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Commitments and Contingencies
6 Months Ended
Jun. 30, 2020
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

6. Commitments and Contingencies

Leases

We lease our facilities in Emeryville, California and Düsseldorf, Germany.

In July 2019, we entered into a sublease for office space located at 2100 Powell Street, Emeryville, California (the “Powell Street Sublease”) and the lease for our former corporate headquarters at 2929 Seventh Street, Berkeley, California was terminated effective August 31, 2019. Under the terms of the Powell Street Sublease, we are leasing 23,976 square feet at the rate of $3.90 per square foot, paid on a monthly basis. Rent is subject to scheduled annual increases and we are responsible for certain operating expenses and taxes throughout the life of the Powell Street Sublease. The Powell Street Sublease will continue until June 30, 2022. There is no option to extend the sublease term.

On September 17, 2018, we entered into a lease (“Horton Street Master Lease”) for office and laboratory space located at 5959 Horton Street, Emeryville, California (“Horton Street Premises”). Under the terms of the Horton Street Master Lease, we are leasing 75,662 square feet at the rate of $4.75 per square foot, paid on a monthly basis, starting on April 1, 2019 (“Commencement Date”). Rent is subject to scheduled annual increases, and we are also responsible for certain operating expenses and taxes throughout the life of Horton Street Master Lease. In connection with the Horton Street Master Lease, we are entitled to a tenant improvement allowance of up to $8.3 million, of which $7.9 million has been received through June 30, 2020. The Horton Street Master Lease has an initial term of 12 years, following the Commencement Date with an option to extend the lease for two successive five-year terms. The optional periods were not included in the lease term used in determining the right-of-use asset or the lease liability as we did not consider it reasonably certain that we would exercise the options. The operating lease right-of-use assets and liabilities on our June 30, 2020 condensed consolidated balance sheets primarily relate to the Horton Street Master Lease.

In connection with the organizational restructuring in May 2019, we did not occupy the Horton Street Premises and in July 2019, we entered into an agreement to sublease the Horton Street Premises to a third party (“Horton Street Sublease”). Under the terms of the Horton Street Sublease, we are subleasing the entire 75,662 rentable square feet at the rate of $5.50 per square foot, paid on a monthly basis. Rent is subject to scheduled annual increases and the subtenant (“Subtenant”) is responsible for certain operating expenses and taxes throughout the life of the Horton Street Sublease. The Horton Street Sublease term is until March 31, 2031, unless earlier terminated, concurrent with the term of our Horton Street Master Lease. The Subtenant has no option to extend the sublease term. For the three and six months ended June 30, 2020, we recognized $1.9 million and $3.9 million, respectively, of sublease income included in other income (expense) in our condensed consolidated statements of operations.

Under the terms of the Horton Street Master Lease, rent received from the Subtenant in excess of rent paid to the landlord shall be shared by paying the landlord 50% of the excess rent. The excess rent is considered a variable lease payment and the total estimated payments are being recognized as additional rent expense on a straight-line basis.

Our lease expense comprises of the following (in thousands):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating lease expense

 

$

1,561

 

 

$

1,747

 

 

$

3,153

 

 

$

3,485

 

 

Cash paid for amounts included in the measurement of lease liabilities for the six months ended June 30, 2020 and 2019 was $3.4 million and $2.4 million, respectively, and was included in operating cash flows in our condensed consolidated statement of cash flows.

The balance sheet classification of our operating lease liabilities was as follows (in thousands):  

 

 

 

June 30, 2020

 

 

December 31, 2019

 

Operating lease liabilities:

 

 

 

 

 

 

 

 

Current portion of lease liabilities (included in other current liabilities)

 

$

3,045

 

 

$

3,039

 

Long-term portion of lease liabilities

 

 

36,231

 

 

 

37,845

 

Total operating lease liabilities

 

$

39,276

 

 

$

40,884

 

 

At June 30, 2020, the maturities of our sublease income and operating lease liabilities were as follows (in thousands):

 

Years ending December 31,

 

Sublease Income

 

 

Operating Lease

Liabilities

 

2020 (remaining)

 

$

2,553

 

 

$

3,443

 

2021

 

 

5,201

 

 

 

6,898

 

2022

 

 

5,357

 

 

 

6,214

 

2023

 

 

5,518

 

 

 

5,353

 

2024

 

 

5,684

 

 

 

5,497

 

Thereafter

 

 

39,595

 

 

 

36,299

 

Total

 

$

63,908

 

 

 

63,704

 

Less:

 

 

 

 

 

 

 

 

Present value adjustment

 

 

 

 

 

 

(24,428

)

Total

 

 

 

 

 

$

39,276

 

 

The weighted average remaining lease term and the weighted average discount rate used to determine the operating lease liability were as follows:

 

 

 

June 30, 2020

 

 

December 31, 2019

 

Weighted average remaining lease term

 

9.4 years

 

 

9.7 years

 

Weighted average discount rate

 

 

10.1

%

 

 

10.1

%

 

Commitments

On February 20, 2018, we entered into a $175.0 million term loan agreement (“Loan Agreement”) with CRG Servicing LLC. We borrowed $100.0 million under the Loan Agreement at closing and the remaining $75.0 million in March 2019 (collectively, “Term Loans”). At our option, until September 30, 2023, a portion of the interest payments may be paid in kind, and thereby added to the principal. Through June 30, 2020, a portion of our interest was paid in kind, which increased the principal amount of the Term Loans to $180.9 million. The Term Loans have a maturity date of December 31, 2023, unless earlier prepaid. See Note 8.

As of June 30, 2020, our material non-cancelable purchase and other commitments, for the supply of HEPLISAV-B and for clinical research, totaled $10.1 million.

During 2004, we established a letter of credit with Deutsche Bank as security for our Düsseldorf lease in the amount of €0.2 million (Euros). The letter of credit remained outstanding through June 30, 2020 and is collateralized by a certificate of deposit for €0.2 million, which has been included in restricted cash in the consolidated balance sheets as of June 30, 2020.

In conjunction with a financing arrangement with Symphony Dynamo, Inc. and Symphony Dynamo Holdings LLC (“Holdings”) in November 2009, we agreed to make contingent cash payments to Holdings equal to 50% of the first $50 million from any upfront, pre-commercialization milestone or similar payments received by us from any agreement with any third party with respect to the development and/or commercialization of cancer and hepatitis C therapies originally licensed to Symphony Dynamo, Inc., including SD-101. We have made no payments and have not recorded a liability as of June 30, 2020. In July 2020, we entered into an Asset Purchase Agreement to sell our SD-101 program and will be obliged to pay Holdings 50% of the upfront payment of $5 million and 50% of the contingent pre-commercialization milestone payments under the Asset Purchase Agreement. See Note 14.

Contingencies

From time to time, we may be involved in claims, suits, and proceedings arising from the ordinary course of our business, including actions with respect to intellectual property claims, commercial claims, and other matters. Such claims, suits, and proceedings are inherently uncertain and their results cannot be predicted with certainty. Regardless of the outcome, such legal proceedings can have an adverse impact on us because of legal costs, diversion of management resources, and other factors. In addition, it is possible that a resolution of one or more such proceedings could result in substantial damages, fines, penalties or orders requiring a change in our business practices, which could in the future materially and adversely affect our financial position, results of operations, or cash flows in a particular period.