Property and Equipment

6 Months Ended

Jun. 30, 2017

Property, Plant and Equipment [Abstract]

PROPERTY AND EQUIPMENT

Property and equipment consisted of the following (in thousands):



	June 30, 2017			December 31, 2016
Computer equipment and software	$	13,803		$	13,738
Leasehold improvements	4,715			6,646
Laboratory equipment	4,286			4,310
Furniture and fixtures	1,921			2,240
Construction-in-progress	16,787			19
	41,512			26,953
Less: accumulated depreciation and amortization	(22,828		)	(24,882		)
Property and equipment, net	$	18,684		$	2,071

Depreciation expense was $0.5 million during both the six months ended June 30, 2017 and 2016.

Build-to-Suit Lease

On May 2, 2017, we entered into a Lease Agreement (the “Lease”) with Ascentris 105, LLC (“Ascentris”), to lease 110,783 square feet of space in office and research facilities located at 1851, 1801, and 1751 Harbor Bay Parkway, Alameda, California (the “Premises”). See “Note 10. Commitments” for a description of the Lease.

In connection with the Lease, we received a tenant improvement allowance of $6.7 million from Ascentris, for the costs associated with the design, development and construction of tenant improvements for the Premises. We are obligated to fund all costs incurred in excess of the tenant improvement allowance and certain indemnification obligations related to the construction activities. We evaluated our involvement during the construction period and determined the scope of the tenant improvements on portions of the Premises including the building shells did not qualify as “normal tenant improvements” under Accounting Standards Codification topic 840, Leases. Accordingly, for accounting purposes, we are the deemed owner of such portions of the Premises during the construction period. As such, we will capitalize the construction costs as a build-to-suit property within property and equipment, net, including the estimated fair value of the building shells that we are deemed to own at the lease inception date, as determined using a third-party appraisal. The capitalized construction costs will also include the estimated tenant improvements incurred by Ascentris. We will also recognize a corresponding build-to-suit lease obligation included in Other long-term liabilities for the same amount. As of June 30, 2017, $14.5 million of costs were capitalized in construction-in-progress with a corresponding build-to-suit lease obligation recognized related to the Lease.

Once the construction is complete, we will consider the requirements for sale-leaseback accounting treatment, including evaluating whether all risks of ownership have been transferred back to Ascentris, as evidenced by a lack of continuing involvement in the leased property. If the arrangement does not qualify for sale-leaseback accounting treatment, the building assets will remain on our consolidated balance sheets at their historical cost.