8. Commitment and Contingencies Lease Financing Obligation On June 24, 2011, the Company signed a lease agreement for 59,199 square feet of new office and laboratory space in San Diego, California for a term of 126 months commencing in June 2012. Upon lease commencement, rent is approximately $192,000 a month, which includes both base rent and a tenant improvement allowance. The rent will be increased by 3% July 1 of each year during the lease term, commencing July 1, 2013. Further, the lease agreement allows for a  free rent  term from January 2013 through October 2013. In addition to the tenant allowance incorporated in the lease payment, an additional tenant improvement allowance of $1.5 million was exercised, which must be paid back in monthly payments at a 9% interest rate over the term of the lease. The lease provides the Company with two consecutive options to extend the term of the lease for five years each, which may be exercised with 12 months prior written notice. In the event the Company chooses to extend the term of the lease, the minimum monthly rent payable for the additional term will be determined according to the then-prevailing market rate. Based on the terms of the lease agreement, the Company had substantially all of the construction period risks during the construction period and was deemed the owner of the building (for accounting purposes only) during the construction period. Accordingly, the Company recorded an asset of $23.3 million, representing the total costs of the building and improvements, including the costs paid by the lessor (the legal owner of the building), with corresponding liabilities. Upon completion of construction of the building, the Company did not meet the sale-leaseback criteria for de-recognition of the building assets and liabilities. Therefore the lease is accounted for as a financing obligation. The assets will be depreciated over the term of the lease, and rental payments will be treated as principal and interest payments on the lease financing obligation. The l