Commitments and Contingencies

6 Months Ended

Jun. 30, 2021

Commitments and Contingencies Disclosure [Abstract]

7. Commitments and Contingencies

Leases

We have operating leases for our headquarters in South San Francisco, where we have office and research and development laboratory facilities, and equipment. Our leases have remaining lease terms of 1 to 10 years. Most of these leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases include renewal options at our election, with renewal terms that can extend the lease term from 1 to 10 years. These optional periods have not been considered in the determination of the

right-of-use

assets, or ROU assets, or lease liabilities associated with these leases as we did not consider it reasonably certain that we would exercise the options.

Lease costs included in operating expense in the condensed consolidated statement of operations and comprehensive loss in relation to these operating leases were $2.4 million and $3.1 million for the three months ended June 30, 2021, and 2020, respectively

;

and $5.6 million and $6.2 million for the six months ended June 30, 2021 and 2020, respectively. Included in these lease costs were variable lease costs, which were not included within the measurement of our operating ROU assets and operating lease liabilities in the amount of $1.2 million and $0.6 million for the three months ended June 30, 2021 and 2020, respectively; and $2.0 million and $1.3 million for the six months ended June 30, 2021 and 2020, respectively. The variable lease cost is comprised primarily of our cost in certain research and development arrangements that contain embedded equipment, and our proportionate share of operating expenses, property taxes, and insurance in relation with our facility lease. These costs are classified as operating lease expense due to our election to not separate lease and

non-lease

components.

Supplemental information related to leases for the period reported is as follows (in thousands, except weighted-average remaining lease term and weighted-average discount rate):


	Six Months Ended June 30,
	2021			2020
ROU assets obtained in exchange for new operating lease	$	—		$	205
Cash paid for amounts included in the measurement of lease liabilities		5,883			2,590
Weighted-average remaining lease term of operating leases (in years)		8.7			9.7
Weighted-average discount rate of operating leases		8.7	%		8.7	%

The majority of our lease costs are driven by our operating lease for our headquarters, where we have office and research and development laboratory facilities.

In March 2017, we entered into a noncancelable operating lease, or Original Lease, for approximately 67,185 square feet of space in South San Francisco, California, or Prior Premises. The Original Lease term commenced in November 2017 as we gained control over physical access to the Prior Premises for a

10-year

period.

In August 2018, we entered into an amendment to the Original Lease, or Lease Amendment, to relocate the leased premises from the Prior Premises to a

to-be-constructed

building consisting of approximately 164,150 rentable square feet of space, or Substitute Premises, when the Substitute Premises were ready for occupancy, or Substitute Premises Payment Commencement Date. The Lease Amendment has a contractual term, or Substitute Premises Term, of 10 years from the Substitute Premises Payment Commencement Date. The Lease Amendment grants us an option to extend the Lease Amendment for an additional

10-year

period. Future minimum rental payments under the Lease Amendment during the

10-year

term are $121.5 million in the aggregate. Under the Lease Amendment, we are obligated to pay to the landlord certain costs, including taxes and operating expenses. The Lease Amendment also provides a tenant inducement allowance of up to $27.9 million, of which $4.1 million, if utilized, would be repaid to the landlord in the form of additional monthly rent with interest applied. As of June 30, 2021, we have capitalized $32.3 million of costs within property and equipment, net for construction of leasehold improvements at the Substitute Premises, which were mostly acquired with the tenant inducement provided under the Lease Amendment.

After relocating to the Substitute Premises, we surrendered and delivered the Prior Premises to the landlord in May 2020, upon which time we had no further obligations with respect to the Prior Premises other than with respect to the Initial Allowance, which we will repay to the landlord in the form of additional monthly rent with interest applied over the term of the Original Lease through November 2027. Upon signing of the Lease Amendment, we

re-evaluated

the remaining useful life of the leasehold improvements at the Prior Premises and started to amortize the leasehold improvements over the remaining period of expected use, resulting in an acceleration of depreciation expenses for approximately $1.9 million and $3.8 million for the three months and six months ended June 30, 2020, respectively. No acceleration of depreciation expense was recorded for the three months and six months ended June 30, 2021.

As of June 30, 2021, the maturities of our operating lease liabilities were as follows (in thousands):


Year ending December 31,	Amount
2021 (six months)	$	5,958
2022		12,222
2023		12,584
2024		12,948
2025		13,368
Thereafter		60,507

Total lease payments		117,587
Less: Imputed interest		(35,903	)

Present value of operating lease liabilities	$	81,684

The operating leases require us to share in prorated operating expenses and property taxes based upon actual amounts incurred; those amounts are not fixed for future periods and, therefore, are not included in the future commitments listed above.

Contingencies

In the ordinary course of business, we may be subject to legal claims and regulatory actions that could have a material adverse effect on our business or financial position. We assess our potential liability in such situations by analyzing potential outcomes, assuming various litigation, regulatory and settlement strategies. If we determine a loss is probable and its amount can be reasonably estimated, we accrue an amount equal to the estimated loss.

No losses and no provision for a loss contingency have been recorded to date.