LEASES

9 Months Ended

Sep. 30, 2023

The Company currently has operating leases for office and laboratory space in New York, New York, Cambridge, Massachusetts and Somerville, Massachusetts, which expire in 2026, 2028, and 2033, respectively.

During the second quarter of 2022, the Company determined to consolidate its research and development efforts in Cambridge, Massachusetts and sublease its San Diego lab and office space. As a result, the Company recognized an impairment charge of approximately $0.8 million on the San Diego Lease ROU asset during the nine months ended September 30, 2022. In November 2022, the Company entered into a lease termination agreement, effective January 31, 2023; and as of September 30, 2023, there was no lease liability or ROU asset balances remaining for the San Diego lease.

In October 2022, the Company entered into the Sublease with E.R. Squibb & Sons, L.L.C., a subsidiary of Bristol-Myers Squibb Company (“Sublessor”), for office, laboratory and research and development space (the “Premises”). The Premises consist of approximately 45,500 square feet on the ninth floor of a building currently under construction located in Somerville, Massachusetts. The lease expires in November 2033 and is subject to a five-year extension.

Rental payments for the Sublease will begin on November 29, 2023. The Company will pay base rent of approximately $0.5 million per month during the first year of the term, which will increase 3% per year thereafter. The Company will also make monthly payments for parking, which are based on market rates that can change from time to time, as well as pay its share of traditional lease expenses, including certain taxes, operating expenses and utilities.

Pursuant to the Sublease, the Company paid the Sublessor a security deposit in the form of a letter of credit in the amount of approximately $4.1 million. Provided there are no events of default by the Company under the Sublease, the letter of credit will be reduced on an incremental basis throughout the Term.

The Sublessor has agreed to provide the Company with a tenant improvement allowance (“TIA”) of $190 per rentable square foot, or $8.6 million. Tenant improvements to the Premises in excess of this amount, if any, will be at the Company’s own cost. It is anticipated that the construction will be substantially complete by [the end of 2023].

The Company obtained access and control of the Premises on June 21, 2023, and as such, the Company determined that the commencement date for accounting purposes was June 21, 2023. The Company also performed an analysis on the accounting ownership of the tenant improvement assets and determined that such assets were Sublessor/Lessor owned. As a result, TIA payments made by the Sublessor to the Company for the tenant improvement assets are considered a reimbursement rather than a lease incentive and not included as part of the consideration of the contract. Amounts paid by the Company for Sublessor/Lessor owned assets that are in excess of the TIA are considered non-cash lease payments and are added to the consideration in the contract.

The Company measured the lease liability and corresponding ROU asset for the Somerville Sublease as of June 21, 2023, which includes lease payments the Company must make over the ten-year lease term. The Company did not include the option to extend the lease for an additional five years in the initial measurement because the Company was not reasonably certain as of June 21, 2023 that it would exercise its right to extend the lease term. As a result, the Company recorded a lease liability of $34.2 million, which includes $0.6 million for the incremental amount above the TIA that the Company expects to pay for Sublessor/Lessor owned assets, and a corresponding ROU asset of $34.4 million as of June 30, 2023. As of September 30, 2023, the Company has recorded approximately $1.1 million as other receivables in the condensed consolidated balance sheet for amounts submitted for reimbursement under the TIA for Sublessor/Lessor owned assets and approximately $3.5 million recorded in other current assets in the condensed consolidated balance sheet for amounts paid by the Company but not yet submitted for reimbursement of Sublessor/Lessor owned assets.

For the three and nine months ended September 30, 2023 and 2022, the net operating lease expenses were as follows (in thousands):

	Three months ended September 30,						Nine months ended September 30,
	2023			2022			2023			2022
Operating lease expense	$	1,623		$	143		$	1,758		$	476
Sublease income		(21	)		(21	)		(63	)		(63	)
Variable lease expense		6			60			18			113
Total lease expense	$	1,608		$	182		$	1,713		$	526

The tables below show the beginning balances of the operating ROU assets and lease liabilities as of January 1, 2023 and the ending balances as of September 30, 2023, including the changes during the period (in thousands).

	Operating Lease ROU Assets

Operating lease ROU assets at January 1, 2023	$	1,030
Recognition of ROU asset for Somerville Sublease		34,410
Amortization of operating lease ROU assets		(580	)
Operating lease ROU assets at September 30, 2023	$	34,860

	Operating Lease Liabilities
Operating lease liabilities at January 1, 2023	$	1,182
Recognition of lease liability for Somerville Sublease		34,169
Accretion of interest for Somerville Sublease		1,055
Principal payments on operating lease liabilties		(259	)
Operating lease liabilities at September 30, 2023		36,147
Less non-current portion		34,998
Current portion at September 30, 2023	$	1,149

As of September 30, 2023, the Company’s operating leases had a weighted-average remaining life of 10.0 years with a weighted-average discount rate of 12.6%. The maturities of the operating lease liabilities are as follows (in thousands):

	As of September 30, 2023
2023	$	932
2024		5,947
2025		6,065
2026		6,227
2027		6,298
Thereafter		40,224
Total payments		65,693
Less imputed interest		(29,546	)
Total operating lease liabilities	$	36,147