0.3 million, respectively in cash payments for operating leases. Expense related to short-term leases was not significant for the three months ended March 31, 2020 and 2019.

The following table presents the maturity analysis of the Company's operating lease liabilities showing the aggregate lease payments as of March 31, 2020.


(in thousands)	March 31, 2020
2020 (remaining nine months)	$	835
2021	1,377
2022	1,662
2023	1,712
2024	1,763
2025 and thereafter	4,959
Total lease payments ⁽¹⁾	12,308

Less: imputed interest	(2,578)
Total operating lease liabilities	$	9,730

(1) As noted above, the operating lease for the Second Expansion Premises is expected to commence on September 1, 2020 and therefore the lease related to the Second Expansion Premises is not recognized on the condensed consolidated balance sheet as of March 31, 2020. As of March 31, 2020, future minimum lease payments related to the Second Expansion Premises are expected to be $8.2 million over the lease term of 7.0 years.

Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate. The weighted-average incremental borrowing rate used to determine the operating lease liabilities was 6.0% and 8.0% as of March 31, 2020 and 2019, respectively. The Company's weighted-average remaining lease term was 7.4 years and 2.3 years as of March 31, 2020 and 2019, respectively.