8. Commitments and Contingencies

Operating Leases

In March 2015, the Company entered into an operating lease for approximately 21,488 rentable square feet of office and laboratory space in Cambridge, Massachusetts (the “2015 Lease”), with a lease term commencing in August 2015 and ending in October 2020. The Company has an option to extend the 2015 Lease for five additional years. The 2015 Lease has escalating rent payments and the Company records rent expense on a straight-line basis over its term, including any rent-free periods. The 2015 Lease includes certain lease incentives in the form of tenant allowances. Prior to the adoption of ASC 842, the Company capitalized these improvements made with the tenant allowance into fixed assets and established a liability for the deferred lease incentive upon occupancy. The Company recorded these incentives as a component of deferred rent and amortizes these incentives as a reduction of rent expense over the lease term. The related fixed assets are being amortized over the expected lease term. Effective January 1, 2019, upon the adoption of ASC 842, the Company recorded an operating lease right-of use asset and operating lease liability of $1.5 million and $2.2 million, respectively, with the remaining deferred rent and tenant allowance incentive included as an offsetting balance within the right-of-use asset. On its condensed consolidated balance sheets, the Company classifies $1.2 million of the lease liability as short-term and $0.4 million of the lease liability as long-term as of June 30, 2019.

On January 8, 2019, the Company entered into a lease (the “2019 Lease”) with respect to approximately 52,859 square feet of space in Cambridge, Massachusetts for a lease term commencing in January 2019 and ending in February 2030. The Company has the option to extend the lease term for one additional ten (10) year period. The 2019 Lease has escalating rent payments and the Company records rent expense on a straight-line basis over the term of the 2019 Lease, including any rent-free periods. The 2019 Lease includes certain lease incentives in the form of tenant allowances. The 2019 Lease also includes an abatement period in which the Company is not required to remit monthly rent payments until March 2020.

In connection with the execution of the 2019 Lease, the Company was required to provide the landlord with a letter of credit in the amount of $3.1 million (See Note 6).

The Company determined that the 2019 Lease’s commencement date, for purposes of applying ASC 842, occurred on May 1, 2019. The Company recorded a right-of-use asset and lease liability of $15.8 million using an incremental borrowing rate of 9.3%, net of tenant allowances of $9.3 million, on that date. The Company is amortizing the tenant allowance over the term of the 2019 Lease starting at the lease commencement date on a straight-line basis. On its condensed consolidated balance sheets, the Company classifies $0.4 million of the lease liability as short-term and $15.8 million of the lease liability as long-term as of June 30, 2019.

The Company elected the practical expedient provided under ASC 842 and therefore has combined all lease and non-lease components when determining the right-of-use asset and lease liability for the 2019 Lease.

Financing Lease

In March 2019, the Company entered into an equipment lease agreement (the “Equipment Lease”) that has a 48 month-term. At the end of the term, the Company has the right to return the leased equipment, extend the lease, or buy the equipment at the then-current fair market value of the equipment. The Company accounts for the Equipment Lease as a financing lease under ASC 842 and recorded a financing lease right-of-use asset and a corresponding financing lease liability of approximately $1.0 million at the time of executing the Equipment Lease.

The following is a maturity analysis of the annual undiscounted cash flows reconciled to the carrying value of the operating and financing lease liabilities as of June 30, 2019 (in thousands):

The following table outlines the total lease cost for the Company’s operating and financing leases as well as weighted average information for these leases as of June 30, 2019 (in thousands):

The Company recorded rent expense for operating leases of $0.7 million and $0.2 million for the three months ended June 30, 2019 and 2018, respectively, and $0.9 million and $0.4 million for the six months ended June 30, 2019 and 2018, respectively.

Following the adoption of ASC 842, the Company has a right-of-use asset and lease liability that resulted in recording a new temporary tax difference upon adoption of ASC 842 as the Company is now recognizing right-of-use assets and related lease liabilities for the first time and those assets and liabilities have no corresponding tax basis. The Company does not expect the adoption of ASC 842 to have an impact on the Company’s tax expenses and benefits as any deferred tax assets or deferred tax liabilities will be offset with the Company’s full valuation allowance.

License Agreements

TMRC Co. Ltd.

In September 2015, the Company entered into an exclusive license agreement with TMRC Co. Ltd. ("TMRC") to develop and commercialize tamibarotene in North America and Europe for the treatment of cancer. This agreement was amended and restated in April 2016.

In exchange for this license, the Company agreed to a non-refundable upfront payment of $1.0 million, for which $0.5 million was paid in September 2015 upon execution of the agreement, and the remaining $0.5 million was paid in May 2016. Under the agreement, the Company is also obligated to make payments upon the successful achievement of clinical and regulatory milestones totaling approximately $13.0 million per indication, defined as a distinct tumor type. In September 2016, the Company paid $1.0 million to TMRC for a development milestone achieved upon the successful dosing of the first patient in its Phase 2 clinical trial of SY-1425. In addition, the Company is obligated to pay TMRC a single-digit percentage royalty, on a country-by-country and product-by-product basis, on net product sales of SY-1425 using know-how and patents licensed from TMRC in North America and Europe for a defined royalty term. 

The Company also entered into a supply management agreement with TMRC under which the Company agreed to pay TMRC a fee for each kilogram of SY-1425 active pharmaceutical ingredient that is produced. No payments were made under the supply management agreement during the six months ended June 30, 2019 and 2018.