Debt

12 Months Ended

Dec. 31, 2020

Debt

Debt

10.    Debt

Credit Line Agreement

In September 2015, the Company entered into a credit line with UBS (the “Credit Line”) providing for a $50.0 million revolving line of credit which can be drawn down in increments at any time. The Credit Line was amended in July 2017 and bears interest at 30-day LIBOR plus 1.10%, and it is secured by a first priority lien and security interest in the Company’s money market and marketable securities held in its managed investment account with UBS. UBS has the right to demand full or partial payment of the Credit Line Obligations and terminate the Credit Line, in its discretion and without cause, at any time. For the years ended December 31, 2020, 2019, and 2018, the Company recorded interest expense of $0.8 million, $1.7 million, and $1.6 million, respectively. Interest payments totaling $0.8 million, $1.7 million, and $1.5 million, had been made on the Credit Line during the years ended December 31, 2020, 2019, and 2018, respectively. As of December 31, 2020, remaining accrued interest was $1.1 million, and the total principal amount outstanding including accrued interest was $49.0 million.

2017 Term Loan

In August 2017, the Company entered into the 2017 Term Loan with OrbiMed, which has a maximum borrowing capacity of $100.0 million. On the closing date of August 8, 2017, the Company borrowed $75.0 million, with the remaining $25.0 million available to borrow at the Company’s option at any time through December 31, 2018. Subsequently, the Company entered into several amendments and extended the expiration date until December 31, 2019 to draw the unused borrowing capacity of $50.0 million. After the amendments, the interest rate was equal to the sum of (i) 8.25% plus (ii) the higher of 1.00% or LIBOR, provided the Company draw the minimum capacity of $25.0 million. If the amount drawn is less than $25.0 million, the interest rate would remain at the sum of (i) 8.75% plus (ii) the higher of 1.00% or LIBOR. As a fee in consideration of extending the commitment to provide this option to draw until December 31, 2019, the Company issued an additional 25,000 shares of our common stock to OrbiMed. As of December 31, 2019, the Company did not exercise such option, and the right to draw the unused borrowing capacity has expired. For the year ended December 31, 2020 and 2019, the Company recorded interest expense for the 2017 Term Loan totaling $2.5 million and $9.0 million, respectively, which also included the amortization of debt discount.

In April 2020, the Company used a portion of the net proceeds from the offering of the Convertible Notes to repay its obligations under its 2017 Term Loan with OrbiMed. The payment amount was $79.2 million, which included the principal amount of $75.0 million, $3.8 million of early payment penalties, and $0.4 million in accrued interest. In accordance with ASC Topic 470, the Company accounted for this transaction as debt extinguishment. The difference between the reacquisition price of the debt and the net carrying amount of the debt on the extinguishment date is recorded in loss on debt extinguishment in our consolidated statements of operations and comprehensive loss. The loss on debt extinguishment was computed as follows:

	December 31,
	2020
	(in thousands)
Debt principal balance	$	75,000
Plus: early payment penalties		3,757
Reacquisition price of debt	$	78,757
Debt principal balance	$	75,000
Less: unamortized debt discount		(2,091)
Net carrying amount at extinguishment date	$	72,909
Loss on debt extinguishment	$	5,848

Convertible Notes

In April 2020, the Company issued $287.5 million aggregate principal amount of Convertible Notes due 2027 in a private placement offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.

The Convertible Notes are senior, unsecured obligations of the Company and bear interest at a rate of 2.25% per year, payable in cash semi-annually in arrears in May and November of each year, beginning in November 2020. The Convertible Notes mature in May 2027, unless earlier converted, repurchased or redeemed in accordance with their terms. Upon conversion, the Convertible Notes are 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 Company received net proceeds from the Convertible Notes of $278.3 million, after deducting the initial purchasers’ discounts and debt issuance costs. The Company used approximately $79.2 million of the net proceeds from the Convertible Notes offering to repay its obligations under the 2017 Term Loan with OrbiMed.

The holders of the Convertible Notes may convert all or a portion of their Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding February 1, 2027 in multiples of $1,000 principal amount, under any the following circumstances:  

● During any fiscal quarter commencing after December 31, 2020 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day.

● During the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of Convertible Notes for each trading day of that five-day consecutive trading 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.

● If the Company calls any or all of the Convertible Notes for redemption at any time prior to the close of business on the second business day prior to the redemption date.

● Upon the occurrence of certain distributions.

● Upon the occurrence of specified corporate transactions.

The Convertible Notes are convertible into shares of the Company’s common stock, par value $0.0001 per share, at an initial conversion rate of 25.7785 shares of common stock per $1,000 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $38.79 per share of common stock, convertible to 7,411,704 shares of common stock. The conversion rate and corresponding conversion price are subject to adjustment upon the occurrence of certain events but will not be adjusted for any accrued or unpaid interest. The holders of the Convertible Notes who redeem their Convertible Notes in connection with a make-whole fundamental change are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a fundamental change, the holders of the Convertible Notes may require the Company to repurchase for cash all or a portion of their Convertible Notes at a price equal to 100% of the principal amount, plus any accrued and unpaid interest.

The Company may not redeem the Convertible Notes prior to May 2024, and no sinking fund is provided for the Convertible Notes. The Company may redeem for cash all or any portion of the Convertible Notes, at the Company’s option, on or after May 2024, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period ending on the trading day immediately preceding the date on which the Company provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the Convertible Notes to be redeemed plus accrued and unpaid interest.

The Convertible Notes are accounted for in accordance with ASC 470-20, Debt with Conversion and Other Options, as the Convertible Notes may be settled entirely or partially in cash upon conversion. The Company separately accounted for the liability component and equity component of the Convertible Notes by allocating the debt proceeds between the liability and equity components. The carrying amount of the liability component is calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The Company used a discounted cash flow method and applied the average annual market yield of 7.832% as an input to measure its fair value. The allocation was performed in a manner that reflected the Company’s non-convertible debt borrowing rate for similar debt. The carrying amount of the equity component is determined by deducting the fair value of the liability component from the initial debt proceeds. The fair value of liability component of the Convertible Notes on the date of issuance was $201.9 million, and accordingly, the remaining proceeds of $85.6 million are allocated to the equity component on the date of issuance.  The carrying value of the liability component of the Convertible Notes is classified as long-term debt, and the equity component is classified as permanent equity in the Company’s consolidated balance sheet as of December 31, 2020.

After allocating the proceeds of the debt and equity components, the Company further allocated $9.2 million initial purchasers’ debt discount and debt issuance cost of $8.6 million and $0.6 million, respectively. The debt issuance costs primarily consisted of legal, accounting, and other professional fees. These costs were allocated to the liability and equity components based on the allocation of the proceeds as follows:

	(in thousands)
		Amount		Equity Component		Debt Component
Debt Discount	$	8,625	$	2,568	$	6,057
Debt Issuance Cost		558		166		392
Total	$	9,183	$	2,734	$	6,449

The portion allocated to the liability component is amortized to interest expense using the effective interest method over the expected life of the Convertible Notes or approximately its seven-year term. The effective interest rate on the liability component of the Convertible Notes for the period from the date of issuance through May 2027 is 8.27%, which remains unchanged from the date of issuance.

The outstanding Convertible Notes balances as of December 31, 2020, are summarized in the following table:

	December 31,
	2020
	(in thousands)
Liability Component
Outstanding Principal	$	287,500
Unamortized debt discount and debt issuance cost		(85,007)
Net carrying amount	$	202,493

At the original issuance date, the estimated fair value of the liability component of our Convertible Notes was $201.9 million and the estimated fair value of the equity component was $85.6 million as measured on the date of issuance, resulting in a total fair value of $287.5 million for the Convertible Note. The Convertible Notes were priced at par at the valuation date resulting in the fair value of the Convertible Notes equal to the principal amount of $287.5 million. The fair value of the Convertible Note has been calculated as the residual amount between the fair value of the Convertible Note and the fair value of the debt component.  

The unamortized debt discount and issuance cost is comprised of $79.1 million of debt discount resulting from allocating proceeds to the equity component, $5.6 million of debt discount from the liability component representing the difference between the net proceeds received upon issuance of debt and the amount repayable at its maturity, and $0.4 million of debt issuance costs.

The following table presents total interest expense recognized related to the Convertible Notes during the year ended December 31, 2020:

	December 31,
	2020
	(in thousands)
Cash interest expense
Contractual interest expense	$	4,582
Non-cash interest expense
Amortization of debt discount and debt issuance cost		7,048
Total interest expense	$	11,630