Quarterly report pursuant to Section 13 or 15(d)

Commitments and Contingencies

v3.20.2
Commitments and Contingencies
6 Months Ended
Jun. 30, 2020
Commitments and Contingencies.  
Commitments and Contingencies

6. Commitments and Contingencies

Leases

The Company leases office space in Chesterbrook, Pennsylvania and equipment. The Company’s principal office is located at 955 Chesterbrook Boulevard, Chesterbrook, Pennsylvania, where the Company currently leases approximately 8,231 square feet of developed office space on the first floor and 40,565 square feet of developed office space on the second floor. The lease term for this space extends through May 2028. On October 11, 2018, the Company entered into an agreement with The Vanguard Group, Inc., or Vanguard, whereby Vanguard agreed to sublease the 40,565 square feet of space on the second floor for an initial term of 37 months. Vanguard has an option to extend the sublease term for 3 years, and a second option to extend the sublease until November 30, 2027. The sublease provides for rent abatement for the first month of the term; thereafter, the rent payable to the Company by Vanguard under the sublease is (i) $0.50 less during months 2 through 13 of the sublease and (ii) in month 14 and thereafter of the sublease, $1.00 less than the base rent payable by the Company under its master lease with Chesterbrook Partners, L.P. Vanguard also is responsible for paying to the Company all tenant energy costs, annual operating costs, and annual tax costs attributable to the subleased space during the term of the sublease. Rent expense and associated sublease income are recorded in the Company’s statements of operations and comprehensive loss as other income (expense).

In October 2017, the Company terminated its lease related to vivarium space in Exton, Pennsylvania, under an agreement expiring on December 31, 2018. The Company incurred termination fees equivalent to three months’ rent, totaling less than $0.1 million, in relation to the early termination of this agreement. Additionally, in November 2017, the Company provided notice of its intent to terminate its facility lease of approximately 16,714 square feet of office and

laboratory space in King of Prussia, Pennsylvania, under an agreement that expires in September 2020. The Company paid the landlord a $0.15 million termination fee on the date the Company exercised the termination option. This lease was deemed terminated on August 15, 2018.

Supplemental balance sheet information related to leases was as follows (in thousands):

    

June 30, 2020

    

December 31, 2019

Operating leases:

 

  

 

  

Operating lease right-of-use assets

 

$

5,303

 

$

5,472

Other current liabilities

652

611

Operating lease liabilities

7,458

7,793

Total operating lease liabilities

$

8,110

$

8,404

Finance leases:

Property and equipment, at cost

$

45

$

45

Accumulated depreciation

(29)

(25)

Property and equipment, net

16

20

Other current liabilities

9

9

Other long-term liabilities

7

11

Total finance lease liabilities

$

16

$

20

The components of lease expense were as follows (in thousands):

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

Operating lease costs:

Operating lease rental expense

$

373

$

306

$

692

$

613

Other income

(301)

(301)

(601)

(629)

Total operating lease costs

$

72

$

5

$

91

$

(16)

Finance lease costs:

Amortization of right-of-use assets

2

3

4

6

Interest on lease liabilities

1

Total finance lease costs

$

2

$

3

$

4

$

7

Supplemental cash flow information related to leases was as follows (in thousands):

Six Months Ended

June 30, 

    

2020

    

2019

Cash paid for amounts included in the measurement of lease liabilities

 

  

 

  

Operating cash flows from operating leases

$

(188)

$

(43)

Operating cash flows from finance leases

 

 

(1)

Financing cash flows from finance leases

(5)

 

(6)

Our operating lease liabilities will mature, as follows (in thousands):

    

Operating Leases

 

Financing Leases

2020 (July 1 - December 31)

$

681

$

5

2021

1,376

8

2022

 

1,401

 

4

2023

 

1,425

 

2024

 

1,450

 

2025 and beyond

 

5,136

 

Total minimum lease payments

$

11,469

$

17

Interest Expense

(3,359)

(1)

Lease liability

$

8,110

$

16

Per the terms of our sublease, we expect the following inflows (in thousands):

    

Sublease

2020 (July 1 - December 31)

$

540

2021

943

2022

 

2022

2024

 

2025 and beyond

 

Total minimum lease payments

$

1,483

Lease term and discount rates are as follows:

Six Months Ended June 30, 

 

2020

 

2019

Weighted average remaining lease term (years)

Operating leases

8

9

Finance leases

1

2

Weighted average discount rate

Operating leases

9.2%

9.2%

Finance leases

6.5%

6.5%

Legal Proceedings

In October and November 2018, the Company and certain current and former officers and directors were sued in three purported class actions filed in the U.S. District Court for the Eastern District of Pennsylvania, or the EDPA, alleging violations of the federal securities laws. In January 2019, the three lawsuits were consolidated into one action, and on May 29, 2019, the District Court appointed a group of five individual investors as lead plaintiffs. A consolidated amended complaint was filed on August 2, 2019, alleging, among other things, that the Company and two former officers made false and misleading statements regarding the Company’s business, operations, and prospects, including certain statements made relating to the Company’s End-of-Phase 2 meeting with the FDA, and certain statements concerning top-line results from the Company’s Phase 3 studies. The plaintiffs seek, among other remedies, unspecified damages, attorneys’ fees and other costs, and unspecified equitable or injunctive relief. The Company believes that the claims are without merit, and the Company intends to vigorously defend itself and its former officers against the allegations. On October 2, 2019, the Company moved to dismiss the consolidated amended complaint on the basis that there were no false statements and no scienter as a matter of law. The motion is fully briefed, and the Company is awaiting a decision from the Court.

In December 2018, a shareholder derivative action was filed on behalf of the Company and against certain current and former officers and directors in the EDPA, and in February 2019, two additional, similar shareholder derivative actions were filed in the U.S. District Court for the District of Delaware. A fourth similar shareholder

derivative action was filed in the EDPA in September 2019, and a fifth, similar derivative action was filed in the EDPA in November 2019. These cases, which involve facts similar to the consolidated securities lawsuits, assert claims against the individual defendants for, among other things, breach of fiduciary duty, waste of corporate assets, violations of the federal securities laws, and unjust enrichment, and they make a number of demands, including for monetary damages and other equitable and injunctive relief. The derivative actions have been stayed in favor of the consolidated securities lawsuits.