Operating Leases
We lease office and laboratory space under non-cancelable operating leases with terms through December
2031. We are located in three buildings in Carlsbad, California, which consists of laboratory and office space.
Our facilities include a primary research and development facility, a manufacturing facility and a building
adjacent to our manufacturing facility. Our manufacturing facility is used for our drug development business and
was built to meet current GoodManufacturing Practices and the facility adjacent to our manufacturing facility
has laboratory and office space that we use to support our manufacturing activities. The lease for our
manufacturing facility expires in 2031 and has four five-year options to extend. Under the lease agreement, we
have the option to purchase the facility at the end of each year from 2016 through 2020, and at the end of 2026
and 2031. The lease for the facility adjacent to our manufacturing facility has an initial term ending in June 2021
with an option to extend the lease for up to two five-year periods. We account for the lease of our primary
research and development facility as a financing obligation as discussed below. We also lease office equipment
under non-cancelable operating leases with terms through June 2017.
Annual future minimum payments under operating leases as of December 31, 2014 are as follows (in
thousands):
Operating
Leases
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,527
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,538
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,481
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,451
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,474
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,517
Total minimum payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$24,988
Rent expense for the years ended December 31, 2014 and 2013 was $1.8 million for each year and for 2012
rent expense was $1.9 million. We recognize rent expense on a straight line basis over the lease term for the
lease on our manufacturing facility and the lease on our building adjacent to our manufacturing facility, which
resulted in a deferred rent balance of $1.8 million and $1.6 million at December 31, 2014 and 2013, respectively.
Research and Development Facility Lease Obligation
InMarch 2010, we entered into a lease agreement with an affiliate of BioMed Realty, L.P., or BioMed.
Under the lease, BioMed constructed primary research and development facility in Carlsbad, California. The
lease expires in 2031 and has four five-year options to extend. Under the lease agreement, we have the option to
purchase the facility and land at the end of each year from 2016 through 2020, and at the end of 2026 and 2031.
To gain early access to the facility, we agreed to modify our lease with BioMed to accept additional
responsibility. As a result, we recorded the costs for the facility as a fixed asset and we also recorded a
corresponding liability in our non-current liabilities as a long-term financing obligation. In July 2011, we took
possession of the facility and began depreciating the cost of the facility over its economic useful life. At
December 31, 2014 and 2013, the facility and associated parcel of land had a net book value of $64.4 million
and $66.7 million, respectively, which included $7.7 million and $5.5 million, respectively, of accumulated
depreciation. We are applying our rent payments, which began on January 1, 2012, against the liability over the
term of the lease.
In conjunction with the lease agreement with BioMed, we purchased a parcel of land for $10.1 million and
subsequently sold it to BioMed. Since we have the option to purchase the facility, including the land, we have
continuing involvement in the land, which requires us to account for the purchase and sale of the land as a
financing transaction. As such, our property, plant and equipment at December 31, 2014 and 2013 included the
value of the land. Additionally, we have recorded a corresponding amount in our non-current liabilities as a
long-term financing obligation. Since land is not a depreciable asset, the value of the land and financing
obligation we recorded will not change until we exercise our purchase option or the lease terminates.
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