IOVANCE BIOTHERAPEUTICS, INC.IOVA
IOVANCE BIOTHERAPEUTICS, INC. Commitments Disclosure
NOTE 11. COMMITMENTS AND CONTINGENCIES
Facilities Leases
Tampa Lease
In December 2014, the Company commenced a five-year non-cancellable operating lease with the University of South Florida Research Foundation for a 5,115 square foot facility located in Tampa, Florida. The facility is part of the University of South Florida research park and is used as the Company’s research and development facilities. The Company has the option to extend the lease term of this facility for an additional five-year period on the same terms and conditions, except that the base rent for the renewal term will be increased in accordance with the applicable consumer price index.
In April 2015, the Company amended the original lease agreement to increase the rentable space to 6,043 square feet. In September 2016, the Company further increased the rentable space to 8,673 square feet. The per square foot cost and term of the lease were unchanged, and rent payments are approximately $20,000 per month. The lease expires in December 2019.
San Carlos Lease
On August 4, 2016, the Company entered into an agreement to lease 8,733 square feet in San Carlos, California. The term of the lease is 54 months subsequent to the commencement date and will expire in April 2021. Monthly lease payments are approximately $38,000.
On April 28, 2017, the Company entered into a sublease agreement with Teradata US, Inc., pursuant to which the Company agreed to sublease certain office space located adjacent to the Company's headquarters for approximately $26,000 per month. The space consists of approximately 11,449 rentable square feet in the building located in San Carlos, California. The sublease for this space expired on October 31, 2018. Monthly lease payments were approximately $26,000.
On October 19, 2018, the Company entered into an agreement to lease 12,322 square feet of office space located adjacent to the Company's headquarters in San Carlos, California. This lease replaces the sublease of 11,449 square feet of office space in the same facility that expired on October 31, 2018. The term of the lease is 30 months subsequent to the commencement date, November 1, 2018, and will expire in April 2021. Monthly lease payments are approximately $59,000, subject to an annual increase of 3%.
New York Lease
The Company leased office space in New York for a monthly rental of approximately $18,000 a month from January 2017 through July 2017. On June 5, 2017, the Company entered into an agreement whereby the Company will lease office space from August 1, 2017 to July 31, 2018, for approximately $9,000 a month. On April 20, 2018, the Company entered into an agreement to extend the lease term to January 31, 2019 for approximately $7,000 a month. On November 2, 2018, the Company entered into an agreement to extend the lease term to July 31, 2019 for approximately $4,000 a month.
The Company recognizes rental expense on the facilities on a straight-line basis over the lease term. Differences between the straight-line rent expense and rent payments are classified as deferred rent liability on the balance sheet.
Rent expense for the years ended December 31, 2018, 2017 and 2016 was $1.0 million, $1.0 million, and $0.7 million, respectively.
Contract Manufacturing Organizations
The Company uses contract manufacturing organizations (CMOs) for its clinical production and manufacturing activities. In conjunction with the adoption of Topic 842 on January 1, 2019, the Company reevaluated all of its material contracts it has, to determine whether they contain a lease under the current lease guidance ASC 840. An arrangement is considered a lease or contains a lease if an underlying asset is explicitly or implicitly identified and use of the asset is controlled by the customer. Based on the evaluation, the Company concluded that all of its contracts with CMOs contained embedded operating leases, in addition to other CMO fixed contractual obligations, because the facilities used for its production are implicitly identified, only used by the Company exclusively during the contractual term of the arrangements, and the CMOs have no substantive contractual rights to substitute the facilities used by the Company. Further, the Company controls the use of the facilities by obtaining all of the economic benefits from the use of the facilities and directing the use of the facilities throughout the period of use. Under the current lease guidance, embedded leases are off-balance sheet operating leases and, as such, application of lease accounting did not have any impact on the balance sheet as of December 31, 2018 and 2017. However, they are reflected in the commitments tables below.
As of December 31, 2018, the Company's future minimum lease payments under non-cancelable operating leases are as follows (in thousands):
Payments due by period | ||||||||||||||||||||||||
Contractual Obligations | Total | 2019 | 2020 | 2021 | 2022 | Thereafter | ||||||||||||||||||
Facility leases | $ | 3,014 | $ | 1,373 | $ | 1,223 | $ | 418 | $ | - | $ | - | ||||||||||||
CMO contractual obligations | 28,587 | 17,992 | 7,690 | 2,324 | 581 | - | ||||||||||||||||||
Total | $ | 31,601 | $ | 19,365 | $ | 8,913 | $ | 2,742 | $ | 581 | $ | - | ||||||||||||
Operating lease obligations consist of obligations under non-cancelable operating leases for our facilities in San Carlos, CA, Tampa, FL, and New York, NY.
CMO contractual obligations consist of embedded lease obligations for the manufacturing facilities and minimum fixed commitment fees included in the Company’s manufacturing contracts, such as personnel, general support fee, and minimum production or material fees.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2018 | Feb 28, 2019 | Showing above |
| 2017 | Mar 12, 2018 | |
| 2016 | Mar 9, 2017 | |
| 2015 | Mar 11, 2016 | |
About Commitments Disclosures
Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.
Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.