DEBT

Senior Notes

On April 2, 2015, the Company issued $575.0 million aggregate principal amount of senior secured notes (the Senior Notes) for aggregate gross proceeds of approximately $562.0 million pursuant to a Note Purchase Agreement dated March 12, 2015 (Note Purchase Agreement), among the Company and Deerfield Private Design Fund III, L.P., Deerfield Partners, L.P., Deerfield International Master Fund, L.P., Deerfield Special Situations Fund, L.P., Deerfield Private Design Fund II, L.P., Deerfield Private Design International II, L.P., BioPharma Secured Investments III Holdings Cayman LP, Inteligo Bank Ltd. and Phemus Corporation (collectively, the Purchasers) and Deerfield Private Design Fund III, L.P., as collateral agent. The Company used $550.0 million of the net proceeds received upon the sale of the Senior Notes to fund a portion of the Purchase Price paid to Janssen Pharma in connection with the NUCYNTA acquisition. The Company incurred debt issuance costs of $0.5 million for 2015.

The Senior Notes will mature on April 14, 2021 (unless earlier prepaid or repurchased), are secured by substantially all of the assets of the Company and any subsidiary guarantors, and bear interest at the rate equal to the lesser of (i) 9.75% over the three month London Inter-Bank Offer Rate (LIBOR), subject to a floor of 1.0% and (ii) 11.95% (through the third anniversary of the purchase date) and 12.95% (thereafter). The interest rate is determined at the first business day of each fiscal quarter, commencing with the first such date following April 2, 2015. The interest rate for the three months ended March 31, 2019 and 2018 was 12.54% and 11.45%, respectively.

In April 2017, the Company prepaid and retired $100.0 million of the Senior Notes and paid a $4.0 million prepayment fee; and in November 2017, the Company prepaid and retired an additional $10.0 million of the Senior Notes and paid a $0.4 million prepayment fee. The Company recorded a net loss on prepayment of the Senior Notes of $5.9 million which represented the prepayment fees of $4.4 million and the immediate recognition of unamortized balances of debt discount and debt issuance costs of $1.5 million in 2017. This loss is recorded as a loss on prepayment of Senior Notes in the consolidated statements of operations for 2017.

The remaining $257.5 million of Senior Notes can be prepaid, at the Company’s option or following a Major Transaction or asset disposition.

The Senior Notes and related indenture contain customary covenants, including, among other things, and subject to certain qualifications and exceptions, covenants that restrict the Company’s ability and the ability of its subsidiaries to: incur or guarantee additional indebtedness; create or permit liens on assets; pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; make certain investments and other restricted payments; engage in mergers, acquisitions, consolidations and amalgamations; transfer and sell certain assets; and engage in transactions with affiliates.

In January 2019, the Company entered into a Fourth Amendment to Note Purchase Agreement (the Note Amendment) with respect to the Note Purchase Agreement, dated as of March 12, 2015, among the Company, the other credit parties party thereto, the purchasers party thereto and Deerfield. Pursuant to the Note Amendment, the minimum EBITDA covenant was replaced with a senior secured debt leverage ratio covenant and a minimum net sales covenant, the prepayment premium was adjusted to be 3% of the principal amount of notes prepaid on or prior to April 14, 2020 and 1% of the principal amount of notes prepaid thereafter, flexibility to sell certain royalty assets and/or modify the terms thereof was added, certain definitions were amended and certain other amendments were made. The Company paid a $3.2 million upfront non-refundable amendment fee to the Purchasers in the first quarter of 2019 which was capitalized and is being amortized over the remaining term of the Senior Notes using the effective interest method.

The principal amount of the Senior Notes is repayable as of March 31, 2019 is as follows (amounts in thousands):



2019 (remainder)	$	95,000
2020	80,000
2021	82,500
Total	$	257,500

The principal payment of $55.0 million due in April 2019 was paid by the Company in April 2019. The Company is scheduled to make the Senior Notes principal payments of $115.0 million prior to March 31, 2020 and has classified this portion of the Senior Notes within the current liabilities section of the condensed consolidated balance sheet.

The following is a summary of the carrying value of the Senior Notes as of March 31, 2019 and December 31, 2018 (in thousands):



	March 31, 2019			December 31, 2018
	March 31, 2019			December 31, 2018
Principal amount of the Senior Notes	$	257,500		$	282,500
Unamortized debt discount balance	(2,077		)	(2,541		)
Unamortized debt issuance costs	(4,005		)	(1,650		)
Total Senior Notes	$	251,418		$	278,309

The debt discount and debt issuance costs are being amortized as interest expense through April 2021 using the effective interest method. The following is a summary of interest expense for the three months ended March 31, 2019 and 2018 (in thousands):



	Three Months Ended March 31,
	2019		2018
Contractual interest expense	$	8,206	$	10,441
Amortization of debt discount and debt issuance costs	1,357		1,008
Total interest expense Senior Notes	$	9,563	$	11,449

Convertible Debt

On September 9, 2014, the Company issued $345.0 million aggregate principal amount of 2.50% Convertible Senior Notes Due 2021 (the Convertible Notes) resulting in net proceeds to the Company of $334.2 million after deducting the underwriting discount and offering expenses of $10.4 million and $0.4 million, respectively.

The Convertible Notes bear interest at the rate of 2.50% per annum, payable semi-annually in arrears on March 1 and September 1 of each year, beginning March 1, 2015.

The closing price of the Company’s common stock did not exceed 130% of the $19.24 conversion price for the required period during the quarter or the three month period ended March 31, 2019. As a result, the Convertible Notes are not convertible as of March 31, 2019.

The following is a summary of the liability component of the Convertible Notes as of March 31, 2019 and December 31, 2018 (in thousands):



	March 31, 2019			December 31, 2018
	March 31, 2019			December 31, 2018
Principal amount of the Convertible Notes	$	345,000		$	345,000
Unamortized discount of the liability component	(49,967		)	(54,521		)
Unamortized debt issuance costs	(2,429		)	(2,681		)
Total Convertible Notes	$	292,604		$	287,798

The debt discount and debt issuance costs are being amortized as interest expense through September 2021. The following is a summary of interest expense for the three months ended March 31, 2019 and 2018 (in thousands):



	Three Months Ended March 31,
	2019		2018
Stated coupon interest	$	2,156	$	2,156
Amortization of debt discount and debt issuance costs	4,807		4,410
Total interest expense Convertible Notes	$	6,963	$	6,566