Debt

12 Months Ended

Dec. 31, 2019

Liability related to sale of future royalties

On January 7, 2018, the Company entered into a funding agreement (the "Funding Agreement") with RPI Finance Trust, a Delaware statutory trust ("RPI"). Pursuant to the Funding Agreement, the Company issued to RPI the right to receive certain royalty amounts, subject to certain reductions, based on the net sales of the ADC sacituzumab govitecan, for each calendar quarter during the term of the Funding Agreement ("Revenue Participation Right"), in exchange for $175.0 million in cash (the "Purchase Price"). Specifically, the royalty rate commences at 4.15 percent on net annual sales of up to $2.0 billion, declining step-wise based on sales tiers to 1.75 percent on net global annual sales exceeding $6.0 billion.

On January 7, 2018, in connection with the Funding Agreement, the Company entered into a common stock purchase agreement (the "Purchase Agreement") with RPI, pursuant to which the Company, in a private placement, issued and sold to RPI approximately 4.4 million unregistered shares (the "Shares") of the Company's Common Stock, at a price of $17.15 per share for gross proceeds to the Company of $75.0 million before deducting fees and expenses (the "Financing").

The Company concluded that there were two units of accounting in the transaction. The Company allocated the transaction consideration on a relative fair value to the liability and common stock in accordance with ASC 470-10 as follows (in thousands):



Units of Accounting:		Allocated Consideration
	Liability related to sale of future royalties	$	182,216
	Common stock	67,784
		$	250,000

Interest will be recognized using the effective interest method over a period of 20 years. The effective interest rate under the Funding Agreement, including issuance costs, is approximately 16.0% as of December 31, 2019. During the year ended December 31, 2019, the Transition Period, and the fiscal year ended June 30, 2018, the Company recognized $39.9 million, $19.3 million, and $19.8 million in interest expense, respectively.

The following table shows the activity within the liability related to sale of future royalties during the year ended December 31, 2019, the Transition Period and at the fiscal year ended June 30, 2018 (in thousands):



Liability related to sale of future royalties at January 7, 2018	$	182,216
Interest expense recognized	19,791
Carrying value of liability related to sale of future royalties at June 30, 2018	$	202,007
Interest expense recognized	19,288
Carrying value of liability related to sale of future royalties at December 31, 2018	$	221,295
Interest expense recognized	39,929
Carrying value of liability related to sale of future royalties at December 31, 2019 (includes current portion of $3,455)	$	261,224

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 had a maturity date of 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, and 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 the year ended December 31, 2019.

The Convertible Senior Notes are convertible at the option of holders into approximately 19.6 million shares of common stock at any time prior to the close of business on the day immediately preceding the maturity date. The exchange rate will initially be 195.8336 shares of common stock per $1,000 principal amount of Convertible Senior Notes (equivalent to an initial conversion price of approximately $5.11 per share of common stock).

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.

The indenture does not limit the amount of debt which may be issued by the Company under the indenture or otherwise, does not contain any financial covenants or restrict the Company from paying dividends, selling or disposing of assets, or issuing or repurchasing its other securities, provided that such event is not deemed to be a fundamental change (as defined in the indenture governing the Convertible Senior Notes). The indenture contains customary terms and covenants and events of default.

If an event of default with respect to the Convertible Senior Notes occurs, holders may, upon satisfaction of certain conditions, accelerate the principal amount of the Convertible Senior Notes plus premium, if any, and accrued and unpaid interest, if any. In addition, the principal amount of the Convertible Senior Notes plus premium, if any, and accrued and unpaid interest, if any, will automatically become due and payable in the case of certain types of bankruptcy or insolvency events of default involving the Company.

On September 21, 2017, the Company entered into separate, privately negotiated exchange agreements, (the "September Exchange Agreements") with certain holders of the Convertible Senior Notes. Under the Exchange Agreements, such holders agreed to convert an aggregate $80.0 million of Convertible Senior Notes held by them. In total, the Company issued an aggregate 16.8 million shares of common stock in the September Exchange Agreements. The shares represent an aggregate of 1.1 million shares more than the number of shares into which the exchanged Convertible Senior Notes were convertible under their original terms. As a result of the September Exchange Agreements, the Company recognized a loss on induced exchanges of debt of $13.0 million representing the fair value of the incremental consideration paid to induce the holders to exchange their Convertible Senior Notes for equity (i.e., 1.1 million shares of common stock), based on the closing market price of the Company's Common Stock on the date of the September 2017 Exchange Agreements.

On October 2, 2018, the Company entered into privately negotiated exchange agreements (the "October 2018 Exchange Agreements"), with a limited number of holders of the Convertible Senior Notes. Under the Exchange Agreements, such holders agreed to convert an aggregate $12.9 million of Convertible Senior Notes held by them. In total, the Company issued an aggregate 2.6 million shares of common stock in the October 2018 Exchange Agreements. The shares represent an aggregate of 0.1 million shares more than the number of shares into which the exchanged Convertible Senior Notes were convertible under their original terms. As a result of the October 2018 Exchange Agreements, the Company recognized a loss on induced exchanges of debt of $0.9 million representing the fair value of the incremental consideration paid to induce the holders to exchange their Convertible Senior Notes for equity (i.e., 0.1 million shares of common stock), based on the closing market price of the Company's Common Stock on the date of the October 2018 Exchange Agreements. As a result of the October 2018 Exchange Agreements, the balance of the outstanding Convertible Senior Notes was $7.1 million at December 31, 2019 and 2018. As of February 14, 2020, the remaining $7.1 million of Convertible Senior Notes converted into 1.4 million shares of common stock based on the initial conversion price of approximately $5.11 per share of common stock.

Total interest expense for the Convertible Senior Notes were $0.4 million, $0.5 million, $3.5 million, and $5.5 million, for the year ended December 31, 2019, the Transition Period and the fiscal years ended 2018 and 2017, respectively. Included in interest expense is the amortization of debt issuance costs of $0.1 million for the year ended December 31, 2019, $0.2 million in the Transition Period ($0.1 million of which related to the accelerated amortization of debt issuance costs associated with the October 2018 Exchange Agreements), $1.7 million in fiscal 2018 ($1.4 million of which related to the accelerated amortization of debt issuance costs associated with the September Exchange Agreements), and $0.7 million in fiscal 2017.