3. Long-Term Obligations and Commitments

The carrying value of our long-term obligations was as follows (in thousands):

	December 31,
	2015			2014
1 percent convertible senior notes	$	347,214		$	327,486
2¾ percent convertible senior notes		50,361			48,014
Long-term financing liability for leased facility		72,217			71,731
Equipment financing arrangement		515			3,226
Leases and other obligations		2,341			7,325
Total	$	472,648		$	457,782
Less: current portion		(515	)		(2,882	)
Total Long-Term Obligations	$	472,133		$	454,900

Convertible Notes

In November 2014, we completed a $500 million offering of convertible senior notes, which mature in 2021 and bear interest at 1 percent. We raised $487 million of proceeds, net of issuance costs. We used a substantial portion of the net proceeds from the issuance of the 1 percent convertible senior notes to repurchase $140 million in principal of our 2¾ percent convertible senior notes at a price of $441.9 million, including accrued interest. As a result, the new principal balance of the 2¾ percent notes is $61.2 million. We recognized an $8.3 million non-cash loss as a result of the early retirement of a portion of the 2¾ percent notes.

At December 31, 2015 we had the following convertible debt outstanding (amounts in millions except price per share data):

	1 Percent Convertible Senior Notes		2¾ Percent Convertible Senior Notes
Outstanding balance	$	500	$	61
Issue date	November 2014		August 2012
Maturity date	November 2021		October 2019
Interest rate	1 percent		2¾ percent
Conversion price per share	$	66.81	$	16.63
Total shares of common stock subject to conversion		7.5		3.7

Interest is payable semi-annually in arrears on May 15 and November 15 of each year for the 1 percent notes and on April 1 and October 1 for the 2 ¾ percent notes.

The 1 percent notes are convertible at the option of the note holders prior to July 1, 2021 only under certain conditions. On or after July 1, 2021, the notes are initially convertible into approximately 7.5 million shares of common stock at a conversion price of approximately $66.81 per share. We will settle conversions of the notes, at our election, in cash, shares of our common stock or a combination of both. We may not redeem the 1 percent notes prior to maturity, and no sinking fund is provided for them. If we undergo a fundamental change, holders may require us to purchase for cash all or any portion of their 1 percent notes at a purchase price equal to 100 percent of the principal amount of the notes to be purchased, plus accrued and unpaid interest to, but excluding, the fundamental change purchase date.

The 2¾ percent notes are convertible at the option of the note holders prior to July 1, 2019 only under certain conditions. On or after July 1, 2019, the notes are convertible into approximately 3.7 million shares of common stock at a conversion price of approximately $16.63 per share. We will settle conversions of the notes, at our election, in cash, shares of our common stock or a combination of both. We can redeem the 2¾ percent notes at our option, in whole or in part, on or after October 5, 2016 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 the trading day immediately preceding the date we provide the redemption notice exceeds 130 percent of the applicable conversion price for the 2¾ percent notes on each such day. The redemption price for the 2¾ percent notes will equal 100 percent of the principal amount being redeemed, plus accrued and unpaid interest, plus $90 per each $1,000 principal amount being redeemed. Holders of the 2¾ percent notes may require us to purchase some or all of their notes upon the occurrence of certain fundamental changes, as set forth in the indenture governing these notes, at a purchase price equal to 100 percent of the principal amount of the notes to be purchased, plus accrued and unpaid interest.

For the 2¾ percent notes, the price of our common stock exceeded the conversion threshold price during the quarter ended December 31, 2015. As a result, the 2¾ percent notes are convertible at the option of the holders during the quarter ending March 31, 2016. As of December 31, 2015, the if-converted value of the 2¾ percent notes, which assumes that the notes will be converted into shares of our common stock, exceeded the principal amount by $166.9 million. We did not include the potential effect of the conversion of our convertible notes into our common stock in the computation of diluted net loss per share because the effect would have been anti-dilutive.

We account for our convertible notes using an accounting standard that requires us to assign a value to our convertible debt equal to the estimated fair value of similar debt instruments without the conversion feature and to record the remaining portion in equity. As a result, we recorded our convertible notes at a discount, which we are amortizing as additional non-cash interest expense over the expected life of the respective debt. We determined our nonconvertible debt borrowing rate using a combination of the present value of the debt’s cash flows and a Black-Scholes valuation model. The following table summarizes the nonconvertible borrowing rate, effective interest rate and amortization period of our debt discount for our convertible notes:

	1 Percent Convertible Senior Notes	2¾ Percent Convertible Senior Notes
Nonconvertible debt borrowing rate	7.4 percent	8.0 percent
Effective interest rate	7.8 percent	8.8 percent
Amortization period of debt discount	7 years	7 years

Interest expense for the year ended December 31, 2015, 2014 and 2013 included $23.2 million, $9.6 million and $6.8 million, respectively, of non-cash interest expense related to the amortization of the debt discount and debt issuance costs for our convertible notes.

The following table summarizes information about the equity and liability components of our outstanding convertible notes, (in thousands). We measured the fair values of the convertible notes outstanding based on quoted market prices, which is a Level 2 measurement:

	December 31,
	2015		2014
2¾ Percent Convertible Senior Notes
Fair value of outstanding notes	$	215,320	$	223,900
Principal amount of convertible notes outstanding	$	61,247	$	61,247
Unamortized portion of debt discount	$	10,886	$	13,233
Long-term debt	$	50,361	$	48,014
Carrying value of equity component	$	18,714	$	18,714

1 Percent Convertible Senior Notes
Fair value of outstanding notes	$	555,000	$	568,000
Principal amount of convertible notes outstanding	$	500,000	$	500,000
Unamortized portion of debt discount	$	152,786	$	172,514
Long-term debt	$	347,214	$	327,486
Carrying value of equity component	$	174,770	$	174,770

Financing Arrangements

In June 2015, we entered into a five-year revolving line of credit agreement with Morgan Stanley Private Bank, National Association, or Morgan Stanley. We amended the credit agreement in February 2016 to increase the amount available for us to borrow. Under the amended credit agreement, we can borrow up to a maximum of $30 million of revolving credit for general working capital purposes. Under the credit agreement interest is payable monthly in arrears on the outstanding principal at a rate based on our option of:

(i)	a floating rate equal to the one-month London Interbank Offered Rate, or LIBOR, in effect plus 1.25 percent per annum;

(ii)	a fixed rate equal to LIBOR plus 1.25 percent for a period of one, two, three, four, six, or twelve months as elected by us; or

(iii)

a fixed rate equal to the LIBOR swap rate during the period of the loan.

Additionally, we will pay 0.25 percent per annum, payable quarterly in arrears, for any amount unused under the credit facility beginning after June 1, 2016. As of December 31, 2015 we had $8.5 million in outstanding borrowings under the credit facility, which were used to fund our capital equipment needs and is consistent with our historical practice to finance these costs. As of December 31, 2015, our outstanding borrowings under this credit facility were at a weighted average interest rate of 1.67 percent.

The credit agreement includes customary affirmative and negative covenants and restrictions. We are in compliance with all covenants of the credit agreement.

In October 2008, we entered into an equipment financing loan agreement. As of December 31, 2015, our outstanding borrowings under this loan agreement were at a weighted average interest rate of 4.39 percent. The carrying balance under this loan agreement at December 31, 2015 and 2014 was $0.5 million and $3.2 million, respectively. Our remaining outstanding balance is due in June 2016 and interest is payable monthly.

Maturity Schedules

Annual debt and other obligation maturities, including fixed and determinable interest, at December 31, 2015 are as follows (in thousands):

2016	$	15,767
2017		6,744
2018		6,744
2019		6,744
2020		66,304
Thereafter		505,960
Subtotal	$	608,263
Less: current portion		(9,029	)
Less: fixed and determinable interest		(37,655	)
Less: unamortized portion of debt discount		(163,672	)
Plus: Deferred rent		2,006
Total	$	399,913

Operating Leases

We lease office, laboratory and manufacturing space under non-cancelable operating leases with terms through December 2031. We are located in three buildings in Carlsbad, California, which consists of laboratory, manufacturing and office space. Our facilities include a primary research and development facility, a manufacturing facility and a building adjacent to our manufacturing facility. We account for the lease of our primary research and development facility as a financing obligation as discussed below. Our manufacturing facility is used for our drug development business and was built to meet current Good Manufacturing Practices and the facility adjacent to our manufacturing facility has laboratory and office space that we use to support our manufacturing activities. The lease for our manufacturing facility expires in 2031 and has four five-year options to extend. Under the lease agreement, we have the option to purchase the facility at the end of each year from 2016 through 2020, and at the end of 2026 and 2031. The lease for the facility adjacent to our manufacturing facility has an initial term ending in June 2021 with an option to extend the lease for up to two five-year periods. Additionally, Akcea leases office space in a building in Cambridge, Massachusetts. The lease for Akcea has a three-year term and expires in July 2018. We also lease office equipment under non-cancelable operating leases with terms through June 2017.

Annual future minimum payments under operating leases as of December 31, 2015 are as follows (in thousands):

	Operating Leases
2016	$	1,879
2017		1,878
2018		1,597
2019		1,474
2020		1,527
Thereafter		16,125
Total minimum payments	$	24,480

Rent expense for the year ended December 31, 2015 was $2.0 million and was $1.8 million each of the years ended December 31, 2014 and 2013. We recognize rent expense on a straight line basis over the lease term for the lease on our manufacturing facility, the lease on our building adjacent to our manufacturing facility and Akcea’s office space, which resulted in a deferred rent balance of $2.0 million and $1.8 million at December 31, 2015 and 2014, respectively.

Research and Development Facility Lease Obligation

In March 2010, we entered into a lease agreement with an affiliate of BioMed Realty, L.P., or BioMed. Under the lease, BioMed constructed our primary research and development facility in Carlsbad, California. The lease expires in 2031 and has four five-year options to extend. Under the lease agreement, we have the option to purchase the facility and land at the end of each year from 2016 through 2020, and at the end of 2026 and 2031. To gain early access to the facility, we agreed to modify our lease with BioMed to accept additional responsibility. As a result, we recorded the costs for the facility as a fixed asset and we also recorded a corresponding liability in our non-current liabilities as a long-term financing obligation. In July 2011, we took possession of the facility and began depreciating the cost of the facility over its economic useful life. At December 31, 2015 and 2014, the facility and associated parcel of land had a net book value of $62.2 million and $64.4 million, respectively, which included $9.9 million and $7.7 million, respectively, of accumulated depreciation. We are applying our rent payments, which began on January 1, 2012, against the liability over the term of the lease.

In conjunction with the lease agreement with BioMed, we purchased a parcel of land for $10.1 million and subsequently sold it to BioMed. Since we have the option to purchase the facility, including the land, we have continuing involvement in the land, which requires us to account for the purchase and sale of the land as a financing transaction. As such, our property, plant and equipment at December 31, 2015 and 2014 included the value of the land. Additionally, we have recorded a corresponding amount in our non-current liabilities as a long-term financing obligation. Since land is not a depreciable asset, the value of the land and financing obligation we recorded will not change until we exercise our purchase option or the lease terminates.

Annual future rent payments as of December 31, 2015 for our primary research and development facility are as follows (in thousands):

	Future Rent Payments
2016	$	6,550
2017		6,550
2018		6,943
2019		6,943
2020		7,359
Thereafter		91,205
Total minimum payments	$	125,550