Commitments and Contingencies
|3 Months Ended|
Mar. 31, 2018
|Commitments And Contingencies Disclosure [Abstract]|
|Commitments and Contingencies||
License and Collaboration Agreements
Potential payments related to our license and collaboration agreements, including milestone and royalty payments, are detailed in Note 6.
Other Research and Development Agreements
We may enter into contracts in the normal course of business with clinical research organizations for clinical trials, with contract manufacturing organizations for clinical supplies, and with other vendors for pre-clinical studies, supplies and other services for our operating purposes. These contracts generally provide for termination on notice, with the exception of potential termination charges related to one of our contract manufacturing agreements in the event certain minimum purchase volumes are not met. As of March 31, 2018 and December 31, 2017, there were no amounts accrued related to termination charges for minimum purchase volumes not being met.
Operating and Capital Leases
We lease our corporate headquarters in South San Francisco, California under a non-cancellable lease agreement that expires in April 2021. In connection with the lease, we are required to maintain a letter of credit in the amount of $0.2 million to the landlord, which expires and is renewed every 12 months, and is classified as restricted cash in our condensed consolidated balance sheet. We also lease office space in Westlake Village, California under a lease agreement that expires in April 2019. Also, in fourth quarter of 2017, we entered into multiple agreements to lease certain equipment that have been accounted for as capital leases. The terms of the lease agreements range between 2-3 years.
Rent expense was $0.4 million and $0.3 million for the three months ended March 31, 2018 and 2017, respectively.
Financing Obligation—Build-to-Suit Lease
In February 2017, we entered into a lease agreement for approximately 90,580 square feet of office, lab and cellular therapy manufacturing space in Thousand Oaks, California. The initial 15-year term of the lease commenced on February 15, 2018, upon the substantial completion of landlord’s work as defined under the agreement. The contractual obligations during the initial term are $16.4 million in aggregate. We have the option to extend the lease for two additional periods of ten and nine years, respectively, after the initial term. In connection with the lease, we were required to issue a letter of credit in the amount of $1.2 million to the landlord, which is recorded as long-term restricted cash in our condensed consolidated balance sheet.
Based on the terms of the lease agreement and due to our involvement in certain aspects of the construction, we have been deemed the owner of the building (for accounting purposes only) during the construction period in accordance with U.S. GAAP. Under this build-to-suit lease arrangement, we recognize construction in progress based on all construction costs incurred by both us and the landlord. We also recognize a financing obligation equal to all costs funded by the landlord.
As of March 31, 2018, we have capitalized $10.3 million of construction in progress relating to landlord’s costs of the building incurred through that date and have recognized a corresponding long-term financing obligation for the same amount included in the long-term liabilities in our consolidated balance sheets. In addition, we have recorded $35.4 million of construction in progress for construction costs incurred by us and $0.3 million of capitalized interest during the construction period through March 31, 2018. Further, we recorded ground lease expense of $88,000 and $37,000 for the three months ended March 31, 2018 and 2017, respectively, in our condensed consolidated statement of operations and comprehensive loss, representing the estimated cost of renting the land during the construction period.
Asset Retirement Obligation
The Company’s ARO consists of a contractual requirement to remove the tenant improvements at our manufacturing facility in Thousand Oaks, California and restore the facility to a condition specified in the lease agreement. The Company records an estimate of the fair value of its ARO in long-term liabilities in the period incurred. The fair value of the ARO is also capitalized as construction in progress. The fair value of our ARO was estimated by discounting projected cash flows over the estimated life of the related assets using our credit adjusted risk-free rate.
The following table presents the activity for our ARO liabilities:
In the normal course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for indemnification for certain liabilities. The exposure under these agreements is unknown because it involves claims that may be made against us in the future but have not yet been made. To date, we have not paid any claims or been required to defend any action related to our indemnification obligations. However, we may record charges in the future as a result of these indemnification obligations. We also have indemnification obligations to our directors and executive officers for specified events or occurrences, subject to some limits, while they are serving at our request in such capacities. There have been no claims to date and we believe the fair value of these indemnification agreements is minimal. Accordingly, we did not record liabilities for these agreements as of March 31, 2018 and December 31, 2017.
From time to time, we may be involved in legal proceedings, as well as demands, claims and threatened litigation, which arise in the normal course of our business or otherwise. The ultimate outcome of any litigation is uncertain and unfavorable outcomes could have a negative impact on our results of operations and financial condition. Regardless of outcome, litigation can have an adverse impact on us because of the defense costs, diversion of management resources and other factors. We are not currently involved in any material legal proceedings.
The entire disclosure for commitments and contingencies.
Reference 1: http://www.xbrl.org/2003/role/presentationRef