Annual report pursuant to Section 13 and 15(d)

Leases

v3.20.4
Leases
12 Months Ended
Dec. 31, 2020
Leases [Abstract]  
Leases Leases
All of the Company's existing leases as of December 31, 2020 are classified as operating leases. The Company's leases have a remaining term of 11 years and have an option to extend for two five-year periods after the 11 years elapsed and an option to terminate after 7 years. As of December 31, 2020, no such options have been recognized as part of the right-of-use assets and liabilities. For the twelve months ended December 31, 2020 the Company incurred $944 thousand rent expenses, respectively. This is compared to $297 thousand of rent expense for the twelve months ended December 31, 2019. The company did not incur any variable rent expense for the years ended December 31, 2020 or 2019.
Short-term leases are leases having a term of twelve months or less. The Company recognizes the short term leases on a straight-line basis and does not record a related lease asset or liability for such leases. During the quarter ended December 31, 2020, the Company entered into an agreement to lease premises at #201, 17873 - 106A Avenue, Edmonton, Alberta, consisting of 2,248 square feet of office space, for a term commencing October 1, 2020 to September 30, 2021 at a cost of approximately $2,200 per month.
During March 2020, the Company entered into a lease for its U.S. commercial office in Rockville, Maryland (MD lease) for a total space of 30,531 square feet of office space. The Company recognized a $5.8 million ROU asset and a $5.8 million lease liability related to the lease. When measuring the lease liability, the Company discounted lease payments using its incremental borrowing rate at March 12, 2020. The incremental borrowing rate applied to the lease liability on March 12, 2020 was 5.2% based on the financial position of the Company, geographical region and term of lease.
During August 2020, the Company entered into a binding letter of intent to lease 18,615 square feet of commercial office space in Victoria, British Columbia. The lease term is expected to begin in 2022 and the present value of the minimum lease payments for this lease are $3.1 million. As of December 31, 2020 there has been no accounting recognition associated with this lease, as the Company has not been granted access to the building.
During October 2020, the Company entered into a lease for its head office located in Victoria, British Columbia for a total space of 13,206 square feet of office space. The lease term commencing January 1, 2021 to August 31 2022 at a cost of approximately $19 thousand per month.
As of December 31, 2020, the Company received reimbursement for tenant leasehold improvements by the landlord in the amount of $2.3 million for the MD lease. The Company recorded these leasehold improvement incentives as additions to the lease liability and construction in process.
As of December 31, 2020, the Company had an operating lease right of use asset of $5.5 million and lease liability of $8.4 million on the balance sheet.
The following table provides supplemental balance sheet information related to the operating lease ROU asset and lease liabilities:
(in thousands, except for lease term and discount rate) Balance Sheet Classification December 31, 2020 December 31, 2019
Assets
Operating lease right of-use assets Property and equipment, net $ 5,489 $ — 
Total leased assets 5,489 — 
Liabilities
Current
Operating lease liabilities Current maturities of operating lease liabilities 788 — 
Non-current
Operating lease liabilities Operating lease liabilities 7,619 — 
Total lease liabilities $ 8,407 $ — 
Weighted average remaining lease term - operating leases (in years) 10.67 — 
Weighted average discount rate - operating leases 5.2  % — 
The adoption of ASC 842 had no effect on retained earnings as of January 1, 2019.
The following provides a summary of the components of leasing costs and rent for the years ended December 31, 2020 and December 31, 2019:
(in thousands) Consolidated Statement of Operations December 31, 2020 December 31, 2019
Operating lease costs General and administrative $ 909  $ 229 
Short-term lease costs General and administrative 35  68 
Total lease costs $ 944  $ 297 
Cash flow and supplemental information is presented below:
Years ended December 31,
(in thousands) 2020 2019 2018
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used in operating leases $ 232  $ 114  $ 151 
Operating cash flows used in short-term leases $ 35  $ 68  $ 72 
The following table provides a summary of lease liability maturities for the next five years and thereafter:
(in thousands) Operating Lease Payments
2021 $ 287 
2022 968 
2023 1,061 
2024 1,085 
2025 1,109 
Thereafter 6,773 
Total lease payments 11,283 
Less imputed interest (2,876)
Total $ 8,407 

On December 15, 2020, the Company entered into a collaborative agreement with Lonza to build a dedicated manufacturing capacity within Lonza’s existing small molecule facility in Visp, Switzerland. The dedicated facility (also referred to as "monoplant") will be equipped with state-of-the-art manufacturing equipment to provide cost and production efficiency for the manufacture of voclosporin, while expanding existing capacity and providing supply security to meet future commercial demand.
Upon completion of the monoplant, the Company will have the right to maintain unobstructed use of the monoplant by paying a quarterly fixed facility fee. The first capital expenditure payment was made in February 2021.
The Company expects to account for the arrangement as a finance lease under ASC 842. As of December 31, 2020, construction of the underlying asset of the lease has yet to commence. The present value of the minimum lease payments total approximately $94 million, beginning February 2021 and expiring in 2030, and are not included in the above table.