Leases

12 Months Ended

Dec. 31, 2023

Operating Leases

The Company currently has operating leases for office and laboratory space in (a) the borough of Manhattan in New York, New York, (b) Cambridge, Massachusetts, and (c) Somerville, Massachusetts, which expire in 2026, 2028, and 2033, respectively.

Until March 2022, the Company also leased a facility in Brooklyn, New York. In March 2022, the Company entered into an agreement to assign that lease to an unaffiliated third party, who also 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 approximately $63,000 security deposit under the lease. Under the assignment agreement, the unaffiliated third party assumed all of the obligations, liabilities, covenants and conditions of the Company as tenant under the 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.

The Company had also leased a facility in San Diego, California. During the second quarter of 2022, the Company determined to consolidate its research and development efforts in Cambridge, Massachusetts and sublease its San Diego lab 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 the year ended December 31, 2022. In November 2022, the Company entered into a lease termination agreement, effective January 31, 2023; and as of December 31, 2023, there was no lease liability or ROU asset balances remaining for the San Diego lease.

In October 2022, the Company entered into a sublease with a subsidiary of Bristol-Myers Squibb Company, as sublessor (“Sublessor”), for office, laboratory and research and development space of approximately 45,500 square feet in Somerville, Massachusetts. The lease expires in November 2033 and is subject to a five-year extension. Rent payments under the sublease began on November 29, 2023. The Company pays base rent of approximately $0.5 million per month during the first year of the term, which will increase 3% per year thereafter. The Company also makes monthly payments for parking, which are based on market rates that can change from time to time, and pay its share of traditional lease expenses, including certain taxes, operating expenses and utilities.

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.

The Sublessor agreed to provide the Company with a tenant improvement allowance (“TIA”) of $190 per rentable square foot, or $8.6 million. Tenant improvements in excess of this amount will be at the Company’s own cost. Construction was substantially complete in January 2024 and the total out-of-pocket costs for the improvements is estimated to be approximately $2.1 million. As of December 31, 2023, the Company received the entire $8.6 million TIA.

The Company obtained access and control of the premises on June 21, 2023, and as such, the Company determined that the commencement date for accounting purposes was June 21, 2023. The Company also performed an analysis on the accounting ownership of the tenant improvement assets and determined that such assets were sublessor/lessor owned. As a result, TIA payments made by the Sublessor to the Company for the tenant improvement assets are considered a reimbursement rather than a lease incentive and not included as part of the consideration of the contract. Amounts paid by the Company for sublessor/lessor owned assets in excess of the TIA are considered non-cash lease payments and are added to the consideration in the contract.

The Company measured the lease liability and corresponding ROU asset for the sublease as of June 21, 2023, which includes lease payments the Company must make over the ten-year lease term. The Company did not include the option to extend the lease for an additional five years in the initial measurement because the Company was not reasonably certain as of June 21, 2023 that it would exercise its right to extend the lease term. As a result, the Company recorded a lease liability of $34.4 million, which included $0.6 million for the incremental amount above the TIA that the Company expected to pay for sublessor/lessor owned assets as of the initial measurement date, and a corresponding ROU asset of $34.7 million as of June 30, 2023.

In December 2023, the Company incurred additional out-of-pocket expenses of approximately $0.4 million for sublessor/lessor owned assets as a result of out-of-scope changes. These cost changes were accounted for as a lease modification of the existing lease. The Company determined that the lease continued to be classified as an operating lease after modification and remeasured the liability for the remaining unpaid lease payments, including the aggregate $1.0 million of unpaid out-of-pocket costs above the TIA that the Company will pay for sublessor/lessor owned assets, as well as remeasuring any variable lease payment that is based on an index or rate. The Company also requested a third-party specialist to reassess the incremental borrowing rate, which is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. This reassessment resulted in an increased incremental borrowing rate from 12.7% as of the initial measurement date to 14.4% as of the modification date. The remeasurement resulted in a decrease to the lease liability of approximately $1.6 million with a corresponding adjustment to the ROU asset.

For the years ended December 31, 2023 and 2022, the net operating lease expenses were as follows (in thousands):

	Years ended December 31,
	2023			2022
Operating lease expense	$	3,399		$	595
Sublease income		(84	)		(84	)
Variable lease expense		136			150
Total lease expense	$	3,451		$	661

The tables below show the beginning balances of the operating ROU assets and lease liabilities as of January 1, 2023 and the ending balances as of December 31 2023, including the changes during the period (in thousands).

	Operating Lease ROU Assets

Operating lease ROU assets at January 1, 2023	$	1,030
Recognition of ROU asset for Somerville Sublease		34,410
Adjustment to ROU asset for remeasurement of Somvervile Sublease liability		(1,620	)
Amortization of operating lease ROU assets		(1,039	)
Operating lease ROU assets at December 31, 2023	$	32,781

	Operating Lease Liabilities
Operating lease liabilities at January 1, 2023	$	1,182
Recognition of lease liability for Somerville Sublease		34,169
Accretion of interest for Somerville Sublease		1,858
Adjustment to lease liablity due to remeasurement of Somerville Sublease		(1,620	)
Principal payments on operating lease liabilities		(519	)
Operating lease liabilities at December 31, 2023		35,070
Less non-current portion		32,854
Current portion at December 31, 2023	$	2,216

As of December 31, 2023, the Company’s operating leases had a weighted-average remaining life of 9.8 years with a weighted-average discount rate of 14.24%. The maturities of the operating lease liabilities are as follows (in thousands):

	As of December 31, 2023
2024	$	6,972
2025		6,075
2026		6,238
2027		6,308
2028		6,406
Thereafter		33,879
Total payments		65,878
Less imputed interest		(30,808	)
Total operating lease liabilities	$	35,070

Manhattan Sublease

In April 2019, the Company entered into a sublease with an unaffiliated third party (the “Subtenant”), whereby the Subtenant agreed to sublease approximately 999 square feet of space 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. Rent payments by the Subtenant under the sublease began on September 1, 2019. The sublease stipulates an annual rent increase of 2.25%. The Subtenant 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, 2023 and 2022, 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 related lease. The Company continues to account for the related 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 Subtenant over the remaining term of the sublease (in thousands):

	As of December 31, 2023
2024	$	86
2025		88
2026		75
Total payments	$	249