Facility Lease Obligations

9 Months Ended

Sep. 30, 2016

Leases [Abstract]

Leases

Facility Lease Obligations

New Haven Facility Lease Obligation

In November 2012 we entered into a lease agreement for office and laboratory space to be constructed in New Haven, Connecticut. The term of the lease commenced in 2015 and will expire in 2030, with a renewal option of ten years. Although we do not legally own the premises, we are deemed to be the owner of the building due to the substantial improvements directly funded by us during the construction period based on applicable accounting guidance for build-to-suit leases. Accordingly, the landlord's costs of constructing the facility during the construction period are required to be capitalized, as a non-cash transaction, offset by a corresponding facility lease obligation in our consolidated balance sheet.

Construction of the new facility was completed and the building was placed into service in the first quarter 2016. As of September 30, 2016 and December 31, 2015, our facility lease obligation related to this facility was $135,442 and $132,866, respectively.

Lonza Facility Lease Obligation

During the third quarter 2015, we entered into a new agreement with Lonza Group AG and its affiliates (Lonza) whereby Lonza will construct a new manufacturing facility dedicated to Alexion at its existing Portsmouth, New Hampshire facility. The agreement requires us to make certain payments during the construction of the new manufacturing facility and annual payments for ten years thereafter. As a result of our contractual right to full capacity of the new manufacturing facility, a portion of the payments under the agreement are considered to be lease payments and a portion as payment for the supply of inventory. Although we will not legally own the premises, we are deemed to be the owner of the manufacturing facility during the construction period based on applicable accounting guidance for build-to-suit leases due to our involvement during the construction period. As of September 30, 2016 and December 31, 2015, we recorded a construction-in-process asset of $100,068 and $19,259 and an offsetting facility lease obligation of $89,668 and $15,229 associated with the manufacturing facility, respectively.

Payments to Lonza under the agreement are allocated to the purchases of inventory and the repayment of the facility lease obligation on a relative fair value basis. In 2016, we incurred $49,000 of payments to Lonza under this agreement, of which $6,370 was applied against the outstanding facility lease obligation and $42,630 was recognized as a prepayment of inventory.