Lease obligation

9 Months Ended

Sep. 30, 2019

Lease obligation

Lease obligation

6. Lease obligation

The Company adopted ASC 842, which requires balance sheet recognition for leases. The Company adopted the standard using the modified retrospective approach with an effective date as of the beginning of the Company’s fiscal year, January 1, 2019. Prior year interim periods were not recast under the new standard and therefore, those amounts are not presented below. The Company elected to utilize practical expedients available for expired or existing contracts which allowed the Company to carryforward historical assessments of (1) whether contracts are or contain leases, (2) lease classification, and (3) initial direct costs.

Operating Leases

In April 2014, the Company entered into an agreement to lease its 75 Sidney Street facility under a non-cancelable operating lease that would have expired, if not subsequently extended, on December 15, 2019. The lease includes two renewal options, each for five-year terms and at fair market value upon exercise. The lease contains escalating rent clauses which require higher rent payments in future years. The Company expenses rent on a straight-line basis over the term of the lease, including any rent-free periods.

In December 2015, the Company executed an amendment to extend the term of the 75 Sidney Street lease and also executed an agreement to lease an additional facility at 64 Sidney Street until December 31, 2024. The facility at 64 Sidney Street includes laboratory and office space and was ready for occupancy in early 2017.

In February 2018, the Company executed a second amendment to the 75 Sidney Street lease to lease additional space to support its continued growth. The additional facility includes laboratory and office space and was ready for occupancy in mid-2018.

In June 2018, the Company executed a third amendment to the 75 Sidney Street lease to lease additional space to further support its continued growth. The additional facility includes laboratory and office space, and was ready for occupancy in late 2018. The third amendment extended the term of the 75 Sidney Street lease to November 30, 2026. Additionally, the Company executed a second amendment to the 64 Sidney Street lease to extend that lease to November 30, 2026.

The Company has received leasehold improvement incentives from the landlord totaling $1.3 million and $3.5 million for 75 Sidney Street and 64 Sidney Street, respectively. The Company recorded these incentives as a component of its ROU asset and is amortizing these incentives as a reduction of rent expense over the life of the leases. The leasehold improvements have been capitalized as fixed assets. The Company is entitled to receive approximately $0.3 million of leasehold improvements for the additional space at 75 Sidney Street acquired under the third amendment to the 75 Sidney Street lease.

The Company’s lease agreements require the Company to maintain a cash deposit or irrevocable letter of credit of $0.7 million payable to the landlord as security for the performance of its obligations under the leases. These amounts

are recorded as restricted cash and included in deposits and other non-current assets in the accompanying condensed consolidated balance sheets.

The following table summarizes the Company’s significant contractual obligations under operating leases as of payment due date by period at September 30, 2019:

	Total Minimum
	Lease Payments
	(in thousands)
2019 (remainder of year)	$	1,377
2020		5,960
2021		6,138
2022		6,323
2023		6,512
2024+		20,897
Total future minimum lease payments	$	47,207
Less: imputed interest		(12,393)
Total lease liability	$	34,814
Reported as:
Other current liabilities	$	3,016
Other non-current liabilities		31,798
Total lease liability	$	34,814

During the three and nine months ended September 30, 2019, the Company incurred rent expense of $1.1 million and $4.1 million, respectively, for operating leases. During the three and nine months ended September 30, 2018, the Company incurred rent expense of $1.0 million and $2.8 million, respectively, for operating leases. As of September 30, 2019, the weighted average remaining lease term was 7.2 years and the weighted average incremental borrowing rate used to determine the operating lease liability was 8.5%.