6. Commitments and Contingencies

Operating Lease Agreement

In February 2019, the Company entered into an operating lease agreement for new office space in Philadelphia, Pennsylvania. The lease term commenced in May 2019 and will expire in July 2022. The initial annual base rent is $261, and such amount will increase by 2% annually on each anniversary of the commencement date. Rent expense related to this lease agreement recognized in the accompanying statements of operations was $67 for the three months ended September 30, 2019 and $110 for the nine months ended September 30, 2019.

As of September 30, 2019, the future minimum payments for operating leases are as follows:

Research Service Agreement

In August 2018, the Company entered into a research service agreement with the Children’s Hospital of Philadelphia (CHOP) for the manufacturing of preclinical study and clinical trial material. Research and development expense related to this research service agreement with CHOP recognized in the accompanying statements of operations was $0 and $162 for the three months ended September 30, 2019 and 2018, respectively, and $201 and $162 for the nine months ended September 30, 2019 and 2018, respectively. There were no amounts due under the research service agreement with the Children’s Hospital of Philadelphia as of September 30, 2019.

License Agreement with the Trustees of the University of Pennsylvania

In August 2018, the Company entered into a license agreement with Penn (the Penn Agreement) and activated the license in October 2018 pursuant to which the Company obtained (a) a non-exclusive, non-sublicensable worldwide license to certain of Penn’s intellectual property to conduct research, product development, clinical trials, cell manufacturing and other activities, and (b) an exclusive, worldwide, royalty-bearing right and license, with a right to sublicense, on a target-by-target basis, under certain of Penn’s intellectual property to make, use, sell, offer for sale, import, and otherwise commercialize products for the treatment of autoimmune and alloimmune diseases. In July 2019, the Penn Agreement was amended and restated to include CHOP as a party to the agreement.

Unless earlier terminated, the Penn Agreement expires on the expiration or abandonment or other termination of the last valid claim in Penn’s intellectual property licensed by the Company. The Company may terminate the Penn Agreement at any time for convenience upon 60 days’ written notice. In the event of an uncured, material breach, Penn may terminate the Penn Agreement upon 60 days’ written notice.

Under the terms of the Penn Agreement, the Company is obligated to pay $2,000 annually for three years beginning August 2018 for funding to the laboratories of each of Drs. Milone and Payne (see Sponsored Research Agreements—Penn). During the term of the Penn Agreement until the first commercial sale of the first product, the Company is obligated to pay Penn a non-refundable, non-creditable annual license maintenance fee of $10. The Company is required to pay certain milestone payments upon the achievement of specified clinical and commercial milestones. Milestone payments are reduced by a certain percentage for the second product that achieves a milestone, by an additional percentage for the third product that achieves a milestone, and so on, for each subsequent product that achieves a milestone. In the event that the Company is able to successfully develop and launch multiple products under the Penn Agreement, total milestone payments could approach $20,000. Penn is also eligible to receive tiered royalties at percentage rates in the low single-digits, subject to an annual minimum royalty, on annual worldwide net sales of any products that are commercialized by the Company or its sublicensees that contain or incorporate, or are covered by, the intellectual property licensed by the Company. To the extent the Company sublicenses its license rights under the Penn Agreement, Penn would be eligible to receive tiered sublicense income at percentage rates in the mid-single to low double-digits.

There were no amounts due under the Penn Agreement as of September 30, 2019.

Sponsored Research Agreements

Penn

The Company has sponsored research agreements with two faculty members at Penn, who are also scientific co-founders of the Company and members of the Company’s scientific advisory board. Under the agreements, the Company has committed to funding a defined research plan for three years through April 2021. The total $8,500 under the two agreements satisfies the Company’s annual obligation under the Penn Agreement (see License Agreement with the Trustees of the University of Pennsylvania above). Research and development expense related to these Penn faculty member research agreements recognized in the accompanying statements of operations was $710 for the three months ended September 30, 2019 and 2018 and $2,131 and $1,247 for the nine months ended September 30, 2019 and 2018, respectively. Advance payments under the Penn faculty member sponsored research agreements included in prepaid expenses and other current assets in the accompanying balance sheets were $174 as of September 30, 2019.

The Regents of the University of California

In October 2018, the Company executed a research agreement with The Regents of the University of California. Under the agreement, the Company has committed to funding scientific research through October 2020 in an immaterial amount. There were no amounts due under this research agreement with The Regents of the University of California as of September 30, 2019.

Master Translational Research Services Agreement

In October 2018, the Company entered into a service agreement (the Services Agreement) with Penn for additional research and development services from various laboratories within Penn. The research and development activities will be detailed in Penn organization-specific addenda to be separately executed.

In October and November 2018, the Company executed three project addenda under this agreement for research and development work. The three projects commenced in 2019 and are anticipated to conclude in 2019.

In January 2019, the Company executed two project addenda under the Services Agreement for manufacturing and preclinical work. The two projects are commenced in 2019. The manufacturing addendum is expected to occur through September 2020. The preclinical addenda concluded in the nine months ended September 30, 2019.

In July 2019, the Company executed four project addenda under the Services Agreement for manufacture of the Company’s clinical supply of DGS3-CAART, the Company’s lead product candidate, for its Phase 1 clinical trial. Pursuant to the addendum, the Company will pay Penn a fee for dedicated resources as well as the cost to manufacture the clinical supply.

Research and development expense related to executed addenda under the master translational research service agreement with Penn recognized in the accompanying statements of operations in the three months ended September 30, 2019 was $286 and for the nine months ended September 30, 2019 and 2018 was $1,970 and $0, respectively. Amounts due under the master translational research service agreement with Penn were $324 as of September 30, 2019.

Subscription and Technology Transfer Agreement

In July 2019, the Company entered into a subscription and technology transfer agreement pursuant to which the Company will pay Penn an upfront subscription fee and a nominal non-refundable royalty on the net sales of products, a portion of which will be credited toward milestone payments and royalties, respectively, under the Amended License Agreement. Technology transfer activities will be at the Company’s cost and subject to agreement as to the technology to be transferred. Under this agreement, the Company recognized $250 to research and development expense for the three and nine month periods ended September 30, 2019.

Alliance Management

In July 2019, the Company entered into an alliance agreement with Penn pursuant to which the Company will pay Penn a nominal annual fee in order for Penn to provide an adequate and consistent level of support to the services that it provides to the Company.