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Commitments and Contingencies | 3 Months Ended
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Mar. 31, 2023
Commitments and Contingencies [Abstract] |
Commitments and Contingencies |
12. | Commitments and Contingencies
The Company determines if an arrangement is a lease at inception. Operating and finance leases are presented in the Company’s consolidated balance sheet as right-of-use assets from leases, current lease liabilities and long-term lease liabilities. Certain of the Company’s lease agreements contain renewal options; however, the Company does not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that the Company is reasonably certain of renewing the lease at inception or when a triggering event occurs. As the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments using an estimate of the Company’s collateralized borrowing rate for debt with a similar term. The Company has utilized its incremental borrowing rate based on the long-term borrowing costs of comparable companies in the biotechnology industry. Since the Company elected to account for each lease component and its associated non-lease components as a single combined lease component, all contract consideration was allocated to the combined lease component. Some of the Company’s lease agreements contain rent escalation clauses (including index-based escalations). For operating leases, the Company recognizes the minimum rental expense on a straight-line basis based on the fixed components of a lease arrangement. The Company will amortize this expense over the term of the lease beginning with the lease commencement date. Variable lease components represent amounts that are not fixed in nature and are not tied to an index or rate and are recognized as incurred. Finance Lease The Company has a lease for a facility in Cranbury, New Jersey, consisting of 103,720 square feet of space including areas for offices, process development, research, and development laboratories and 50,000 square feet dedicated to AAV Current Good Manufacturing Practice (“cGMP”) manufacturing facilities to support the Company’s pipeline (such lease, as amended, the “NJ Lease Agreement”). The NJ Lease Agreement has a 15-year term from September 1, 2019, with an option to renew for two consecutive five-year renewal terms. Estimated rent payments for the NJ Lease Agreement are $1.2 million per annum, payable in monthly installments, depending upon the nature of the leased space, and subject to annual base rent increases of 3%. The total commitment under the lease is estimated to be approximately $29.3 million over the 15-year term of the lease. The Company paid a cash security deposit of $0.3 million to the landlord in connection with the NJ Lease Agreement which has been reflected in deposits in the consolidated balance sheets as of March 31, 2023 and December 31, 2022. Operating Leases On June 7, 2018, the Company entered into a three-year lease agreement for office space in the Empire State Building in New York, NY (the “ESB Lease Agreement”). In connection with the ESB Lease Agreement, the Company established an irrevocable standby letter of credit (the “Empire LOC”) for $0.9 million. On March 26, 2021, the Company entered in Amendment No. 1 to the ESB Lease Agreement (“ESB Lease Amendment”) that extended the term of the lease agreement to June 30, 2024, reduced the rent payments going forward, and reduced the Empire LOC to $0.8 million. The Empire LOC serves as the Company’s security deposit on the lease in which the landlord is the beneficiary and expires August 29, 2024. The Company has a certificate of deposit of $0.8 million with a bank as collateral for the Empire LOC which is classified as part of restricted cash in the consolidated balance sheets as of March 31, 2023 and December 31, 2022. On January 4, 2018, in connection with the Reverse Merger with Inotek, the Company assumed an operating lease for Inotek’s former headquarters in Lexington, Massachusetts, with a term which ended on February 28, 2023. In July 2018, the Company signed an agreement to sublease a portion of the Lexington, Massachusetts space and in September 2018, the Company signed an agreement to sublease the remaining portion of the Lexington, Massachusetts space. Rental income received under the sublease agreement totaled $0.1 million for the three months ended March 31, 2023 and 2022. These amounts are netted against rent expense in the consolidated statements of operations for the three months ended March 31, 2023 and 2022. A security deposit of $0.2 million was returned to the Company in April 2023 and is reflected in other current assets as of March 31, 2023. On December 1, 2022, in connection with the Renovacor acquisition (see Note 14 “Renovacor Acquisition”), Rocket acquired the Renovacor operating leases for space at facilities in Hopewell, New Jersey and Cambridge, Massachusetts with remaining lease terms of approximately 10.25 and 1.3 years, respectively. As of March 31, 2023, lease commencement dates have occurred for all leases and the Company recognized total right-of-use assets of $3.8 million with corresponding total lease liabilities of $3.6 million. The Company intends to sublease both premises through the remainder of their lease terms. Rent expense was $0.4 million and $0.3 million for the three months ended March 31, 2023 and 2022, respectively. The total restricted cash balance for the Company’s operating and finance leases as of each of March 31, 2023 and December 31, 2022 was $0.8 million.
Lease cost |  | March 31, 2023 |
Operating lease cost |  | $ | 358 |
Finance lease cost |  |  |  |
Amortization of right of use assets |  |  | 538 |
Interest on lease liabilities |  |  | 468 |
Total lease cost |  | $ | 1,364 |
The following table summarizes the future lease payments of the Company’s operating and finance lease liabilities on an undiscounted cash flow basis and a reconciliation to the operating and finance lease liabilities as of March 31, 2023:
Fiscal Year Ending December 31, |  | March 31, 2023 |
2023 (nine months) |  |  | 869 |
2024 |  |  | 798 |
2025 |  |  | 538 |
2026 |  |  | 545 |
2027 |  |  | 506 |
Thereafter |  |  | 2,941 |
Total lease payments |  | $ | 6,197 |
Less: interest |  |  | (1,842 | )
Total operating lease liabilities |  | $ | 4,355 |
Fiscal Year Ending December 31, |  | March 31, 2023 |
2023 (nine months) |  |  | 1,305 |
2024 |  |  | 1,791 |
2025 |  |  | 1,856 |
2026 |  |  | 1,912 |
2027 |  |  | 1,969 |
Thereafter |  |  | 43,032 |
Total lease payments |  | $ | 51,865 |
Less: interest |  |  | (30,823 | )
Total finance lease liability |  | $ | 21,042 |
Leases |  | March 31, 2023 |
Operating right-of-use assets |  | $ | 4,369 |
Operating current lease liabilities |  |  | 849 |
Operating noncurrent lease liabilities |  |  | 3,506 |
Total operating lease liabilities |  | $ | 4,355 |
Finance right-of-use assets |  | $ | 46,133 |
Finance current lease liability |  |  | 1,748 |
Finance noncurrent lease liability |  |  | 19,294 |
Total finance lease liability |  | $ | 21,042 |
Other information |  |  |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |
Operating cash flows from operating leases |  | $ | 261 |
Cash flows from finance lease |  | $ | 431 |
Weighted-average remaining lease term - operating leases |  | 8.2 years |
Weighted-average remaining lease term - finance lease |  | 21.4 years |
Weighted-average discount rate - operating leases |  |  | 8.08 | %
Weighted-average discount rate - finance lease |  |  | 8.96 | %
Litigation From time to time, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities. Although the results of litigation and claims cannot be predicted with certainty, the Company does not believe it is party to any other claim or litigation the outcome of which, if determined adversely to the Company, would individually or in the aggregate be reasonably expected to have a material adverse effect on its business. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. Indemnification Arrangements Pursuant to its bylaws and as permitted under Delaware law, the Company has indemnification obligations to directors, officers, employees or agents of the Company or anyone serving in these capacities. The maximum potential amount of future payments the Company could be required to pay is unlimited. The Company has insurance that reduces its monetary exposure and would enable it to recover a portion of any future amounts paid. As a result, the Company believes that the estimated fair value of these indemnification commitments is minimal. Throughout the normal course of business, the Company has agreements with vendors that provide goods and services required by the Company to run its business. In some instances, vendor agreements include language that requires the Company to indemnify the vendor from certain damages caused by the Company’s use of the vendor’s goods and/or services. The Company has insurance that would allow it to recover a portion of any future amounts that could arise from these indemnifications. As a result, the Company believes that the estimated fair value of these indemnification commitments is minimal.

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