Quarterly report pursuant to Section 13 or 15(d)

Commitments and Contingencies

v3.21.2
Commitments and Contingencies
9 Months Ended
Sep. 30, 2021
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. On October 2, 2020, Vanguard notified the Company that they exercised the first option to extend the sublease term for three years through November 30, 2024. Vanguard has a second option to extend the sublease term for an additional three years through 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).

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

    

September 30, 2021

    

December 31, 2020

Operating leases:

 

  

 

  

Operating lease right-of-use assets

 

$

4,815

 

$

5,119

Other current liabilities

765

696

Operating lease liabilities

6,516

7,097

Total operating lease liabilities

$

7,281

$

7,793

Finance leases:

Property and equipment, at cost

$

44

$

45

Accumulated depreciation

(38)

(34)

Property and equipment, net

6

11

Other current liabilities

5

7

Other long-term liabilities

4

Total finance lease liabilities

$

5

$

11

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

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

Operating lease costs:

Operating lease rental expense

$

309

$

277

$

1,362

$

950

Other income

(305)

(303)

(881)

(904)

Total operating lease costs

$

4

$

(26)

$

481

$

46

Finance lease costs:

Amortization of right-of-use assets

2

2

6

7

Interest on lease liabilities

1

Total finance lease costs

$

2

$

2

$

6

$

8

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

Nine Months Ended

September 30, 

    

2021

    

2020

Cash paid for amounts included in the measurement of lease liabilities

 

  

 

  

Operating cash flows from operating leases

$

(647)

$

(117)

Operating cash flows from finance leases

 

 

Financing cash flows from finance leases

(6)

 

(8)

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

    

Operating Leases

 

Financing Leases

2021 (October 1 - December 31)

$

348

$

1

2022

1,401

4

2023

1,425

2024

1,450

2025

1,474

2026 and beyond

3,661

Total minimum lease payments

$

9,759

$

5

Interest Expense

(2,478)

Lease liability

$

7,281

$

5

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

    

Sublease

2021 (October 1 - December 31)

$

276

2022

1,118

2023

 

1,139

2024

996

2025

 

2026 and beyond

 

Total minimum lease payments

$

3,529

Lease term and discount rates are as follows:

Nine Months Ended September 30, 

 

2021

 

2020

Weighted average remaining lease term (years)

Operating leases

7

8

Finance leases

1

1

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 sought, among other remedies, unspecified damages, attorneys’ fees and other costs, and unspecified equitable or injunctive relief. On August 28, 2020, the EDPA granted in part and denied in part the defendants’ motion to dismiss. On October 2, 2020, the Company and the individual defendants filed their answer to the amended complaint, denying all liability. On February 11, 2021, the parties agreed in principle to a settlement of $8.5 million, all of which was to be paid by the Company’s insurance carriers, subject to approval by the Court. The Court issued its preliminary approval of the settlement on May 3, 2021 and finally approved the settlement on August 2, 2021. The Company and the individual defendants did not acknowledge any wrongdoing as part of the settlement. The Company recorded the $8.5 million estimated settlement liability and the $8.5 million estimated insurance recovery in its 2020 financial statements. As expected, the $8.5 million was paid by the Company’s insurance carriers, and the litigation is now resolved. The Company continues to believe that the claims were without merit.

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. A similar sixth derivative action was filed in the EDPA in September 2020. These cases, which involved facts similar to the consolidated securities lawsuits, asserted 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 parties agreed to a settlement, which was preliminarily approved by the Court on May 27, 2021, and finally approved by the Court on August 2, 2021. The individual defendants did not acknowledge any wrongdoing as part of the settlement. The Company agreed to make certain corporate governance changes, and a monetary payment of $500,000 was made to plaintiffs’ counsel, all of which was funded by the Company’s insurance carriers. The Company recorded in the fourth quarter of 2020 an estimated liability of $0.5 million and a corresponding insurance recovery of the same amount. As expected, the $0.5 million was paid by the Company’s insurance carriers, and the litigation is now resolved.