Leases

3 Months Ended

Mar. 31, 2020

Leases [Abstract]

Leases

Leases

A lease is a contract, or part of a contract, that conveys the right to control the use of explicitly or implicitly identified property, plant or equipment in exchange for consideration. Control of an asset is conveyed to the Company if the Company obtains the right to obtain substantially all of the economic benefits of the asset or the right to direct the use of the asset. In its consolidated balance sheets, the Company recognizes a liability to make lease payment (the lease liability) and a ROU asset representing its right to use the underlying asset for the lease term. The Company recognizes ROU assets and lease liabilities at the lease commencement date based on the present value of future, fixed lease payments over the term of the arrangement. ROU assets are generally amortized on a straight-line basis over the term of the lease. Lease liabilities accrete to yield and are reduced at the time when the lease payment is payable to the vendor. Variable lease payments are recognized at the time when the event giving rise to the payment occurs and are recognized in the statement of comprehensive loss in the same line item as expenses arising from fixed lease payments

The Company's lease portfolio consists primarily of office space, manufacturing facilities and fleet vehicles. All of the Company's leases are classified as operating leases, except for the Company's corporate headquarters lease, which is classified as a finance lease. The terms of the Company's lease agreements that have commenced range from less than one year to ten years, ten months. In its assessment of the term of each such lease, the Company has not included any options to extend or terminate the lease due to the absence of economic incentives in its lease agreements. Leases that qualify for treatment as a short-term lease are expensed as incurred. These short-term leases are not material to the Company's financial position.

Furthermore, the Company does not separate lease and non-lease components for all classes of underlying assets. The Company's leases do not contain residual value guarantees and it does not sublease any of its leased assets.

The Company outsources its manufacturing operations to CMOs. Upon review of the agreements with its CMOs, the Company determined that these contracts contain embedded leases for dedicated manufacturing facilities. The Company obtains substantially all of the economic benefits from the use of the manufacturing facilities, has the right to direct how and for what purpose the facility is used throughout the period of use, and the supplier does not have the right to change the operating instructions of the facility. The operating lease right-of-use assets and corresponding lease liabilities associated with the manufacturing facilities is the sum of the minimum guarantees over the life of the production contracts.

The table below summarizes the Company's total lease costs included in its consolidated financial statements, as well as other required quantitative disclosures (in thousands).

	Three Months Ended
	March 31, 2020
Finance lease cost
Amortization of right-of-use assets	$	360
Interest on lease liabilities	439
Total finance lease cost			$	799
Operating lease cost			2,807
Total lease cost			$	3,606
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for finance leases			$	439
Operating cash flows for operating leases			$	2,838
Financing cash flows from finance leases			$	292
Weighted average remaining lease term - finance leases			10.3 years
Weighted average remaining lease term - operating leases			4.9 years
Weighted average discount rate - finance leases			8.6		%
Weighted average discount rate - operating leases			7.4		%

The table below summarizes the supplemental noncash disclosures of the Company's leases included in its consolidated financial statements (in thousands).

	Three Months Ended
	March 31, 2020		March 31, 2019
Finance right-of-use assets obtained in exchange for lease obligations	$	—	$	—
Operating right-of-use assets obtained in exchange for lease	$	22	$	47,396

In addition to the Company's lease agreements that have previously commenced and are reflected in the consolidated financial statements, the Company has entered into additional lease agreements that have not yet commenced. The Company entered into certain agreements with Patheon related to increasing its long-term production capacity for ARIKAYCE commercial inventory. The Company has determined that these agreements with Patheon contain an embedded lease for the manufacturing facility and the specialized equipment contained therein. Costs incurred by the Company under these additional agreements of $20.4 million have been classified within other assets in the Company's consolidated balance sheet. Upon the commencement date, prepaid costs and minimum guarantees specified in the agreement will be combined to establish an operating lease ROU asset and operating lease liability.

Leases

Leases

A lease is a contract, or part of a contract, that conveys the right to control the use of explicitly or implicitly identified property, plant or equipment in exchange for consideration. Control of an asset is conveyed to the Company if the Company obtains the right to obtain substantially all of the economic benefits of the asset or the right to direct the use of the asset. In its consolidated balance sheets, the Company recognizes a liability to make lease payment (the lease liability) and a ROU asset representing its right to use the underlying asset for the lease term. The Company recognizes ROU assets and lease liabilities at the lease commencement date based on the present value of future, fixed lease payments over the term of the arrangement. ROU assets are generally amortized on a straight-line basis over the term of the lease. Lease liabilities accrete to yield and are reduced at the time when the lease payment is payable to the vendor. Variable lease payments are recognized at the time when the event giving rise to the payment occurs and are recognized in the statement of comprehensive loss in the same line item as expenses arising from fixed lease payments

The Company's lease portfolio consists primarily of office space, manufacturing facilities and fleet vehicles. All of the Company's leases are classified as operating leases, except for the Company's corporate headquarters lease, which is classified as a finance lease. The terms of the Company's lease agreements that have commenced range from less than one year to ten years, ten months. In its assessment of the term of each such lease, the Company has not included any options to extend or terminate the lease due to the absence of economic incentives in its lease agreements. Leases that qualify for treatment as a short-term lease are expensed as incurred. These short-term leases are not material to the Company's financial position.

Furthermore, the Company does not separate lease and non-lease components for all classes of underlying assets. The Company's leases do not contain residual value guarantees and it does not sublease any of its leased assets.

The Company outsources its manufacturing operations to CMOs. Upon review of the agreements with its CMOs, the Company determined that these contracts contain embedded leases for dedicated manufacturing facilities. The Company obtains substantially all of the economic benefits from the use of the manufacturing facilities, has the right to direct how and for what purpose the facility is used throughout the period of use, and the supplier does not have the right to change the operating instructions of the facility. The operating lease right-of-use assets and corresponding lease liabilities associated with the manufacturing facilities is the sum of the minimum guarantees over the life of the production contracts.

The table below summarizes the Company's total lease costs included in its consolidated financial statements, as well as other required quantitative disclosures (in thousands).

	Three Months Ended
	March 31, 2020
Finance lease cost
Amortization of right-of-use assets	$	360
Interest on lease liabilities	439
Total finance lease cost			$	799
Operating lease cost			2,807
Total lease cost			$	3,606
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for finance leases			$	439
Operating cash flows for operating leases			$	2,838
Financing cash flows from finance leases			$	292
Weighted average remaining lease term - finance leases			10.3 years
Weighted average remaining lease term - operating leases			4.9 years
Weighted average discount rate - finance leases			8.6		%
Weighted average discount rate - operating leases			7.4		%

The table below summarizes the supplemental noncash disclosures of the Company's leases included in its consolidated financial statements (in thousands).

	Three Months Ended
	March 31, 2020		March 31, 2019
Finance right-of-use assets obtained in exchange for lease obligations	$	—	$	—
Operating right-of-use assets obtained in exchange for lease	$	22	$	47,396

In addition to the Company's lease agreements that have previously commenced and are reflected in the consolidated financial statements, the Company has entered into additional lease agreements that have not yet commenced. The Company entered into certain agreements with Patheon related to increasing its long-term production capacity for ARIKAYCE commercial inventory. The Company has determined that these agreements with Patheon contain an embedded lease for the manufacturing facility and the specialized equipment contained therein. Costs incurred by the Company under these additional agreements of $20.4 million have been classified within other assets in the Company's consolidated balance sheet. Upon the commencement date, prepaid costs and minimum guarantees specified in the agreement will be combined to establish an operating lease ROU asset and operating lease liability.