Leases

6 Months Ended

Jun. 30, 2022

(5) LEASES

In conjunction with the adoption of ASC 842, the Company evaluated its vendor contracts to identify embedded leases, if any, and noted that a pharmaceutical support services agreement entered into in May 2016 included leases under ASC 842 because the Company has the right to direct the use of certain equipment. The embedded leases commenced in September 2020 and expire in August 2023 with no stated option to extend the term. The Company classified the leases as finance leases.

In May 2021, the Company entered into a lease agreement for approximately 10,000 square feet of office space located in South San Francisco, California. The lease commenced on June 6, 2021 and expires on August 31, 2026. The lease does not provide an option to extend after it expires. The total lease payments for the life of the lease is approximately $2.0 million. The Company classified the lease as an operating lease.

In February 2022, the Company entered into a lease agreement totaling approximately 11,074 square feet of office and laboratory space located in Palo Alto, California. The lease consists of two premises and expires in February 2030. The lease provides for an option to extend for two years after expiration. The lease for one premise commenced in February 2022 and the second premise commenced in April 2022. The lease provides for an annual base rent of approximately $0.8 million, which increases on an annual basis by 3%. The total lease payments for the life of the lease are approximately $7.0 million. The Company is also responsible for leasehold improvement costs related to the second premise, which are expected to be approximately $2.0 million, of which $1.5 million is to be paid with interest at a rate of 7% per annum as additional payments over the life of the lease. The Company classified the lease as an operating lease. Under the terms of the lease agreement, the Company issued a letter of credit to the landlord in the amount of $0.1 million, which is collateralized by a restricted cash deposit of $0.1 million (see Note 4 "Other assets").

As of June 30, 2022, the right-of-use asset, or ROU, recorded for operating leases and finance leases was $6.1 million and $0.5 million, respectively. These amounts were included in other assets on the condensed consolidated balance sheets.

The following table presents the maturities and balance sheet information of the Company's operating and finance lease liabilities as of June 30, 2022 (in thousands, except lease term and discount rate):


	June 30, 2022
	Operating Leases			Finance Leases
2022 (remaining 6 months)	$	549		$	216
2023		1,246			288
2024		1,273			—
2025		1,311			—
2026		1,193			—
Thereafter		3,000			—
Total lease payments		8,572			504
Less: imputed interest		(2,227	)		(5	)
Total lease liabilities	$	6,345		$	499

Lease liabilities: current (i)	$	668		$	429
Lease liabilities: non-current (ii)		5,677			70
Total lease liabilities	$	6,345		$	499

Weighted average remaining lease term (in years)		6.7			1.2
Weighted average discount rate		8.3	%		1.7	%

(i)

Current lease liabilities are presented within accrued expenses and other current liabilities and payable and accrued liabilities due to related party on the condensed consolidated balance sheets and includes a nominal amount due to Tallac Therapeutics, Inc. for an operating lease.

(ii)

Non-current lease liabilities are presented within other non-current liabilities on the condensed consolidated balance sheets.

The following table presents the components of lease costs (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Operating lease cost	$	271	$	62	$	520	$	97
Variable lease cost and other, net (i)		91		17		143		39
Short-term lease cost		39		—		83		—
Finance lease cost:
Amortization of right-of-use assets		112		90		224		145
Interest		2		3		5		6
Total lease costs	$	515	$	172	$	975	$	287

(i)

The variable lease cost and other, net is comprised primarily of common area maintenance charges for the operating lease, which is dependent on usage. These costs are classified as operating lease expense due to the election to not separate lease and non-lease components. These costs were not included within the measurement of the Company’s operating lease ROU assets and operating lease liabilities.

The following table presents the supplemental cash flow disclosures for cash paid for leases (in thousands):


	Six Months Ended
	June 30,
	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	429	$	102
Operating cash flows from finance leases	$	4	$	3
Financing cash flows from finance leases	$	140	$	73
Right-of-use asset acquired under leases
Operating leases	$	4,684	$	1,812
Finance leases	$	—	$	834