Note 8 — Contingencies and commitments

 

Leases

 

Future minimum lease payments under operating leases at June 30, 2016 are presented below (in thousands):

 

 

The Company leases property under operating leases expiring through 2027. Lease expenses amounted to $406,000 and $235,000 for the three months ended June 30, 2016 and 2015, respectively and $831,000 and $403,000 for the six months ended June 30, 2016 and 2015, respectively, which expenses are included within Research and development and General and administrative expenses in the Company’s Consolidated statement of operations.

 

Capital commitments

 

At June 30, 2016, the Company had commitments for capital expenditure totaling $18,637,000, of which the Company expects to pay $13,789,000 within one year and $4,848,000 in one to three years.

 

Purchase commitments for clinical materials, clinical trials and contract manufacturing

 

At June 30, 2016, the Company had commitments to pay vendors for purchase of clinical materials, executing and administering clinical trials and for contract manufacturing of $47,524,000, of which the Company expects to pay $28,810,000 within one year, $11,896,000 in one to three years and $6,818,000 in three to five years.  The timing of these payments vary depending on the rate of progress of development and clinical trial enrollment rates. Our subcontracted costs for clinical trials and contract manufacturing were $6,323,000 and $2,845,000 for the three months ended June 30, 2016 and 2015, respectively, and $9,876,000 and $4,633,000 for the six months ended June 30, 2016 and 2015, respectively.

 

Universal Cells Research, Collaboration and License Agreement

 

On November 25, 2015, the Company entered into a Research, Collaboration and License Agreement relating to gene editing and HLA-engineering technology with Universal Cells, Inc. (“Universal Cells”). The Company paid an upfront license and start-up fee of $2.5 million to Universal Cells in November 2015 and a milestone payment of $3.0 million in February 2016.  Further milestone payments of up to $44 million are payable if certain development and product milestones are achieved. Universal Cells would also receive a profit-share payment for the first product, and royalties on sales of other products utilizing its technology.  The upfront and start-up fee was expensed to research and development when incurred.

 

ThermoFisher License Agreement

 

In 2012, the Company entered into a series of license and sub-license agreements with Life Technologies Corporation, part of ThermoFisher Scientific, Inc. (“ThermoFisher Scientific”) that provide the Company with a field-based exclusive license under certain intellectual property rights owned or controlled by ThermoFisher Scientific.  The Company paid upfront license fees of $1.0 million relating to the license and sublicense agreements and has an obligation to pay minimum annual royalties (in the tens of thousands of U.S. dollars prior to licensed product approval and thereafter at a level of 50% of running royalties in the previous year), milestone payments and a low single-digit running royalty payable on the net selling price of each licensed product. The upfront payment made in 2012 was expensed to research and development when incurred. Subsequent milestone payments have been recognized as an intangible asset due to the technology having alternative future use in research and development projects at the time of the payment.  The minimum annual royalties have been expensed as incurred.

 

On June 16, 2016 the Company entered into a supply agreement with ThermoFisher Scientific for the supply of the Dynabeads® CD3/CD28 technology. The Dynabeads® CD3/CD28 technology is designed to isolate, activate and expand human T-cells, and is being used in the manufacturing of the Company’s affinity enhanced T-cell therapies.  The supply agreement runs until December 31, 2025. Under the supply agreement the Company is required to purchase its requirements for CD3/CD28 magnetic bead product exclusively from ThermoFisher Scientific for a period of 5 years and there are also minimum purchasing obligations, which are included within ‘Purchase commitments for clinical materials, clinical trials and contract manufacturing’ set forth above. ThermoFisher Scientific has the right to terminate the supply agreement for material breach or insolvency.