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LEASES | 13. LEASES In accordance with ASC Topic 842, Lease Accounting, the Company records lease assets and liabilities for lease arrangements exceeding a 12-month initial term. For operating leases, the Company records a beginning lease liability equal to the present value of minimum lease payments to be made over the lease term discounted using the Company’s incremental borrowing rate and a corresponding lease asset adjusted for incentives received and indirect costs. After lease commencement, the Company remeasures the operating liability at the present value of the remaining lease payments discounted using the original incremental borrowing rate and corresponding lease asset adjusted for incentives received, indirect costs and uneven lease payments. The Company records operating lease rent expense in the Statements of Operations on a straight-line basis over the lease term. Variable lease costs associated with non-lease components are not included in the measurement of the operating lease liability and are recognized in the period in which they are incurred. Leases with an initial term of 12 months or less, or short-term leases, are not recorded on the balance sheet. Short-term lease expense is recognized on a straight-line basis over the lease term. The Company does not have any financing lease arrangements. As of December 31, 2019, the Company had operating lease assets of $9,047 and operating lease liabilities of $10,094 primarily related to operating lease agreements for its corporate headquarters. Operating Lease Arrangements In March 2018, the Company entered into an operating lease for its new corporate headquarters (the “Stoughton Lease”) pursuant to which the Company leases approximately 50,678 of rentable square feet of space, in Stoughton, Massachusetts. The Stoughton Lease commenced in August 2018 when the Company took possession of the space. After the initial four-month free rent period following possession of the space, the operating lease will continue for a term of 10 years. The Company has the right to extend the term of the Stoughton Lease for two additional five-year terms, provided that written notice is provided to the landlord no later than 12 months prior to the expiration of the then current Stoughton Lease term. The Company does not believe the exercise of the extension to be reasonably certain as of the balance sheet date and therefore did not include the extension as part of its recognized lease asset and lease liability. The annual base rent is $1,214, or $23.95 per rentable square foot, and will increase annually by 2.5% to 3.1% over the subsequent years. In September 2019, the Company determined it had ceased use of its lease for the remaining 9,660 square feet at its former corporate headquarters in Canton, Massachusetts (“Canton Lease”). The Company impaired the operating lease asset and adjusted the operating lease liability to the fair value of cost that will continue to be incurred under the Canton Lease. In December 2019, the Company terminated the Canton Lease and the operating lease liability was reduced to zero. In January 2016, the Company entered a non-cancellable contract with the contract manufacturing organization (“CMO”) of Xtampza ER. The initial contract term continues through December 2020 and automatically renews for successive two-year terms unless either party gives written notice of termination two-years in advance. Xtampza ER production is currently conducted in an area of the manufacturing plant that is shared with other clients. Pursuant to the terms of the agreement, since 2016 the CMO has reserved 3,267 square feet of existing manufacturing space for a dedicated production suite for Xtampza ER, which is currently under construction. Upon adoption of ASC Topic 842, the Company determined that this arrangement has an embedded operating lease arrangement as the Company can direct the use of the dedicated space and obtain substantially all the economic benefits. The Company expects the lease term to continue at least through December 2026 and separated the agreement’s lease and non-lease components in determining the operating lease assets and liabilities. The Company determined its best estimate of stand-alone prices for each of the lease and nonlease components by considering observable information including gross margins expected to be recovered from the Company’s service provider and terms of similar lease contracts. Short-Term Lease Arrangements In December 2018, the Company began entering into 12-month, non-cancelable vehicle leases for its field-based employees. Each vehicle lease is executed separately and expires at varying times with automatic renewal options that are cancelable at any time. The rent expense for these leases is therefore recognized on a straight-line basis over the lease term in the period in which it is incurred. Variable Lease Costs Variable lease costs associated with non-lease components primarily include utilities, property taxes, and other operating costs that are passed on from the lessor. The components of lease cost for the year ended December 31, 2019 are as follows:
The lease term and discount rate for operating leases for the year ended December 31, 2019 are as follows:
Other information related to operating leases for the year ended December 31, 2019 is as follows:
Under ASC Topic 842, the Company’s aggregate future minimum lease payments for its operating leases, including embedded operating lease arrangements, as of December 31, 2019, are as follows:
Under legacy GAAP, the Company’s aggregate future minimum lease payments for its operating leases as of December 31, 2018 were as follows:
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