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Commitment & Contingencies | 6 Months Ended
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Jun. 30, 2021
Commitments and Contingencies Disclosure [Abstract] |
Commitment & Contingencies | COMMITMENTS & CONTINGENCIES (a) Facility Leases Overview In the ordinary course of business, the Company enters lease agreements with unaffiliated parties for the use of office and laboratory facilities and office equipment. As of December 31, 2020, the Company had three active facility leases in Irvine, California. Separately in January 2021, the Company entered into a six-month lease for an additional adjacent administrative office suite that was not capitalized due to its under 12-month term. In December 2020, the Company recorded a $15 thousand impairment of its "operating lease right-of-use lease asset" in connection with its decision to early terminate one of the leases, which was completed in January 2021. The Company's remaining two capitalized facility leases for adjacent administrative and laboratory suites in Irvine, California commenced on June 1, 2020. These leases each expire on January 31, 2024 and one includes a renewal option that was not reasonably certain to be exercised at the time of lease commencement for purposes of its associated accounting for capitalized "operating lease right-of-use asset" and accompanying lease liability included within "accounts payable and other accrued liabilities" and "other long-term liabilities" on the accompanying Condensed Balance Sheets, amounting to an aggregate $0.6 million. These operating leases have annual rent that is payable monthly and carry fixed annual increases. Also, under these arrangements, real estate taxes, certain operating expenses, and common area maintenance are paid by the Company; since these costs are variable in nature, they are excluded from the measurement of the reported right-of-use asset and liability and are expensed as incurred. During the year ended December 31, 2020 and for the three and six months ended June 30, 2021, the Company had no sublease arrangements with it as lessor. Components of Lease Expense The liability associated with each lease is amortized over the respective lease term using the “effective interest rate method.” The Company’s right-of-use asset is amortized over the lease term on a straight-line basis to lease expense, as reported on an allocated basis within “research and development” and “general and administrative” expenses on the accompanying Statements of Operations and Comprehensive Income (Loss). The components of lease cost were as follows:
| Three months ended June 30, |  | Six months ended June 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
Operating lease cost | $ | 60 |  |  | $ | 38 |  |  | $ | 120 |  |  | $ | 53 |
Variable lease cost | 11 |  |  | — |  |  | 71 |  |  | — |
Short-term lease cost | 63 |  |  | — |  |  | 95 |  |  | — |
Total lease cost | $ | 134 |  |  | $ | 38 |  |  | $ | 286 |  |  | $ | 53 |
Weighted-Average Remaining Lease Term and Applied Discount Rate as of June 30, 2021 and December 31, 2020 As of June 30, 2021 and December 31, 2020, the Company's active facility leases had a weighted average remaining lease term of 2 years, 7 months and 2 years, 10 months, respectively. The weighted average estimated incremental borrowing rate of 10% was utilized to present value future minimum lease payments since an implicit interest rate was not readily determinable. Future Contractual Lease Payments as of June 30, 2021 The below table summarizes the (i) minimum lease payments over the next five years and thereafter, (ii) lease arrangement imputed interest, and (iii) present value of future lease payments:
Operating Leases - future payments | June 30, 2021
2021 (remaining six months) | $ | 140 |
2022 | 271 |
2023 | 281 |
2024 | 25 |
2025 | — |
Total future lease payments, undiscounted | $ | 717 |
(Less): Imputed interest | (83) |
Present value of operating lease payments | $ | 634 |
(b) In-License Agreements for Lotilaner Agreement for Skin and Eye Disease or Conditions in Humans In January 2019, the Company entered into an in-license agreement with Elanco Tiergesundheit AG (“Elanco”) for exclusive worldwide rights to certain intellectual property for the development and commercialization of lotilaner in the treatment or cure of any eye or skin disease or condition in humans (the "January 2019 Agreement"). The Company has sole financial responsibility for related development, regulatory, and commercialization activities. The Company made a $1.0 million upfront payment at execution of the January 2019 Agreement. In September 2020, the Company made a required $1.0 million clinical milestone payment associated with the first of two U.S. pivotal trials for the treatment of Demodex blepharitis. The Company recognized an additional $2.0 million expense for its second pivotal trial milestone in the three and six months ended June 30, 2021, which was paid in April 2021. These amounts are presented in the applicable period within "research and development" expense in the accompanying Statements of Operations and Comprehensive Income (Loss). The Company may make further cash payments to Elanco under this January 2019 Agreement upon the achievement of certain clinical milestones in the treatment of human skin diseases using lotilaner for an aggregate maximum of $3.0 million and various commercial and sales threshold milestones for an aggregate maximum of $79.0 million. In addition, the Company will be obligated to pay contractual royalties to Elanco in the single digits of its net sales. If the Company receives certain types of payments from its sublicensees, it will also be obligated to pay Elanco a variable percentage in the low to mid double-digits of such proceeds, except for territories in which the Company achieved applicable regulatory approval prior to sublicense execution. As part of the China Out-License discussed in Note 9, the Company made a required contractual payment in the amount of $2.5 million to Elanco as part of the receipt of $25 million of initial proceeds from LianBio during the three months ended June 30, 2021. Agreement for All Other Diseases or Conditions in Humans In September 2020, the Company executed an expanded license agreement with Elanco, granting it a worldwide license to certain intellectual property for the development and commercialization of lotilaner for the treatment, palliation, prevention, or cure of "all other" diseases and conditions in humans (i.e., beyond that of the eye or skin, the “September 2020 Agreement”). The Company issued Elanco 222,460 shares of its common stock at the execution of the September 2020 Agreement. The value of these shares was $3.1 million ($14.0003 per share, approximating the issuance price of the Company's Series C preferred stock in September 2020). The Company is required to make further cash payments to Elanco under the September 2020 Agreement upon the achievement of various clinical milestones for an aggregate maximum of $4.5 million and various commercial and sales threshold milestones for an aggregate maximum of $77.0 million. In addition, the Company will be obligated to pay contractual royalties to Elanco in the single digits of its net sales. If the Company receives certain types of payments from its sublicensees, it will also be obligated to pay Elanco a variable percentage in the low to mid double-digits of such proceeds, except for territories in which the Company achieved applicable regulatory approval prior to sublicense execution. In March 2021, the Company entered into an out-license agreement with LianBio (see Note 9), which obligated it to grant Elanco an additional fixed 187,500 shares of the Company's common stock that were otherwise required to be granted no later than the 18-month anniversary of the September 2020 Agreement for the Company's continued license exclusivity. These additional shares were valued at $5.5 million based on the Company's stock closing price of $29.30 per share (on the date the issuance became contractually required) and is reported within "research and development" expense within the accompanying Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2021. (c) Employment Agreements The Company has entered into employment agreements with six of its named executive officers. These agreements provide for the payment of certain benefits upon separation of employment under specified circumstances, such as termination without cause, or termination in connection with a change in control event. (d) Litigation Contingencies From time to time, the Company may be subject to various litigation and related matters arising in the ordinary course of business. The Company is currently not aware of any such matters where there is at least a reasonable probability that a material loss, if any, has been or will be incurred for financial statement recognition. (e) Indemnities and Guarantees The Company has certain indemnity commitments, under which it may be required to make payments to its officers and directors in relation to certain transactions to the maximum extent permitted under applicable laws. The duration of these indemnities varies, and in certain cases, is indefinite and does not provide for any limitation of maximum payments. The Company has not been obligated to make any such payments to date and no liabilities have been recorded for this contingency in the accompanying Condensed Balance Sheets.

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