Annual report pursuant to Section 13 and 15(d)

Leases

Leases

12 Months Ended

Dec. 31, 2021

The Company has the following lease obligations:

Victoria, British Columbia

During the fourth quarter of 2020, the Company entered into facility and furniture leases for its head office located in Victoria, British Columbia for a total of 13,206 square feet of office space. The lease terms commenced on January 1, 2021 for the facility and furniture leases. As of December 31, 2021, the Company had $0.2 million right-of-use assets (ROU assets) and $0.2 million lease liabilities related to the leases. The Company recognized operating lease costs that are included in SG&A expense in the consolidated statement of operations. The incremental borrowing rate applied to the lease liabilities on January 1, 2021 was 4.08% based on financial position of the Company, geographical region and terms of leases.

During August 2020, the Company signed a lease for commercial office space in Victoria, British Columbia. The lease term is expected to begin in 2022. The present value of the minimum lease payments for this lease are $2.3 million. As of December 31, 2021, the lease has not commenced and as a result there has been no accounting recognition associated with the lease.

Rockville, Maryland

During March 2020, the Company entered into a lease for its U.S. commercial office in Rockville, Maryland for a total of 30,531 square feet of office space. The lease has a remaining term of approximately 11 years and has an option to extend for two five-year periods after the 11 years has elapsed and has an option to terminate after seven years. As of December 31, 2021, the Company had a right-of-use asset of $5.2 million and lease liability of $8.6 million included in the consolidated balance sheets. As of December 31, 2020, the Company had a right of use asset of $5.5 million and lease liability of $8.4 million included in the consolidated balance sheets. During 2020, the Company received reimbursements for tenant leasehold improvements by the landlord in the amount of $2.3 million for the Maryland lease. The Company recorded these leasehold improvement incentives as additions to the lease liability. The lease term commenced on March 12, 2020. 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 terms of lease.

Edmonton, Alberta

During the fourth quarter of 2020, the Company entered into an agreement to lease office space in Edmonton, Alberta, commencing on October 1, 2020 and ending September 30, 2021. During the third quarter of 2021, the lease was extended until September 30, 2022. The Company recognizes short-term leases on a straight-line basis and did not record a related lease asset or liability for the Edmonton lease. The Company recognized short-term rent expense for this lease, which is included in SG&A expense in the consolidated statement of operations.

Supplemental balance sheet information related to the operating lease ROU asset and lease liabilities as of December 31, 2021 and December 31, 2020 are as follows:


(in thousands)	Balance Sheet Classification	2021		2020
Assets
Operating lease right of-use assets	Non-current assets	$	5,383	$	5,489

Liabilities
Current operating lease liabilities	Current operating lease liabilities	1,059		788
Non-current operating lease liabilities	Non-current operating lease liabilities	7,680		7,619
Total lease liabilities		$	8,739	$	8,407

Beginning January 1, 2021, the Company began to incur variable lease costs under the existing Victoria and Rockville leases. These costs include operation and maintenance costs and are recorded under rent expense in SG&A. A summary of the components of leasing costs and rent for the years ended December 31, 2021 and December 31, 2020 are as follows:


(in thousands)	Consolidated Statement of Operations	2021		2020		2019
Operating lease costs
Operating lease costs	Selling, general and administrative	$	1,045	$	653	$	229

Short-term lease costs
Office Building	Selling, general and administrative	27		288		68

Variable lease costs
Office building	Selling, general and administrative	167		3		—
Total rent expense		$	1,239	$	944	$	297

The weighted-average remaining lease term and discount rate for the years ended December 31, 2021 and December 31, 2020 are as follows:


	December 31, 2021	December 31, 2020
Weighted average remaining lease term (in years)	9.49	10.67
Weighted average discount rate	5.2%	5.2%

Supplemental cash flow information related to operating leases for the years ended December 31, 2021, December 31, 2020 and December 31, 2019 are as follows:


(in thousands)	2021		2020		2019
Cash paid for amounts included in the measurement of lease liabilities	$	646	$	267	$	182
Initial recognition of operating lease right-of-use asset	$	419	$	5,804	$	—

Future maturities of operating lease liabilities as of December 31, 2021 are as follows:


(in thousands)	Operating Lease Payments
2022	$	1,143
2023	1,061
2024	1,085
2025	1,109
2026	1,135
Thereafter	5,638
Total lease payments	11,171
Less: imputed interest	(2,432)
Total	$	8,739

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.

Following U.S. regulatory approval of voclosporin in January 2021, the Company has commenced a capital expenditure payment program totaling approximately CHF 21.0 million. The first capital expenditure payment of $11.8 million was made in February 2021 and was treated as an upfront lease payment and recorded under other non-current assets on the consolidated balance sheets. The second payment is not due until the facility fulfills the required operational qualifications which is estimated to be during 2023. Upon completion of the monoplant, the Company will have the right to maintain sole dedicated use of the monoplant by paying a quarterly fixed facility fee.

The Company expects to account for the arrangement as a finance lease under ASC 842. The present value of the minimum lease payments total approximately $79.0 million, beginning April 2023 and expiring in 2030, and are not included in the above table.