Term Loan and Credit Facility

9 Months Ended

Sep. 30, 2020

Convertible Notes Payable

On August 14, 2017, in a registered underwritten public offering, the Company issued $300.0 million aggregate principal amount of 3% Convertible Senior Notes due September 1, 2024 (the “Convertible Notes”). In addition, on September 12, 2017, the Company issued an additional $5.0 million principal amount of Convertible Notes pursuant to the exercise of an over-allotment option granted to the underwriters in the offering. In accordance with accounting guidance for debt with conversion and other options, the Company separately accounted for the liability component (the “Liability Component”) and embedded conversion option (the “Equity Component”) of the Convertible Notes by allocating the proceeds between the Liability Component and the Equity Component, due to the Company’s ability to settle the Convertible Notes in cash, common stock or a combination of cash and common stock, at its option. In connection with the issuance of the Convertible Notes, the Company incurred approximately $9.4 million of debt issuance costs, which primarily consisted of underwriting, legal and other professional fees, and allocated these costs to the Liability and Equity Components based on the allocation of the proceeds. Of the total $9.4 million of debt issuance costs, $4.3 million was allocated to the Equity Component and recorded as a reduction to additional paid-in capital and $5.1 million was allocated to the Liability Component and is now recorded as a reduction of the Convertible Notes in the Company’s condensed consolidated balance sheet. The portion allocated to the Liability Component is amortized to interest expense using the effective interest method over seven years.

The Convertible Notes are senior unsecured obligations of the Company and bear interest at a rate of 3.00% per annum, payable semi-annually in arrears on March 1 and September 1. Upon conversion, the Convertible Notes will be convertible into cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. The Convertible Notes will be subject to redemption at the Company’s option, under certain restrictions as noted below, on or after September 1, 2021, in whole or in part, if the conditions described below are satisfied. The redemption of the Convertible Notes may also be subject to certain restrictions included in Note 7, “Term Loan and Credit Facility”. The Convertible Notes will mature on September 1, 2024, unless earlier converted, redeemed or repurchased in accordance with their terms. Subject to satisfaction of certain conditions and during the periods described below, the Convertible Notes may be converted at an initial conversion rate of 20.4891 shares of common stock per $1,000 principal amount of the Convertible Notes (equivalent to an initial conversion price of approximately $48.81 per share of common stock).

Holders of the Convertible Notes may convert all or any portion of their notes, in multiples of $1,000 principal amount, at their option at any time prior to the close of business on the business day immediately preceding June 1, 2024 only under the following circumstances:

(1)if the last reported sale price of the Company’s common stock for at least 20 trading days (whether consecutive or not) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

(2)during the five-business day period after any five-consecutive trading day period (the “measurement period”) in which the “trading price” per $1,000 principal amount of the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

(3)if the Company calls the Convertible Notes for redemption, until the close of business on the business day immediately preceding the redemption date; or

(4)upon the occurrence of specified corporate events.

As of September 30, 2020, none of the above circumstances had occurred and, as such, the Convertible Notes were not convertible.

Prior to September 1, 2021, the Company may not redeem the Convertible Notes. On or after September 1, 2021, the Company may redeem for cash all or part of the Convertible Notes if the last reported sale price of the Company’s common stock equals or exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30-

consecutive trading day period ending within five trading days prior to the date on which the Company provides notice of the redemption. The redemption price will be the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. In addition, calling any Convertible Note for redemption will constitute a make-whole fundamental change with respect to that Convertible Note, in which case the conversion rate applicable to the conversion of that Convertible Note, if it is converted in connection with the redemption, will be increased in certain circumstances.

The initial carrying amount of the Liability Component of $166.3 million was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The allocation was performed in a manner that reflected the Company’s non-convertible debt borrowing rate for similar debt. The Equity Component of the Convertible Notes of $138.7 million was recognized as a debt discount and represents the difference between the proceeds from the issuance of the Convertible Notes of $305.0 million and the fair value of the Liability of the Convertible Notes of approximately $166.3 million on their respective dates of issuance. The excess of the principal amount of the Liability Component over its carrying amount (the “Debt Discount”) is amortized to interest expense using the effective interest method over seven years. The Equity Component is not remeasured as long as it continues to meet the conditions for equity classification. In connection with issuance of the Convertible Notes, the Company also incurred certain offering costs directly attributable to the offering. Such costs are deferred and amortized over the term of the debt to interest expense using the effective interest method.

The outstanding balances of the Convertible Notes as of September 30, 2020 consisted of the following (in thousands):


	2024 Convertible Notes
Liability component:
Principal	$	305,000
Less: debt discount and issuance costs, net	(96,098)
Net carrying amount	$	208,902
Equity component:	$	134,450

The Company determined the expected life of the Convertible Notes was equal to their seven-year term. The effective interest rate on the Liability Components of the Convertible Notes for the period from the date of issuance through September 30, 2020 was 13.04%. As of September 30, 2020, the “if-converted value” did not exceed the remaining principal amount of the Convertible Notes. The fair value of the Convertible Notes are based on data from readily available pricing sources which utilize market observable inputs and other characteristics for similar types of instruments, and, therefore, the Convertible Notes are classified within Level 2 in the fair value hierarchy. The fair value of the Convertible Notes, which differs from their carrying value, is influenced by interest rates, the Company’s stock price and stock price volatility. The estimated fair value of the Convertible Notes as of September 30, 2020 was approximately $250.8 million.

The following table sets forth total interest expense recognized related to the Convertible Notes during the three and nine months ended September 30, 2020 and 2019 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Contractual interest expense	$	2,288	$	2,288	$	6,863	$	6,863
Amortization of debt discount	4,421		3,865		12,830		11,216
Amortization of debt issuance costs	165		145		480		421
Total interest expense	$	6,874	$	6,298	$	20,173	$	18,500

Future minimum payments on the Company’s long-term debt as of September 30, 2020 are as follows (in thousands):


Years ended December 31,	Future Minimum Payments
2020	$	—
2021	9,150
2022	9,150
2023	9,150
2024	314,150
Total minimum payments	$	341,600
Less: interest	(36,600)
Less: unamortized discount	(96,098)
Less: current portion	—
Long Term Debt	$	208,902

Term Loan and Credit Facility

On January 10, 2020, the Company and Radius Pharmaceuticals, Inc., a wholly-owned subsidiary of the Company (collectively, the “Borrowers”), entered into a (i) Credit and Security Agreement, as amended (Term Loan) (the “Term Credit Agreement”) with MidCap Financial Trust, in its capacity as administrative agent (the “Agent”) and as a lender, and the financial institutions or other entities from time to time parties thereto and (ii) Credit and Security Agreement (Revolving Loan) (the “Revolving Credit Agreement,” together with the Term Credit Agreement, the “Credit Agreements”), with the Agent, and the financial institutions or other entities from time to time parties thereto.

The Credit Agreements consist of a secured term loan facility (the “Term Facility”) in an aggregate amount of $55.0 million, which will be made available to the Borrowers under the following four tranches: (i) Tranche 1 - $10.0 million, available at closing; (ii) Tranche 2 - $15.0 million, available no earlier than June 25, 2020, but no later than December 31, 2020; (iii) Tranche 3 - $15.0 million, available no later than December 31, 2021, subject to the Company’s satisfaction of certain conditions described in the Term Credit Agreement; and (iv) Tranche 4 - $15.0 million, available no later than December 31, 2021, subject to the Company’s satisfaction of certain conditions described in the Term Credit Agreement.

The Credit Agreements also consist of a secured revolving credit facility (the “Revolving Facility”, together with the Term Facility, the “Facilities”) under which the Borrowers may borrow up to $20.0 million, the availability of which is determined based on a borrowing base as follows: (i) up to 85% of the net collectible value of the Borrowers’ domestic accounts receivable due from eligible direct and third-party payors, plus (ii) up to 40% of the Borrowers’ domestic eligible inventory, provided that the availability from eligible inventory may not exceed 20% of the total availability at any time. The Borrowers also have the right, subject to certain customary conditions, to increase the Revolving Facility by $20.0 million.

The Facilities have a maturity date of June 1, 2024. The Borrowers guarantee their obligations under the Credit Agreements. The obligations are secured by first priority liens on substantially all of the assets of the Borrowers, including, with certain exceptions, all of the capital stock of the Borrowers’ subsidiaries. On July 23, 2020, the Company entered into a Partial Release and Acknowledgement Agreement (the “Release Agreement”) with the Agent pursuant to which the Agent agreed to release the security interest on certain assets of the Company that are licensed to Berlin-Chemie AG pursuant to the license agreement between the Company and Berlin-Chemie AG.

The proceeds of the Term Facility may be used for (i) transaction fees in connection with the transactions contemplated by the Credit Agreements, (ii) the payment in full on the closing date of certain existing debt, and (iii) working capital needs and general corporate purposes of the Borrowers and their subsidiaries. The proceeds of the Revolving Facility may be used for (i) transaction fees in connection with the transactions contemplated by the Credit Agreements and (ii) working capital needs and general corporate purposes of the Borrowers and their subsidiaries.

Borrowings under the Term Facility will bear interest through maturity at a variable rate based upon the LIBOR rate plus 5.75%, subject to a LIBOR floor of 2.00%. Borrowings under the Revolving Facility will bear interest through maturity at a variable rate based upon the LIBOR rate plus 3.50%, subject to a LIBOR floor of 2.00%.

Subject to the terms and conditions set forth in the Credit Agreements, the Borrowers may be required to make certain mandatory prepayments prior to maturity.

The Credit Agreements contain affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants that, among other things, will limit or restrict the ability of the Borrowers, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness as noted above in Note 6, “Convertible Notes Payable,” enter into transactions with affiliated persons, make investments, and change the nature of their businesses. The

Credit Agreements also contain customary events of default, including subject to thresholds and grace periods, among others, payment default, covenant default, cross default to other material indebtedness, and judgment default. In addition, the Credit Agreements require the Borrowers to maintain a minimum level of net revenue, or in the case where the Borrowers fail to maintain a minimum level of net revenue, certain levels of market capitalization and unrestricted cash. As of September 30, 2020, the Company was not in violation of any covenants contained in the Credit Agreements.

As of September 30, 2020, the Company had received net proceeds of approximately $9.8 million from the Term Loan, net of fees and expenses of $0.2 million. The estimated fair value of the Term Facility as of September 30, 2020 was approximately $8.2 million. The outstanding balance of the Term Loan as of September 30, 2020 was (in thousands):


	Term loan

Principal	$	10,000
Less: debt issuance costs, net	(59)
Net carrying amount	$	9,941

The following table sets forth total interest expense recognized related to the Term Facility during the three and nine months ended September 30, 2020 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

Contractual interest expense	$	198	$	—	$	573	$	—
Amortization of debt discount	1		—		2		—
Total interest expense	$	199	$	—	$	575	$	—

Future minimum payments on the Term Facility as of September 30, 2020 are as follows (in thousands):


Years ended December 31,	Future Minimum Payments
2020	$	196
2021	786
2022	786
2023	7,044
2024	3,611
Total minimum payments	$	12,423
Less: interest	(2,423)
Less: unamortized issuance costs	(59)
Less: current portion	—
Long Term Debt	$	9,941