Leases

12 Months Ended

Dec. 31, 2022

The Company has operating leases for office and laboratory space in the borough of Manhattan in New York, New York, in Cambridge, Massachusetts and in Somerville, Massachusetts, which expire in 2026, 2028, and 2032 respectively.

The Company also leased a facility in Brooklyn, New York (the “Brooklyn Lease”). On March 5, 2022, the Company entered into an agreement to assign the Brooklyn Lease to Regen Lab USA LLC (“Regen”). Regen agreed to purchase certain equipment from the Company for $50,000, which partially reimbursed the Company for certain existing unamortized leasehold improvements, and to reimburse the Company for the existing security deposit the Company had under the Brooklyn Lease of approximately $63,000.

On March 25, 2022, the Company entered into an Assignment and Assumption of Lease Agreement (the “Assignment Agreement”) with Regen. The effective date of the assignment was March 28, 2022. Under the Assignment Agreement, Regen assumed all of the obligations, liabilities, covenants and conditions of the Company as tenant under the Brooklyn Lease. As a result of the lease assignment, the Company wrote off the remaining ROU asset balance of approximately $1.4 million and the corresponding lease liability of approximately $1.5 million.

On March 31, 2022, the Company entered into a facility lease in San Diego, California (the “San Diego Lease”) with Torrey Pines Science Center Limited Partnership for approximately 5,200 square feet of laboratory and office space. The term of the San Diego Lease was 62 months and the lease commencement date was April 19, 2022. The Company recorded a $1.7 million ROU asset and $1.7 million lease liabilities for the San Diego Lease.

During 2022, the Company decided to consolidate its research and development efforts in Cambridge, Massachusetts, and the Company determined to sublease the San Diego laboratory and office space. As a result, the Company recognized an impairment charge of approximately $0.8 million on the San Diego Lease ROU asset during 2022, which is recorded in general and administrative expense on the consolidated statements of operations.

On November 30, 2022, the Company and the lessor of the San Diego Lease entered into a lease termination agreement, as amended on December 29, 2022 (the “Lease Termination Agreement”), pursuant to which the lessor agreed to terminate the San Diego lease effective January 31, 2023 provided that (i) the Company pay a $0.1 million lease termination fee and (ii) the lessor was able to enter into a new lease for the space with a new tenant by January 15, 2023. On January 9, 2023, the lessor provided notice to the Company that it had entered into a new lease with a new tenant, and the Company paid the $0.1 million termination fee. As a result, the San Diego Lease terminated on January 31, 2023.

The Lease Termination Agreement was accounted for as a modification to the San Diego Lease rather than as a lease termination because the Company did not contemporaneously terminate the San Diego Lease upon the November 30, 2022 modification date and had a continued right-of-use of the facility through January 31, 2023. As a result, the Company remeasured the remaining lease payments, including the $0.1 million termination fee, and reduced the lease liability the Company had on its balance sheet at the time of the modification by approximately $1.4 million to the present value of the remeasured lease liability of approximately $0.2 million. For a lease modification that is not accounted for as a separate contract, a lessee recognizes the amount of the remeasured lease liability as an adjustment to the corresponding ROU asset without affecting profit or loss. However, because the ROU asset balance as of the modification date was only $0.8 million due to the impairment charge of $0.8 million the Company recognized during the second quarter of 2022 (as discussed above), the Company reduced the ROU asset to zero, and the remaining $0.6 million of the $1.4 million adjustment was recognized as a credit to general and administrative expense on the consolidated statement of operations for the year ended December 31, 2022.

On October 18, 2022, the Company entered into the Sublease with E.R. Squibb & Sons, L.L.C., a Delaware limited liability company and subsidiary of Bristol-Myers Squibb Company (“Sublessor”), for office, laboratory and research and development space (the “Premises”). The Premises consist of approximately 45,500 square feet on the ninth floor of the building currently under construction located at 250 Water Street, Somerville, Massachusetts 02141.

Payments of the Sublease rent commence on the date that is the earlier of (i) the date that the Company commences business operations from the Premises and (ii) the one-year anniversary of the date that Sublessor obtained the primary landlord’s consent for the Sublease, which was November 29, 2022 (such applicable date, the “Rent Commencement Date”). The Sublease has a term of 10 years from the Rent Commencement Date (the “Term”), subject to a five-year extension in accordance with the terms of the Sublease.

Pursuant to the Sublease, the Company paid the Sublessor a security deposit in the form of a letter of credit in the amount of approximately $4.1 million. Provided there are no events of default by the Company under the Sublease, the letter of credit will be reduced on an incremental basis throughout the Term. Pursuant to the Sublease, the Company has agreed to pay base rent of approximately $0.5 million per month during the first year of the Term, increasing on an incremental basis each subsequent year of the Term for a total of approximately $63.0 million in base rental payments, as well as parking and traditional lease expenses, including certain taxes, operating expenses and utilities.

Pursuant to the Sublease, the Sublessor will provide the Company with a tenant improvement allowance of $190 per rentable square foot, or $8.6 million. Tenant improvements to the Premises in excess of this amount, if any, will be at the Company’s own cost. As of December 31, 2022, the Premises had not been made available for the Company to begin the construction of the tenant improvements. It is expected that the Premises will be made available to begin the construction in March or April 2023, and it is anticipated that the construction will be complete and ready for operational use in November or December 2023. As a result, the commencement date of the Sublease did not occur as of December 31, 2022, and accordingly, the Company did not recognize a lease liability and corresponding ROU asset for the Sublease as of December 31, 2022.

As of December 31, 2022, the Company had incurred approximately $0.6 million in costs in connection with the Sublease, which consisted of approximately $0.5 million for the architect to design the tenant improvements to the Premises and for a project manager to manage the construction of the tenant improvements as well as approximately $0.1 million in bank fees related to the issuance of the letter of credit discussed above. These costs are recorded in other assets in the accompanying consolidated balance sheet as of December 31, 2022.

For the years ended December 31, 2022 and 2021, the net operating lease expenses were as follows (in thousands):

	Years ended December 31,
	2022			2021
Operating lease expense	$	595		$	688
Sublease income		(84	)		(84	)
Variable lease expense		150			19
Total lease expense	$	661		$	623

The tables below show the beginning balances of the operating ROU assets and lease liabilities as of January 1, 2022 and the ending balances as of December 31, 2022, including the changes during the period (in thousands).

	Operating Lease ROU Assets

Operating lease ROU assets at January 1, 2022	$	2,567
Initial measurement of ROU asset		1,706
Amortization of operating lease ROU assets		(336	)
Impairment of ROU asset		(772	)
Remeasurment of ROU asset		(813	)
Reclassification from fixed assets to ROU assets		50
Write off of ROU asset due to lease termination		(1,372	)
Operating lease ROU assets at December 31, 2022	$	1,030

	Operating Lease Liabilities
Operating lease liabilities at January 1, 2022	$	2,723
Initial measurement of operating lease liabilities		1,706
Principal payments on operating lease liabilties		(340	)
Remeasurment of lease liability		(1,454	)
Write off of lease liability due to lease termination		(1,453	)
Operating lease liabilities at December 31, 2022		1,182
Less non-current portion		887
Current portion at December 31, 2022	$	295

As of December 31, 2022, the Company’s operating leases had a weighted-average remaining life of 4.5 years with a weighted-average discount rate of 9.98%. The maturities of the operating lease liabilities are as follows (in thousands):

	As of December 31, 2022
2023	$	403
2024		272
2025		274
2026		267
2027		163
Thereafter		82
Total payments		1,461
Less imputed interest		(279	)
Total operating lease liabilities	$	1,182

The maturities of the operating lease liabilities show in the table above does not include future payments due under the Sublease that the Company entered into in October 2022, as the commencement date of the Sublease had not begun as of December 31, 2022, and therefore, the Company did not record a corresponding lease liability and ROU asset.

Sublease Agreement

In April 2019, the Company entered into a sublease agreement with Nezu Asia Capital Management, LLC (the “Tenant”), whereby the Tenant agreed to sublease approximately 999 square feet of space currently rented by the Company in the borough of Manhattan in New York, New York commencing on May 15, 2019. The term of this sublease expires on October 31, 2026 with no option to extend the sublease term. Rent payments provided by the Tenant under the sublease agreement began on September 1, 2019. The sublease agreement stipulates an annual rent increase of 2.25%. The Tenant is also responsible for paying to the Company all tenant energy costs, annual operating costs, and annual tax costs attributable to the subleased space during the term of the sublease.

The Company received sublease payments of approximately $0.1 million for each of the years ended December 31, 2022 and 2021, respectively. In accordance with ASC Topic 842, the Company treats the sublease as a separate lease, as the Company was not relieved of the primary obligation under the original lease. The Company continues to account for the Manhattan lease as a lessee and in the same manner as prior to the commencement date of the sublease. The Company accounts for the sublease as a lessor of the lease. The sublease is classified as an operating lease, as it does not meet the criteria of a sale-type or direct financing lease.

The following tables shows the future payments the Company expects to receive from the Tenant over the remaining term of the sublease (in thousands):

	As of December 31, 2022
2023	$	84
2024		86
2025		88
2026		75
	$	333