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Leases
 12 Months Ended
Dec. 31, 2023
Leases [Abstract]  
Leases
9. Leases
The Company's lease portfolio consists primarily of office and laboratory space, manufacturing facilities, research equipment and fleet vehicles. All of the Company's leases are classified as operating leases, except for the Company's leases of its corporate headquarters and a research facility in San Diego, which are classified as finance leases. The terms of the Company's lease agreements that have commenced range from less than one year to ten years, ten months. In its assessment of the term of each such lease, the Company has not included any options to extend or terminate the lease due to the absence of economic incentives in its lease agreements. Leases that qualify for treatment as a short-term lease are expensed as incurred. These short-term leases are not material to the Company's financial position. Furthermore, the Company does not separate lease and non-lease components for all classes of underlying assets. The Company's leases do not contain residual value guarantees and it does not sublease any of its leased assets.
The Company outsources its manufacturing operations to CMOs. Upon review of the agreements with its CMOs, the Company determined that these contracts contain embedded leases for dedicated manufacturing facilities. The Company obtains substantially all of the economic benefits from the use of the manufacturing facilities, the Company has the right to direct how and for what purpose the facility is used throughout the period of use, and the supplier does not have the right to change the operating instructions of the facility. The operating lease right-of-use assets and corresponding lease liabilities associated with the manufacturing facilities is the sum of the minimum guarantees over the life of the production contracts.
The table below summarizes the Company's total lease costs included in its consolidated financial statements, as well as other required quantitative disclosures (in thousands).
As of December 31, 2023As of December 31, 2022
Finance lease cost:
Amortization of right-of-use assets$2,712 $1,960 
Interest on lease liabilities2,417 1,808 
Total finance lease cost$5,129 $3,768 
Operating lease cost10,385 12,920 
Variable lease cost14,148 11,254 
Total lease cost$29,662 $27,942 
Other information:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for finance leases$2,417 $1,907 
Operating cash flows for operating leases$9,098 $11,450 
Financing cash flows for finance leases$1,217 $601 
Right-of-use assets obtained in exchange for new finance lease liabilities$— $16,741 
Right-of-use assets obtained in exchange for new operating lease liabilities$5,329 $565 
Weighted average remaining lease term - finance leases7.6 years8.6 years
Weighted average remaining lease term - operating leases2.5 years3.2 years
Weighted average discount rate - finance leases7.9 %7.9 %
Weighted average discount rate - operating leases7.6 %7.0 %
The Company records variable consideration for variable lease payments in excess of fixed fees or minimum guarantees. Variable costs related to CMO manufacturing agreements are direct costs related to the manufacturing of ARIKAYCE and are capitalized within inventory in the Company's consolidated balance sheet, while the variable costs related to other leasing arrangements, not related to the manufacturing of ARIKAYCE, have been classified within operating expenses in the Company's consolidated statements of comprehensive loss.
The table below presents the maturity of lease liabilities on an annual basis for the remaining years of the Company's commenced lease agreements (in thousands).
Year Ending December 31,Finance LeasesOperating Leases
2024$4,840 $8,701 
20254,967 8,219 
20265,097 2,106 
20275,228 654 
20285,361 408 
Thereafter14,157 70 
Total39,650 20,158 
Less: present value discount
10,014 1,113 
Present value of lease liabilities$29,636 $19,045 
Balance Sheet Classification at December 31, 2023:
  Current lease liabilities$2,610 $8,032 
  Long-term lease liabilities27,026 11,013 
Total lease liabilities$29,636 $19,045 
In addition to the Company's lease agreements that have previously commenced and are reflected in the consolidated financial statements, the Company has entered into additional lease agreements that have not yet commenced. The Company entered into certain agreements with Patheon related to increasing its long-term production capacity for ARIKAYCE commercial inventory. The Company has determined that these agreements with Patheon contain an embedded lease for the manufacturing facility and the specialized equipment contained therein. Costs of $49.1 million incurred by the Company under these additional agreements have been classified within other assets in the Company's consolidated balance sheet. Upon the commencement date, prepaid costs and minimum guarantees specified in the agreement will be combined to establish an operating lease ROU asset and operating lease liability.
Leases
9. Leases
The Company's lease portfolio consists primarily of office and laboratory space, manufacturing facilities, research equipment and fleet vehicles. All of the Company's leases are classified as operating leases, except for the Company's leases of its corporate headquarters and a research facility in San Diego, which are classified as finance leases. The terms of the Company's lease agreements that have commenced range from less than one year to ten years, ten months. In its assessment of the term of each such lease, the Company has not included any options to extend or terminate the lease due to the absence of economic incentives in its lease agreements. Leases that qualify for treatment as a short-term lease are expensed as incurred. These short-term leases are not material to the Company's financial position. Furthermore, the Company does not separate lease and non-lease components for all classes of underlying assets. The Company's leases do not contain residual value guarantees and it does not sublease any of its leased assets.
The Company outsources its manufacturing operations to CMOs. Upon review of the agreements with its CMOs, the Company determined that these contracts contain embedded leases for dedicated manufacturing facilities. The Company obtains substantially all of the economic benefits from the use of the manufacturing facilities, the Company has the right to direct how and for what purpose the facility is used throughout the period of use, and the supplier does not have the right to change the operating instructions of the facility. The operating lease right-of-use assets and corresponding lease liabilities associated with the manufacturing facilities is the sum of the minimum guarantees over the life of the production contracts.
The table below summarizes the Company's total lease costs included in its consolidated financial statements, as well as other required quantitative disclosures (in thousands).
As of December 31, 2023As of December 31, 2022
Finance lease cost:
Amortization of right-of-use assets$2,712 $1,960 
Interest on lease liabilities2,417 1,808 
Total finance lease cost$5,129 $3,768 
Operating lease cost10,385 12,920 
Variable lease cost14,148 11,254 
Total lease cost$29,662 $27,942 
Other information:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for finance leases$2,417 $1,907 
Operating cash flows for operating leases$9,098 $11,450 
Financing cash flows for finance leases$1,217 $601 
Right-of-use assets obtained in exchange for new finance lease liabilities$— $16,741 
Right-of-use assets obtained in exchange for new operating lease liabilities$5,329 $565 
Weighted average remaining lease term - finance leases7.6 years8.6 years
Weighted average remaining lease term - operating leases2.5 years3.2 years
Weighted average discount rate - finance leases7.9 %7.9 %
Weighted average discount rate - operating leases7.6 %7.0 %
The Company records variable consideration for variable lease payments in excess of fixed fees or minimum guarantees. Variable costs related to CMO manufacturing agreements are direct costs related to the manufacturing of ARIKAYCE and are capitalized within inventory in the Company's consolidated balance sheet, while the variable costs related to other leasing arrangements, not related to the manufacturing of ARIKAYCE, have been classified within operating expenses in the Company's consolidated statements of comprehensive loss.
The table below presents the maturity of lease liabilities on an annual basis for the remaining years of the Company's commenced lease agreements (in thousands).
Year Ending December 31,Finance LeasesOperating Leases
2024$4,840 $8,701 
20254,967 8,219 
20265,097 2,106 
20275,228 654 
20285,361 408 
Thereafter14,157 70 
Total39,650 20,158 
Less: present value discount
10,014 1,113 
Present value of lease liabilities$29,636 $19,045 
Balance Sheet Classification at December 31, 2023:
  Current lease liabilities$2,610 $8,032 
  Long-term lease liabilities27,026 11,013 
Total lease liabilities$29,636 $19,045 
In addition to the Company's lease agreements that have previously commenced and are reflected in the consolidated financial statements, the Company has entered into additional lease agreements that have not yet commenced. The Company entered into certain agreements with Patheon related to increasing its long-term production capacity for ARIKAYCE commercial inventory. The Company has determined that these agreements with Patheon contain an embedded lease for the manufacturing facility and the specialized equipment contained therein. Costs of $49.1 million incurred by the Company under these additional agreements have been classified within other assets in the Company's consolidated balance sheet. Upon the commencement date, prepaid costs and minimum guarantees specified in the agreement will be combined to establish an operating lease ROU asset and operating lease liability.