Commitments and Contingencies

12 Months Ended

Dec. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Lease Obligations

In May 2018, the Company entered into an amendment to its operating lease for its former corporate headquarters in South San Francisco (the "Headquarters Lease Amendment") to relocate and expand its headquarters to 148,020 rentable square feet in a building in South San Francisco, California (the "New Premises"). The Headquarters Lease Amendment has a contractual term of ten years from the legal commencement date, which was April 1, 2019 when the building was ready for occupancy. For accounting purposes, the lease commencement date was determined to be August 1, 2018, which was the date at which the Company was deemed to have obtained control over the property. The Company has an option to extend the lease term for a period of ten years by giving the landlord written notice of the election to exercise the option at least nine months, but not more than twelve months, prior to the expiration of the Headquarters Lease Amendment lease term. The Company determined that this renewal was not reasonably certain at lease inception.

The Headquarters Lease Amendment provides for monthly base rent amounts escalating over the term of the lease. In addition, the Headquarters Lease Amendment provided a tenant improvement allowance ("TIA") of up to $25.9 million, which was fully utilized, of which $4.4 million will be repaid to the landlord in the form of additional monthly rent. This is recorded as leasehold improvement assets and an offset to the lease ROU asset on the Consolidated Balance Sheets. The Company is also required to pay the operating expenses for the New Premises, such as taxes and insurance, which are treated as variable lease payments.

Management exercised judgment in applying the requirements of ASC 842, including the determination as to whether certain contracts contain a lease and for the Headquarters Lease Amendment, the discount rate used to determine the measurement of the lease liability. As the implicit rate of the Headquarters Lease Amendment was not known, the Company estimated a 9.0% discount rate, which was management’s estimate of the Company’s incremental borrowing rate. To estimate the incremental borrowing rate, management considered observable debt yields of comparable market instruments, as well as benchmarks within the Headquarters Lease Amendment that may be indicative of the rate implicit in the lease.

Total operating lease costs, including variable and short-term lease costs, was $11.1 million and $10.2 million for the year ended December 31, 2020 and 2019, respectively. Rent expense excluding amortization of leasehold improvements was $6.0 million for the year ended December 31, 2018.

Operating lease liabilities are calculated as the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. As of December 31, 2020, the weighted average remaining lease term is 8.3 years and the weighted average discount rate used to determine the operating lease liability was 9.0%. Cash paid for amounts included in the measurement of lease liabilities for the year ended December 31, 2020 was $9.7 million and was included in net cash used in operating activities in the Company's Consolidated Statements of Cash Flows.

The following table reconciles the undiscounted cash flows for the next five years and total of the remaining years to the operating lease liabilities recorded in the Consolidated Balance Sheet as of December 31, 2020 (in thousands):


Year Ended December 31:
2021	$	10,391
2022	10,731
2023	11,083
2024	11,447
2025	11,824
Thereafter	42,250
Total undiscounted lease payments	97,726
Present value adjustment	(28,861)
Net operating lease liabilities	$	68,865

In October 2018, the Company entered into a sublease agreement ("Sublease Agreement") to sublease approximately 36,835 rentable square feet of space in its New Premises. The Sublease Agreement has a term of five years from the commencement date of April 12, 2019 and provides for the Company to receive monthly base rent amounts escalating over the term of the lease. The Company also passes through a portion of the operating expenses, such as taxes and insurance for the New Premises to the sublessee, which are treated as variable sublease income. Total sublease income, including rent and variable sublease cost reimbursements, was $3.6 million and $2.6 million for the year ended December 31, 2020 and 2019, respectively. There was no sublease income for the year ended December 31, 2018.

The following table details the future undiscounted cash inflows relating to the Company's Sublease Agreement as of December 31, 2020 (in thousands):


Year Ended December 31:
2021	$	2,925
2022	3,009
2023	3,096
2024	876
2025 and thereafter	—
Total undiscounted sublease receipts	$	9,906

Indemnification

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to vendors, lessors, business partners, board members, officers, and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company, negligence or willful misconduct of the Company, violations of law by the Company, or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon the Company to provide indemnification under such agreements, and thus, there are no claims that the Company is aware of that could have a material effect on the Company’s Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive Income (Loss), or Consolidated Statements of Cash Flows.

Commitments

Effective September 2017, the Company entered into a Development and Manufacturing Services Agreement as amended (“DMSA”) with Lonza Sales AG (“Lonza”) for the development and manufacture of biologic products. Under the DMSA, the Company will execute purchase orders based on project plans authorizing Lonza to provide development and manufacturing services with respect to certain of the Company's antibody and enzyme products, and will pay for the services provided and batches delivered in accordance with the DMSA and project plan. Unless earlier terminated, the DMSA will expire on September 6, 2022.

As of December 31, 2020 and 2019, the Company had open purchase orders for biological product development and manufacturing costs totaling $33.0 million and $21.2 million, respectively. The activities under these purchase orders are expected to be completed by February 2028. As of December 31, 2020 and 2019, the Company had total non-cancellable purchase commitments of $27.1 million and $11.2 million, respectively, under the DMSA.

During the years ended December 31, 2020, 2019 and 2018, the Company incurred costs of $10.8 million, $12.7 million, and $3.9 million, respectively, and made payments of $7.3 million, $12.5 million, and $3.4 million respectively, for the development and manufacturing services rendered under the DMSA.

In the normal course of business, the Company enters into various firm purchase commitments primarily related to research and development activities. The Company had contractual obligations under license and other agreements of $4.8 million and $1.1 million as of December 31, 2020 and 2019, respectively.

Contingencies

From time to time, the Company may be involved in lawsuits, arbitration, claims, investigations and proceedings consisting of intellectual property, employment and other matters which arise in the ordinary course of business. The Company records accruals for loss contingencies to the extent that the Company concludes that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated.

On September 10, 2020, the Company and all Directors were named in a shareholder derivative action filed in the Delaware Court of Chancery challenging the compensation paid to the Company's Directors since the IPO in December 2017.

On January 13, 2021, the parties to the derivative action entered into a settlement agreement, subject to Court approval and certain other closing conditions, the terms of which were disclosed via Form 8-K filed on February 5, 2021. Amounts owed by the Company pursuant to the settlement agreement are not material to the Company.