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Leases

9 Months Ended

Sep. 30, 2020

The Company leases office space in South Plainfield, New Jersey for its principal office under three noncancelable operating leases through May 2022 and August 2024, in addition to office space in various countries for international employees primarily through workspace providers. The Company also leases approximately 220,500 square feet of office, manufacturing and laboratory space at a facility located in Hopewell Township, New Jersey (the “Campus”) pursuant to a Lease Agreement (the “Lease”) with Hopewell Campus Owner LLC (the “Landlord”). The rental term of the Lease commenced on July 1, 2020 and has an initial term of fifteen years (the “Initial Term”), with two consecutive ten year renewal periods, each at the Company’s option.

The aggregate rent for the Initial Term will be approximately $111.5 million. The rental rate for the renewal periods will be 95% of the Prevailing Market Rate (as defined in the Lease) and determined at the time of the exercise of the renewal. The Company is also responsible for maintaining certain insurance and the payment of proportional taxes, utilities and common area operating expenses. The Lease contains customary events of default, representations, warranties and covenants.

Subject to the terms of the Lease, the Company has a right of first refusal to rent certain other space of the Campus, which would be triggered upon the Landlord’s issuance of a second round proposal or letter of intent to another tenant for such space. The Company also may seek to build a new separate building on the Campus, which may not contain less than 75,000 square feet (the “New Building”). Upon receipt of notice of the Company’s intention to build the New Building, the Landlord may, in its sole discretion, construct and lease the New Building to the Company or enter into a ground lease with the Company permitting the Company to construct the New Building. Rent terms for the New Building would be determined based on the land value, construction and project costs subject to whether the Landlord or Company constructs the New Building.

The Company entered into a lease agreement with COE Bridgewater LLC on March 20, 2020 relating to the lease of office and laboratory space located in Bridgewater, New Jersey. This lease replaced the Company’s existing lease on the property beginning on May 1, 2020 and includes additional rental property of approximately 59,000 square feet.

The Company also leases certain vehicles, lab equipment, and office equipment under operating leases. The Company’s leases have remaining operating lease terms ranging from 0.1 years to 14.8 years and certain of the leases include renewal options to extend the lease for up to 10 years. Rent expense was approximately $5.2 million and $1.7 million for the three month periods ended September 30, 2020 and 2019, respectively. Rent expense was $10.2 million and $3.8 million for the nine month periods ended September 30, 2020 and 2019, respectively.

On June 19, 2020, the Company entered into a commercial manufacturing service agreement for a term of 12.5 years with MassBiologics of the University of Massachusetts Medical School ("MassBio"). The agreement will expire on December 31, 2032 unless the Company terminates it on 24 months prior written notice to MassBio. Pursuant to the terms of the agreement, MassBio agreed to provide the Company with four dedicated rooms for its gene therapy AADC program. The Company concluded that the agreement contains an embedded lease as the Company controls the use of the four dedicated rooms and the equipment therein. As the present value of the facilities exceeds the assessed fair value, the Company determined that it is a finance lease. Given that the embedded finance lease is designed for the production of PTC’s AADC program and would not have an alternate use outside the PTC gene therapy platform without incurring significant costs, the Company determined that the lease should be treated as research and development expense under ASC 730 and accordingly, expensed the present value of all guaranteed future cash payments of $41.4 million during the nine month period ending September 30, 2020. Additionally, during the three and nine month periods ending September 30, 2020, the Company recorded finance lease costs of $0.5 million and $0.5 million, respectively.

The components of operating lease expense were as follows:


	Three Months Ended		Three Months Ended		Nine Months Ended		Nine Months Ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Operating Lease Cost
Fixed lease cost	$	4,097	$	1,431	$	7,896	$	3,078
Variable lease cost		890		184		1,914		488
Short-term lease cost		175		94		340		235
Total operating lease cost	$	5,162	$	1,709	$	10,150	$	3,801

Total operating lease cost is a component of operating expenses on the consolidated statements of operations.

Supplemental balance sheet information related to leases was as follows:


	September 30, 2020		December 31, 2019

Operating lease ROU asset	$	85,810	$	13,693

Operating lease liabilities- current	$	5,859	$	5,153
Operating lease liabilities- noncurrent		81,674		9,018
Total operating lease liability	$	87,533	$	14,171


	September 30, 2020		December 31, 2019
Finance lease liabilities- current	$	1,251	$	—
Finance lease liabilities- noncurrent		22,608		—
Total finance lease liability	$	23,859	$	—

The Company’s leases in Bridgewater, New Jersey and Hopewell Township, New Jersey are the primary drivers of the increase in total operating lease ROU asset and total operating lease liability from December 31, 2019 to September 30, 2020.

Supplemental lease term and discount rate information related to leases was as follows as of September 30, 2020 and December 31, 2019:


	September 30, 2020		December 31, 2019

Weighted-average remaining lease terms - operating leases (years)	11.66		3.38
Weighted-average discount rate - operating leases	8.64	%	7.33	%
Weighted-average remaining lease terms - finance lease (years)	12.25		—
Weighted-average discount rate - finance lease	7.80	%	—

Supplemental cash flow information related to leases was as follows as of September 30, 2020 and 2019:


	Nine Months Ended September 30,
	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	5,611	$	2,751
Financing cash flows from finance lease		17,829		—

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	76,657	$	16,120
Finance lease		41,382		—

Future minimum lease payments under non-cancelable leases as of September 30, 2020 were as follows:


	Operating Leases		Finance Lease
2020 (excludes the nine months ended September 30, 2020)	$	2,842	$	—
2021		13,472		3,000
2022		13,229		3,000
2023		12,831		3,000
2024 and thereafter		104,142		27,000
Total lease payments		146,516		36,000
Less: Imputed Interest expense		58,983		12,141
Total	$	87,533	$	23,859

In conjunction with the Asset Acquisition, the Company acquired BioElectron’s lease in Mountainview, California. As substantially all of the fair value of the gross assets acquired was related to vatiquinone, the relative fair value allocated to the right of use asset and corresponding lease liability for the Mountainview lease was determined to be immaterial, and accordingly is not included in the tables above. The future minimum lease payments for the Mountainview lease as of September 30, 2020 are $0.4 million, $1.8 million, and $1.4 million for 2020, 2021 and 2022, respectively.