10. Commitments and Contingencies

The Company leases approximately 45,362 square feet of office and lab space in Cambridge, Massachusetts under a lease which was most recently amended in July 2016, collectively, the Lease. Total monthly lease payments for base rent are approximately $242,000 per month which is subject to annual rent escalations. In addition to such annual rent escalations, base rent payments for a portion of said premises commenced on January 1, 2017 in the monthly amount of approximately $22,000. Landlord contributions included in the Lease from the landlord totaled $2,169,920, including $70,526 in leasehold improvements not yet utilized. The landlord contributions are being accounted for as a deferred lease incentive and reduction in monthly rent expense over the term of the Lease. The term of the Lease with respect to the office space expires on September 11, 2026, with one five year extension option available. The term of the Lease for the lab space is five years, with an extension option for one additional period of two years. The total security deposit in connection with the Lease of $1,280,857 is included in other assets in the Company’s condensed consolidated balance sheets as of June 30, 2017 and December 31, 2016.

The Company recognizes rent expense and records a deferred lease obligation representing the cumulative difference between actual facility lease payments and lease expense recognized ratably over the lease period, which is included in the Company’s condensed consolidated balance sheets as of June 30, 2017 and December 31, 2016.

The Company leases office equipment under three year capital leases with payments commencing in February 2014, April 2015 and February 2016, respectively. The capital lease amounts are included in accrued expenses and other liabilities.

At June 30, 2017, the Company’s future minimum payments required under these leases are as follows:

			Lease Payments
	Operating		to be Received		Net Operating		Capital
	Lease		from Sublease		Lease Payments		Lease		Total
	(in thousands)
2017	$	1,773	$	129	$	1,644	$	4	$	1,648
2018		3,545		257	$	3,288		5	$	3,293
2019		3,545		—	$	3,545		—	$	3,545
2020		3,545		—	$	3,545		—	$	3,545
2021		3,510		—	$	3,510		—	$	3,510
Thereafter		14,666		—	$	14,666		—	$	14,666
Total	$	30,584	$	386	$	30,198		9	$	30,207
Less amount representing interest								—
Present value of minimum lease payments at June 30, 2017							$	9

The Company recorded approximately $0.8 million and $0.7 million in rent expense for the three months ended June 30, 2017 and 2016, respectively and approximately $1.6 million and $1.0 million for the six months ended June 30, 2017 and 2016, respectively.

Under the Company’s agreement with a subsidiary of Quintiles IMS Holdings, Inc., or Quintiles, to provide services for the PRO₂TECT and INNO₂VATE programs, the total remaining contract costs as of June 30, 2017 were approximately $334.7 million. The estimated period of performance for the committed work with Quintiles is through the fourth quarter of 2019. The Company contracts with various other organizations to conduct research and development activities with remaining contract costs to the Company of approximately $26.5 million and $24.9 million at June 30, 2017 and December 31, 2016, respectively. The scope of the services under these research and development contracts can be modified and the contracts cancelled by the Company upon written notice. In some instances, the contracts may be cancelled by the third party upon written notice.

The Company has had a number of positive developments in its opposition and invalidity proceedings against FibroGen, Inc., or FibroGen. With regard to the opposition that the Company filed in Europe against FibroGen’s European Patent No. 1463823, or the ’823 patent, an oral proceeding took place March 8 and 9, 2016. Following the oral proceeding, the European Opposition Division ruled that the patent as granted did not meet the requirements for patentability under the European Patent Convention and, therefore, revoked the patent in its entirety. FibroGen has appealed that decision and the appeal process is expected to take 2 to 3 years. Likewise, with regard to the invalidity proceeding that the Company filed in Japan against certain claims of FibroGen’s Japanese Patent No. 4804131, or the ’131 patent, which is the Japanese counterpart to the ’823 patent, the Japan Patent Office, or JPO, issued a preliminary decision finding all of the challenged claims to be invalid. FibroGen subsequently amended the claims and the JPO accepted the amendments. The resulting FibroGen Japanese ’131 patent does not cover vadadustat or any pyridine carboxamide compounds. To date, FibroGen has been unsuccessful in its attempts to obtain a patent in the United States covering the same claim scope as it obtained initially in Europe and Japan in the ’823 and ’131 patents. In the event FibroGen were to obtain such a patent in the United States, the Company may decide to challenge them like the Company has done in Europe and Japan.

With regard to the opposition that we filed in Europe against FibroGen’s European Patent No. 163333, or the ’333 patent, an oral proceeding took place December 8 and 9, 2016. Following the oral proceeding, the European Opposition Division ruled that the patent as granted did not meet the requirements for patentability under the European Patent Convention and, therefore, revoked the patent in its entirety. FibroGen has appealed that decision.

On May 13, 2015, May 20, 2015 and July 6, 2015, the Company filed oppositions to FibroGen’s European Patent Nos. 2322153, 2322155, and 1633333, or the ’153 patent, the ’155 patent, and the ’333 patent, respectively, requesting the patents be revoked in their entirety. These related patents claim, among other things, various compounds that either stabilize HIFα or inhibit a HIF hydroxylase or a HIF prolyl hydroxylase for treating or preventing various conditions, including, inter alia, iron deficiency, microcytosis associated with iron deficiency, anemia of chronic disease, anemia wherein the subject has a transferrin saturation of less than 20%, anemia refractory to treatment with exogenously administered erythropoietin, or EPO, and microcytosis in microcytic anemia. Such method of use patents do not prevent persons from using the compound for other uses, including any previously known use of the compound. In particular, these patents do not claim methods of using any of our product candidates for purposes of inhibiting hypoxia-inducible factor prolyl hydroxylases, or HIF-PHs, for the treatment of anemia secondary to CKD. While the Company does not believe these patents will prevent it from commercializing vadadustat for treatment of anemia secondary to CKD, the Company filed these oppositions to provide us and any future partners with maximum flexibility for developing vadadustat and our pipeline of HIF PH inhibitors. Oppositions to the ’155 patent and to the ’153 patent were also filed by Glaxo Group Limited, or Glaxo, and by Bayer Intellectual Property GmbH, Bayer Pharma Aktiengesellschaft, and Bayer Animal Health GmbH. In oral proceedings held on May 29, 2017, the European Opposition Division ruled that the '155 patent as granted did not meet the requirements for patentability under the European Patent Convention and, therefore, revoked the patent in its entirety. Subsequently, in related oral proceedings held on May 31, 2017 and June 1, 2017 for the '153 patent, FibroGen significantly narrowed the claims to an indication for which vadadustat is not intended to be developed.

The Company’s policy is to record a liability if a loss in a significant legal dispute is considered probable and an amount can be reasonably estimated. The Company provides disclosure when a loss in excess of any reserve is reasonably possible, and the Company is in a position to estimate the potential loss or range of possible loss. Significant judgment is required to assess the likelihood of various potential outcomes and the quantification of loss in those scenarios. The Company’s estimates change as litigation progresses and new information comes to light. Changes in Company estimates could have a material impact on the Company’s results and financial position.