Leases

9 Months Ended

Jun. 30, 2023

LEASES

On November 19, 2021, the Company entered into a 15-year lease for approximately 144,000 square feet of office and research and development laboratory space in San Diego, California. This new facility accommodates increased personnel for its expanding pipeline of current and future drug candidates. The lease payments, which began on April 19, 2023, the rent commencement date, will be approximately $119.0 million over the initial 15-year term. The Company also estimates annual operating expenses to be approximately $3.0 million for the first year of the lease, and these payments will continue throughout the initial 15-year term. The Company expects to pay approximately $32.0 million for leasehold improvements, net of tenant improvement allowances. Pursuant to the lease, within twelve months of the expiration of the initial 15-year term, the Company has the option to extend the lease for up to one additional ten-year term, with certain annual increases in base rent.

Further, the lease agreement grants the Company the right to receive an Additional Tenant Improvement Allowance (“ATIA”) funded by the lessor. The maximum amount of ATIA is $7.2 million, and as of June 30, 2023, the Company has received approximately $0.7 million, which has been recorded as other liabilities on its consolidated balance sheets. The Company will repay the ATIA through equal monthly payments, including 7% interest per annum over the base term, starting from the rent commencement date. Interest begins accruing on the date the lessor first disburses the ATIA.

Other Significant Leases

Pasadena, California: The Company leases 49,000 square feet of office space located at 177 Colorado Blvd. for its corporate headquarters from 177 Colorado Owner, LLC, which lease expires on April 30, 2027. The lease contains an option to renew for one term of five years.

San Diego, California: The Company subleased space from Halozyme, Inc. for additional research and development space in San Diego, California. The term of this sublease commenced on April 1, 2020 and ended on January 14, 2023. On December 23, 2022, the Company entered into a new six-month lease agreement with 11404 & 11408 Sorrento Valley Owner (DE) LLC, effective January 15, 2023. The lease ended on July 15, 2023.

Madison, Wisconsin: The Company leases space for office and laboratory facilities, which expires on September 30, 2031. The lease contains options to renew for two terms of five years. After accounting for additional rental square feet added pursuant to amendments to the lease agreement in 2019 and 2020, the Company currently leases a total of 111,000 square feet.

The components of lease assets and liabilities along with their classification on the Company’s consolidated balance sheets were as follows:


Lease Assets and Liabilities	Classification	June 30, 2023		September 30, 2022
		(in thousands)

Operating lease assets	Right-of-use assets	$	40,667	$	58,291

Current operating lease liabilities	Lease liabilities	2,823		2,776
Non-current operating lease liabilities	Lease liabilities, net of current portion	79,911		78,800


		Three Months Ended June 30,				Nine Months Ended June 30,
Lease Cost	Classification	2023		2022		2023		2022
		(in thousands)

Operating lease cost	Research and development	$	3,323	$	2,974	$	7,735	$	4,757
	General and administrative expense	509		448		1,542		1,288

Variable lease cost (1)	Research and development	257		179		627		519
	General and administrative expense	—		—		—		—

Total		$	4,089	$	3,601	$	9,904	$	6,564

(1) Variable lease cost is primarily related to operating expenses associated with the Company’s operating leases.

There was $0.6 million and $0.2 million short-term lease cost during the three months ended June 30, 2023, and 2022, respectively. There was $1.2 million and $0.7 million short-term lease cost during the nine months ended June 30, 2023, and 2022, respectively.

The following table presents payments of operating lease liabilities on an undiscounted basis as of June 30, 2023:


Year	Amounts
	(in thousands)
2023 (remainder of fiscal year)	$	1,143
2024	8,094
2025	11,800
2026	12,148
2027	11,320
2028 and thereafter	102,812
Total	$	147,317
Less imputed interest	$	(64,583)
Total operating lease liabilities (includes current portion)	$	82,734

Supplemental cash flow and other information related to leases was as follows:


	Nine Months Ended June 30,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases (in thousands)	4,430		3,398

	June 30,
	2023		2022
Weighted-average remaining lease term (in years)	13.4		7.3
Weighted-average discount rate	8.0	%	8.5	%