Debt

3 Months Ended

Mar. 31, 2020

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 Trodelvy, 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 21% over a period of 20 years for the three months ended March 31, 2020. As of March 31, 2020, and December 31, 2019, we determined the fair value at $274.7 million and $261.2 million, respectively. During the three months ended March 31, 2020 and 2019, the Company recognized approximately $13.5 million and $10.0 million in interest expense, respectively.

The following table shows the activity within the liability related to sale of future royalties during the three months ended March 31, 2020 and 2019 (in thousands):



	Three Months Ended March 31,
	2020		2019
Carrying value of liability related to sale of future royalties, beginning of the period	$	261,224	$	221,295
Interest expense recognized	13,482		9,962
Carrying value of liability related to sale of future royalties, end of period	$	274,706	$	231,257

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 remaining $7.1 million Convertible Senior Notes at December 31, 2019, converted into 1.4 million shares of common stock based on the initial conversion price of $5.11 per share of common stock on February 14, 2020. The effective interest rate on the Convertible Senior Notes was 5.48% for the period from the date of issuance through settlement.

Total interest expense for the Convertible Senior Notes for the three months ended March 31, 2020 and 2019 was $0.1 million and $0.1 million, respectively. Included in interest expense was an immaterial amount of amortization of debt issuance costs for the three months ended March 31, 2020 and 2019.