Annual report pursuant to Section 13 and 15(d)

Leases

v3.20.4
Leases
12 Months Ended
Dec. 31, 2020
Leases [Abstract]  
Leases LeasesWe lease certain office facilities and equipment primarily under various operating leases and one finance lease. Our operating leases have remaining contractual terms up to three years, some of which include options to extend the leases for up to five years. Our lease agreements do not contain any material residual value guarantees, material restrictive covenants, or material termination options. Our operating lease costs are primarily related to facility leases for administration offices and research and development facilities, and our finance leases are immaterial in prior years.
Lease assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate generally applicable to the location of the lease asset, unless the implicit rate is readily determinable. Lease assets also include any upfront lease payments made and lease incentives. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised.

In addition to base rent, certain of our operating leases require variable payments, such as insurance and common area maintenance. These variable lease costs, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expense for these short-term leases and for operating leases is recognized on a straight-line basis over the lease term.

The depreciable life of lease assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

In May 2020, we entered into an agreement with Hovione, our third-party manufacturer, to increase our manufacturing of Captisol. The agreement is considered to include an embedded finance lease under ASC 842, Leases, as it provides the Company the right to use the underlying equipment to exclusively manufacture Captisol. We allocated consideration in the agreement between lease and non-lease components using relative standalone prices. As of December 31, 2020, we have paid consideration of $35.3 million and have total future commitments of approximately $24.1 million through 2021. In October 2020, we determined the lease had commenced and recognized a right of use asset of $16.1 million. We allocated $25.8 million of the consideration paid to the non-lease component which is accounted for as prepaid inventory and have a remaining lease liability of $6.6 million as of December 31, 2020. The right of use asset is to be amortized straight-line over the remaining 8 year lease term.

Operating and Finance Lease Assets and Liabilities (in thousands):

December 31, 2020 December 31, 2019
Assets
Operating lease assets $ 6,892  $ 10,353 
Finance lease assets 15,842  84 
                 Total lease assets $ 22,734  $ 10,437 
Liabilities
Current operating lease liabilities $ 1,885  $ 1,242 
Current finance lease liabilities 6,593  13 
8,478  1,255 
Long-term operating lease liabilities 5,643  9,970 
Long-term finance lease liabilities 112  71 
                  Total lease liabilities $ 14,233  $ 11,296 

Maturity of Operating and Finance Lease Liabilities as of December 31, 2020 (in thousands):

Maturity Dates Operating Leases Finance Leases
2021 $ 2,259  $ 6,649 
2022 2,129  56 
2023 1,766  49 
2024 1,013 
2025 792  — 
Thereafter 700  — 
Total lease payments 8,659  6,758 
Less imputed interest (1,131) (53)
Present value of lease liabilities $ 7,528  $ 6,705 
As of December 31, 2020, our operating leases have a weighted-average remaining lease term of 4.4 years and a weighted-average discount rate of 6%. Cash paid for amounts included in the measurement of operating lease liabilities was $2.4 million for the twelve months ended December 31, 2020. Operating lease expense was $2.1 million (net of sublease income of $0.3 million) and $2.1 million (net of sublease income of $0.7 million) for the twelve months ended December 31, 2020 and 2019, respectively.

As of December 31, 2020, our finance leases have a weighted-average remaining lease term of 7.9 years and a weighted-average discount rate of 3.5%. Cash paid for amounts included in the measurement of finance lease liabilities was $9.7 million for the twelve months ended December 31, 2020. Finance lease expense, which was recorded in cost of Captisol, was $0.2 million for the twelve months ended December 31, 2020.
Leases LeasesWe lease certain office facilities and equipment primarily under various operating leases and one finance lease. Our operating leases have remaining contractual terms up to three years, some of which include options to extend the leases for up to five years. Our lease agreements do not contain any material residual value guarantees, material restrictive covenants, or material termination options. Our operating lease costs are primarily related to facility leases for administration offices and research and development facilities, and our finance leases are immaterial in prior years.
Lease assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate generally applicable to the location of the lease asset, unless the implicit rate is readily determinable. Lease assets also include any upfront lease payments made and lease incentives. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised.

In addition to base rent, certain of our operating leases require variable payments, such as insurance and common area maintenance. These variable lease costs, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expense for these short-term leases and for operating leases is recognized on a straight-line basis over the lease term.

The depreciable life of lease assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

In May 2020, we entered into an agreement with Hovione, our third-party manufacturer, to increase our manufacturing of Captisol. The agreement is considered to include an embedded finance lease under ASC 842, Leases, as it provides the Company the right to use the underlying equipment to exclusively manufacture Captisol. We allocated consideration in the agreement between lease and non-lease components using relative standalone prices. As of December 31, 2020, we have paid consideration of $35.3 million and have total future commitments of approximately $24.1 million through 2021. In October 2020, we determined the lease had commenced and recognized a right of use asset of $16.1 million. We allocated $25.8 million of the consideration paid to the non-lease component which is accounted for as prepaid inventory and have a remaining lease liability of $6.6 million as of December 31, 2020. The right of use asset is to be amortized straight-line over the remaining 8 year lease term.

Operating and Finance Lease Assets and Liabilities (in thousands):

December 31, 2020 December 31, 2019
Assets
Operating lease assets $ 6,892  $ 10,353 
Finance lease assets 15,842  84 
                 Total lease assets $ 22,734  $ 10,437 
Liabilities
Current operating lease liabilities $ 1,885  $ 1,242 
Current finance lease liabilities 6,593  13 
8,478  1,255 
Long-term operating lease liabilities 5,643  9,970 
Long-term finance lease liabilities 112  71 
                  Total lease liabilities $ 14,233  $ 11,296 

Maturity of Operating and Finance Lease Liabilities as of December 31, 2020 (in thousands):

Maturity Dates Operating Leases Finance Leases
2021 $ 2,259  $ 6,649 
2022 2,129  56 
2023 1,766  49 
2024 1,013 
2025 792  — 
Thereafter 700  — 
Total lease payments 8,659  6,758 
Less imputed interest (1,131) (53)
Present value of lease liabilities $ 7,528  $ 6,705 
As of December 31, 2020, our operating leases have a weighted-average remaining lease term of 4.4 years and a weighted-average discount rate of 6%. Cash paid for amounts included in the measurement of operating lease liabilities was $2.4 million for the twelve months ended December 31, 2020. Operating lease expense was $2.1 million (net of sublease income of $0.3 million) and $2.1 million (net of sublease income of $0.7 million) for the twelve months ended December 31, 2020 and 2019, respectively.

As of December 31, 2020, our finance leases have a weighted-average remaining lease term of 7.9 years and a weighted-average discount rate of 3.5%. Cash paid for amounts included in the measurement of finance lease liabilities was $9.7 million for the twelve months ended December 31, 2020. Finance lease expense, which was recorded in cost of Captisol, was $0.2 million for the twelve months ended December 31, 2020.