Leases

9 Months Ended

Sep. 30, 2019

The Company leases real estate, including office and laboratory space.

The Company has two five-year lease agreements for office and laboratory space in Lawrence, Kansas that began on January 1, 2016 and expire on December 31, 2020. The Company has three leases for additional office space in Lawrence, Kansas, that expire in December 2020. The lease agreements contain options to extend the lease terms however these extensions were not included in the right-of-use assets and lease liabilities as they were not reasonably certain of being exercised.

In addition, in August 2018, the Company entered into a nine-month sublease for additional temporary office space in Waltham, Massachusetts that expired in June 2019. The Company also had a three-year sublease agreement for office space in Waltham, Massachusetts that began in September 2016 and expired in September 2019. The expense related to these subleases are included in short-term lease costs for the nine months ended September 30, 2019.

The Company’s leases require the Company to pay for certain operating expenses based on actual costs incurred and therefore, as the amounts are variable in nature, are expensed in the period incurred and included in variable lease costs for the three and nine months ended September 30, 2019. Payment escalations specified in the lease are recognized on a straight-line basis over the lease terms.

All of the Company's leases qualify as operating leases. The following table summarizes the presentation of the Company's operating leases in the consolidated balance sheet:


(in thousands)	As of September 30, 2019
Operating lease assets	$	522

Current operating lease liabilities	$	415
Operating lease liabilities, net of current portion	107
Total operating lease liabilities	$	522

The components of lease expense were as follows:


(in thousands)	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost	$	104	$	462
Short-term lease cost	82		270
Variable lease cost	128		337
	$	314	$	1,069

Future annual minimum lease payments under operating leases were as follows:


(in thousands)	As of September 30, 2019
Remainder of 2019 (three months)	$	108
2020	433
Total future minimum lease payments	541
Less: imputed interest	(19)
Total operating lease liabilities	$	522

As previously disclosed in the Company’s 2018 Annual Report on Form 10-K and under the previous lease accounting standard, ASC 840, Leases, the following table summarizes the future minimum lease payments due under the operating leases as of December 31, 2018:


(in thousands)	As of December 31, 2018
2019	$	726
2020	333
	$	1,059

The weighted-average remaining lease term and weighted-average discount rate of the Company's operating leases are as follows:


	As of September 30, 2019
Weighted-average remaining lease term in years	1.17
Weighted-average discount rate	5.37	%

Supplemental disclosure of cash flow information related to the Company's operating leases included in cash flows used in operating activities in the consolidated statement of cash flows is as follows:


(in thousands)	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	104	$	424
Operating lease liabilities arising from obtaining operating lease assets	$	142	$	142

In May 2018 the Company entered into a lease for office space at 200 Smith Street in Waltham, Massachusetts (the Premises). The initial term of the lease expires in November 2029, unless terminated earlier in accordance with the terms of the lease. The Company is entitled to two five-year options to extend. The initial annual base rent is approximately $2.0 million and will increase annually for a total of $22.4 million over the lease term. The Company is obligated to pay its portion of real estate taxes and costs related to the premises, including costs of operations, maintenance, repair, replacement and management of the new leased premises. The Company is required to maintain a cash balance of $1.1 million to secure a letter of credit associated with the lease. This amount was classified as long-term investment—restricted in the consolidated balance sheet as of September 30, 2019.

Prior to the adoption of ASU 2016-02, the Company was deemed to be the owner of this leased space during the construction period because of certain provisions within the lease agreement. As a result, as of December 31, 2018, the Company capitalized approximately $11.9 million (equal to the estimated cost of its leased portion of the premises) as construction-in-progress within property and equipment, net and recorded a corresponding build-to-suit facility lease financing obligation. Under ASU 2016-02, the Company was no longer considered the owner of the leased space and therefore the build-to suit asset and corresponding liabilities at December 31, 2018 were reversed as of the date of adoption on January 1, 2019 as the lease commencement date had not yet been met. In October 2019 the lease commencement date under ASU 2016-02 was met and will result in the addition of an operating lease asset and corresponding lease liability in the fourth quarter of 2019. The Premises became the Company's new headquarters location in October 2019.

As previously disclosed in the Company’s 2018 Annual Report on Form 10-K and under the previous lease accounting standard, ASC 840, Leases, as of December 31, 2018, minimum commitments under this lease were as follows:


(in thousands)	As of December 31, 2018
2019	$	170
2020	2,043
2021	2,088
2022	2,132
2023	2,177
Thereafter	13,783
	$	22,393

In April 2019 the Company amended its lease for office space at the Premises to add an additional 38,003 square feet of space for a total of 82,346 square feet of space, which is expected to commence in early 2020. The initial term of the lease for the additional space will expire in November 2029 unless terminated earlier in accordance with the terms of the lease and the Company is entitled to two five-year options to extend the lease. The initial annual base rent for the additional space is approximately $1.9 million and will increase annually for a total of $18.2 million over the lease term. The Company will be required to pay its share of operating expenses, taxes and other expenses related to the additional leased premises. The Company will be required to increase the amount of cash to secure the letter of credit by $0.9 million upon substantial completion of the additional premises. As of September 30, 2019, the lease commencement date under ASU 2016-02 had not yet been met.