Debt

9 Months Ended

Sep. 30, 2019

Liability Related to Sale of Future Royalties:

On January 7, 2018, the Company entered into a funding agreement with RPI Finance Trust, a Delaware statutory trust ("RPI"), under which we sold a portion of our right to receive royalties on potential net sales of the ADC sacituzumab govitecan, in exchange for $175.0 million in cash. Concurrently, we entered into a common stock purchase agreement with RPI through which RPI purchased 4.4 million shares of the Company's common stock for $75.0 million (the "Financing").

The Company concluded that there were two units of accounting in the transaction: (1) the liability related to the sale of future royalties (the "Liability") and (2) the "Financing". We allocated the consideration of $250.0 million on a relative fair value basis to the Liability for $182.2 million and the common stock for $67.8 million. We continue to accrete the Liability related to the sale of future royalties using the effective interest method with an annual interest rate of approximately 16% over a period of 20 years. As of September 30, 2019 and December 31, 2018, we determined the fair value at $251.3 million and $221.3 million, respectively. During the three months ended September 30, 2019 and 2018, the Company recognized approximately $9.6 million and $9.8 million in interest expense, respectively. During the nine months ended September 30, 2019 and 2018, the Company recognized approximately $30.0 million and $29.6 million in interest expense, respectively.

The following table shows the activity within the liability related to sale of future royalties during the nine months ended September 30, 2019 (in thousands):



Carrying value of liability related to sale of future royalties at December 31, 2018	$	221,295
Interest expense recognized	30,022
Carrying value of liability related to sale of future royalties at September 30, 2019	$	251,317

Convertible Senior Notes:

In February 2015, the Company issued $100.0 million of Convertible Senior Notes (the "Convertible Senior Notes") (net proceeds of approximately $96.3 million after deducting the initial purchasers’ fees and offering expenses) in a private offering exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon Rule 144A under the Securities Act. The Convertible Senior Notes will mature on February 15, 2020, unless earlier purchased or converted. The debt issuance costs of approximately $3.7 million, primarily consisting of underwriting, legal and other professional fees, are amortized over the term of the Convertible Senior Notes. The Convertible Senior Notes are senior unsecured obligations of the Company. Interest at 4.75% is payable semiannually on February 15 and August 15 of each year. The effective interest rate on the Convertible Senior Notes was 5.48% for the period from the date of issuance through September 30, 2019. The balance of the outstanding Convertible Senior Notes was $7.1 million convertible into 1.4 million shares of common stock at September 30, 2019, and December 31, 2018.

If the Company undergoes a fundamental change (as defined in the indenture governing the Convertible Senior Notes), holders may require Immunomedics to purchase for cash all or part of the Convertible Senior Notes at a purchase price equal to 100% of the principal amount of the Convertible Senior Notes to be purchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date, subject to certain exceptions. In addition, if certain make-whole fundamental changes (as defined in the indenture governing the Convertible Senior Notes) occur, Immunomedics will, in certain circumstances, increase the conversion rate for any Convertible Note converted in connection with such make-whole fundamental change.

Total interest expense for the Convertible Senior Notes for the three months ended September 30, 2019 and 2018 was $0.1 million and $0.2 million, respectively. For the nine months ended September 30, 2019 and 2018, interest expense was $0.3 million and $0.7 million, respectively. Included in interest expense was an immaterial amount of amortization of debt issuance costs for the three and nine months ended September 30, 2019 and 2018.