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Commitments and Contingencies | 12 Months Ended
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Jan. 01, 2021
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | COMMITMENTS AND CONTINGENCIES Leases Headquarters Lease In May 2017, we entered into a Lease Agreement (the Lease) for our corporate headquarters located in Alameda, California (the Initial Premises). The Lease was subsequently amended in October 2017, June 2018, April 2019, August 2019, January 2020 and December 2020, resulting in, among other things, an increase to the amount of space leased and changes to the lease term. Our right-of-use asset, lease liability and the related lease costs reflect the 228,941 square feet of space we have taken possession of as of December 31, 2020 (the Current Premises) under the amended Lease. We expect to take possession of the additional space provided for under the December 2020 amendment on or prior to June 1, 2021, which will increase the space leased to 254,690 square feet. The term of the Lease continues through October 31, 2031 (the Lease Term). We have two five-year options to extend the Lease; these optional periods have not been considered in the determination of the right-of-use asset or the lease liability for the Lease as we did not consider it reasonably certain that we would exercise any such options. We have made certain tenant improvements on the Initial Premises, for which we received $8.2 million in reimbursements in January 2019. At December 31, 2020, a reimbursement of $1.7 million was due to us for tenant improvements to the space we obtained under the April 2019 amendment. We were also provided an allowance of up to $1.4 million for tenant improvements to the space expected to be obtained under the December 2020 amendment. The balance sheet classification of our operating lease assets and liabilities were as follows (in thousands):
| December 31,
| 2020 |  | 2019
Assets: |  |  |
Right-of-use assets included in other long-term assets | $ | 43,010 |  |  | $ | 41,835 |
Liabilities: |  |  |
Current portion included in other current liabilities | $ | 3,025 |  |  | $ | 2,728 |
Long-term portion of operating lease liabilities | 49,086 |  |  | 48,011 |
Total operating lease liabilities | $ | 52,111 |  |  | $ | 50,739 |
The components of operating lease costs, which are included in selling, general and administrative expenses in our Consolidated Statements of Income, were as follows (in thousands):
|  |  | Year Ended December 31,
|  |  |  |  | 2020 |  | 2019 |  | 2018
Operating lease cost |  |  |  |  | $ | 4,825 |  |  | $ | 2,844 |  |  | $ | 4,189 |
Variable lease cost |  |  |  |  | 2,830 |  |  | 1,024 |  |  | 1,661 |
Total operating lease costs |  |  |  |  | $ | 7,655 |  |  | $ | 3,868 |  |  | $ | 5,850 |
Cash paid for amounts included in the measurement of lease liabilities for the year ended December 31, 2020 was $4.6 million and was included in net cash provided by operating activities in our Consolidated Statements of Cash Flows. As of December 31, 2020, the maturities of our operating lease liabilities were as follows (in thousands):
Year Ending December 31, |  | Amount |  |
2021 |  | $ | 4,834 |  |  |
2022 |  | 4,994 |  |  |
2023 |  | 5,332 |  |  |
2024 |  | 5,600 |  |  |
2025 |  | 5,773 |  |  |
Thereafter |  | 37,290 |  |  |
Total lease payments |  | 63,823 |  |  |
Less: |  |  |  |
Imputed interest |  | (9,970) |  |  |
Future tenant improvement reimbursements |  | (1,742) |  |  |
Operating lease liabilities |  | $ | 52,111 |  |  |
As of December 31, 2020, the weighted average discount rate used to determine the operating lease liability was 3.1% and the weighted average remaining lease term is 10.8 years. Build-to-Suit Lease In October 2019, we entered into a build-to-suit Lease Agreement (the Build-to-Suit Lease) for approximately 220,000 square feet of office space located in Alameda, California (the New Premises), adjacent to the Current Premises. The term of the Build-to-Suit Lease is for a period of 242 months (the Term), which will begin upon the substantial completion of the building and tenant improvements by the lessor. We currently anticipate that the Term will begin in April 2022 (the Lease Commencement Date). The monthly base rent under the Build-to-Suit Lease will equal a percentage of the total development costs incurred in connection with the development of the New Premises (excluding the cost of the tenant improvements in excess of the allowance provided by the lessor and any development costs we pay) and is currently estimated to be about $0.7 million, subject to an annual increase of 3% during the Term. We will also be responsible for paying operating expenses related to the New Premises. The rent payments will begin sixty days following commencement of the Term. We have been provided a tenant improvement allowance for the New Premises of approximately $16.5 million. To the extent that the total development costs of the New Premises exceeds $525 per square foot, we will also pay 50% of such excess costs prior to the commencement of the Term, and we are required to secure such amount by providing a letter of credit or depositing such amounts in an account with the lessor’s lender. The Build-to-Suit Lease includes two five-year options to extend the term of the Build-to-Suit Lease, exercisable under certain conditions and at a market rate determined in accordance with the Build-to-Suit Lease. We have a one-time option to terminate the Build-to-Suit Lease without cause after the 180 th month of the Term, exercisable under certain conditions as described in the Build-to-Suit Lease and subject to a termination payment calculated in accordance with the Build-to-Suit Lease. In addition, we have a right of first offer to purchase the New Premises, subject to certain procedures and exclusions set forth in the Build-to-Suit Lease. We have determined that, under the guidance provided in Topic 842, we do not have control of the New Premises during the construction period. Therefore, we will not record a right-of-use asset or lease liability for the Build-to-Suit Lease until the Lease Commencement Date. We will evaluate the classification of the Build-to-Suit Lease as an operating lease or financing lease at the Lease Commencement Date. We determined the cost of tenant improvements during the construction period are lessor assets and considered a prepayment of lease under Topic 842. The costs incurred as of December 31, 2020 of $2.8 million are recorded as other long-term assets in the Consolidated Balance Sheets. Letters of Credit We have obtained standby letters of credit related to our lease obligations and certain other obligations with combined credit limits of and $1.6 million as of December 31, 2020 and 2019, respectively. None of our letters of credit have been drawn upon. All of the letters of credit are fully collateralized by certificates of deposit. In January 2021, we entered into standby letter of credit of $45.9 million in the aggregate as guarantee of our obligation to fund our portion of the total tenant improvements related to our build-to-suit lease at our corporate campus. The letter of credit is secured by our short-term investments, which will be recorded as restricted cash. The letter of credit will be reduced as we fund our portion of the tenant improvements. Legal Proceedings In September 2019, we received a notice letter regarding an Abbreviated New Drug Application (ANDA) submitted to the FDA by MSN Pharmaceuticals, Inc. (MSN), requesting approval to market a generic version of CABOMETYX tablets. MSN’s initial notice letter included a Paragraph IV certification with respect to our U.S. Patent Nos. 8,877,776, 9,724,342, 10,034,873 and 10,039,757, which are listed in the Approved Drug Products with Therapeutic Equivalence Evaluations, also referred to as the Orange Book. MSN’s initial notice letter did not provide a Paragraph IV certification against U.S. Patent No. 7,579,473, the composition of matter patent, or U.S. Patent No. 8,497,284, a method of use patent. On October 29, 2019, we filed a complaint in the United States District Court for the District of Delaware for patent infringement against MSN asserting U.S. Patent No. 8,877,776 arising from MSN’s ANDA filing with the FDA. On November 20, 2019, MSN filed its response to the complaint, alleging that U.S. Patent No. 8,877,776 is invalid and not infringed. On May 5, 2020, we received notice from MSN that it had amended its ANDA to assert additional Paragraph IV certifications. The ANDA now requests approval to market a generic version of CABOMETYX tablets prior to expiration of the two previously-unasserted CABOMETYX patents: U.S. Patent No. 7,579,473 and U.S. Patent No. 8,497,284. On May 11, 2020, we filed a complaint in the United States District Court for the District of Delaware for patent infringement against MSN asserting U.S. Patent No. 7,579,473 and U.S. Patent No. 8,497,284 arising from MSN’s amended ANDA filing with the FDA. On May 22, 2020, MSN filed its response to the complaint, alleging that each of U.S. Patent No. 7,579,473 and U.S. Patent No. 8,497,284 is invalid and not infringed. Neither of our complaints alleges infringement of U.S. Patent Nos. 9,724,342, 10,034,873 and 10,039,757. In our complaints, we are seeking, among other relief, an order that the effective date of any FDA approval of the ANDA would be a date no earlier than the expiration of all of U.S. Patent No. 7,579,473, U.S. Patent No. 8,497,284 and U.S. Patent No. 8,877,776, the latest of which expires on October 8, 2030, and equitable relief enjoining MSN from infringing these patents. These two lawsuits against MSN have been consolidated, and a bench trial has been scheduled for May 2022. The sale of a generic version of CABOMETYX earlier than its patent expiration could significantly decrease our revenues derived from the U.S. sales of CABOMETYX and thereby materially harm our business, financial condition and results of operations. It is not possible at this time to determine the likelihood of an unfavorable outcome or estimate of the amount or range of any potential loss. We may also from time to time become a party or subject to various other legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. Some of these proceedings have involved, and may involve in the future, claims that are subject to substantial uncertainties and unascertainable damages.

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