Long-Term Obligations and Commitments

12 Months Ended

Dec. 31, 2021

Long-Term Obligations and Commitments [Abstract]

Long-Term Obligations and Commitments

3. Long-Term Obligations and Commitments

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

	December 31,
	2021			2020
				(as revised*)
0.125 percent convertible senior notes	$	542,314		$	540,136
1 percent convertible senior notes (1)		—			308,809
0 percent convertible senior notes		619,119			—
Long-term mortgage debt		59,713			59,984
Leases and other obligations		29,904			30,710
Total	$	1,251,050		$	939,639
Less: current portion (1)		(3,526	)		(316,110	)
Total Long-Term Obligations	$	1,247,524		$	623,529

________________

(1) We classified the carrying value of our 1% Notes as a current liability on our consolidated balance sheet at December 31, 2020 because it matured in November 2021.

* We revised our 2020 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted retrospectively. Refer to Note 1, Organization and Significant Accounting Policies, for further information.

Convertible Debt and Call Spread

0 Percent Convertible Senior Notes and Call Spread

In April 2021, we completed a $632.5 million offering of convertible senior notes. We used a portion of the net proceeds from the issuance of the 0% Notes to repurchase $247.9 million in principal of our 1% Notes for $257.0 million.

At December 31, 2021, we had the following 0% Notes outstanding (amounts in millions except interest rate and price per share data):

	0% Notes
Outstanding principal balance	$	632.5
Unamortized debt issuance costs	$	13.4
Maturity date	April 2026
Interest rate	0 percent
Effective interest rate	0.5 percent
Conversion price per share	$	57.84
Effective conversion price per share with call spread	$	76.39
Total shares of common stock subject to conversion		10.9

In conjunction with the April 2021 offering, we entered into a call spread transaction, which was comprised of purchasing note hedges and selling warrants, to minimize the impact of potential economic dilution upon conversion of our 0% Notes by increasing the effective conversion price on our 0% Notes. We increased our effective conversion price to $76.39 with the same number of underlying shares as our 0% Notes. The call spread cost us $46.9 million, of which $136.7 million was for the note hedge purchase, offset by $89.8 million we received for selling the warrants. Similar to our 0% Notes, our note hedges are subject to adjustment. Additionally, our note hedges are exercisable upon conversion of the 0% Notes. The note hedges will expire upon maturity of the 0% Notes, or April 2026. The note hedges and warrants are separate transactions and are not part of the terms of our 0% Notes. The holders of the 0% Notes do not have any rights with respect to the note hedges and warrants.

We recorded the amount we paid for the note hedges and the amount we received for the warrants in additional paid-in capital in our consolidated balance sheet. See our Call Spread accounting policy in Note 1, Organization and Significant Accounting Policies, in the Notes to the Consolidated Financial Statements. We reassess our ability to continue to classify the note hedges and warrants in shareholders’ equity at each reporting period.

0.125 Percent Convertible Senior Notes and Call Spread

In December 2019, we entered into privately negotiated exchange and/or subscription agreements with certain new investors and certain holders of our existing 1% Notes to exchange $375.6 million of our 1% Notes for $439.3 million of our 0.125% Notes, and to issue $109.5 million of our 0.125% Notes.

At December 31, 2021, we had the following 0.125% Notes outstanding with interest payable semi-annually (amounts in millions except interest rate and price per share data):

	0.125% Notes
Outstanding principal balance	$	548.8
Unamortized debt issuance costs	$	6.5
Maturity date	December 2024
Interest rate	0.125 percent
Effective interest rate	0.5 percent
Conversion price per share	$	83.28
Effective conversion price per share with call spread	$	123.38
Total shares of common stock subject to conversion		6.6

In conjunction with the issuance of our 0.125% Notes in December 2019, we entered into a call spread transaction, which was comprised of purchasing note hedges and selling warrants, to minimize the impact of potential economic dilution upon conversion of our 0.125% Notes by increasing the effective conversion price on our 0.125% Notes. We increased our effective conversion price to $123.38 with the same number of underlying shares as our 0.125% Notes. The call spread cost us $52.6 million, of which $108.7 million was for the note hedge purchase, offset by $56.1 million we received for selling the warrants. Similar to our 0.125% Notes, our note hedges are subject to adjustment. Additionally, our note hedges are exercisable upon conversion of the 0.125% Notes. The note hedges will expire upon maturity of the 0.125% Notes, or December 2024. The note hedges and warrants are separate transactions and are not part of the terms of our 0.125% Notes. The holders of the 0.125% Notes do not have any rights with respect to the note hedges and warrants.

We recorded the amount we paid for the note hedges and the amount we received for the warrants in additional paid-in capital in our consolidated balance sheet. See our Call Spread accounting policy in Note 1, Organization and Significant Accounting Policies, in the Notes to the Consolidated Financial Statements. We reassess our ability to continue to classify the note hedges and warrants in shareholders’ equity at each reporting period.

1 Percent Convertible Senior Notes

In November 2014, we completed a $500 million offering of convertible senior notes, which matured in 2021 and beared interest at 1 percent with interest payable semi-annually. In December 2016, we issued an additional $185.5 million of 1% Notes in exchange for the redemption of a portion of our previously outstanding 2.75% convertible senior notes, or 2.75% Notes. In December 2019, we exchanged a portion of our 1% Notes for new 0.125% Notes. As a result, the principal balance of 1% Notes was $309.9 million. Additionally, we recorded a $66.2 million non-cash loss on the early retirement of debt, reflecting the early retirement of a significant portion of our 1% Notes in December 2019. The non-cash loss on the early retirement of our debt is the difference between the amount paid to exchange our 1% Notes and the net carrying balance of the liability at the time that we completed the debt exchange.

In April 2021, we repurchased $247.9 million in aggregate principal amount of our 1% Notes in privately negotiated transactions. As a result of the repurchase, we recognized an $8.6 million loss on early retirement of debt, reflecting the early retirement of a significant portion of our 1% Notes. The loss on the early retirement of our debt is the difference between the amount paid to retire our 1% Notes and the net carrying balance of the liability at the time that we retired the debt. We paid the remaining principal balance of our 1% Notes with $62.0 million of cash at maturity in November 2021.

Other Terms of Convertible Senior Notes

The 0% and 0.125% Notes are convertible under certain conditions, at the option of the note holders. We can 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 notes prior to maturity, and we do not have to provide a sinking fund for them. Holders of the notes may require us to purchase some or all of their notes upon the occurrence of certain fundamental changes, as set forth in the indentures governing the notes, at a purchase price equal to 100 percent of the principal amount of the notes to be purchased, plus any accrued and unpaid interest. The 1% Notes were subject to similar terms.

Our total interest expense for our outstanding senior convertible notes for the years ended December 31, 2021, 2020 and 2019 included $4.9 million, $3.2 million and $2.9 million, respectively, of non-cash interest expense related to the amortization of debt issuance costs for our convertible notes.

Financing Arrangements

Research and Development and Manufacturing Facilities

In July 2017, we purchased the building that houses our primary R&D facility for $79.4 million and our manufacturing facility for $14.0 million. We financed the purchase of these two facilities with mortgage debt of $60.4 million in total. Our primary R&D facility mortgage has an interest rate of 3.88 percent. Our manufacturing facility mortgage has an interest rate of 4.20 percent. During the first five years of both mortgages, we are only required to make interest payments. We will begin making principal payments in 2022. Both mortgages mature in August 2027.

Maturity Schedules

Annual debt and other obligation maturities, including fixed and determinable interest, at December 31, 2021 are as follows (in thousands):

2022	$	3,498
2023		4,180
2024		4,180
2025		1,184,820
2026		3,494
Thereafter		57,439
Subtotal	$	1,257,611
Less: current portion		(3,526	)
Less: fixed and determinable interest		(15,498	)
Less: debt issuance costs		(20,302	)
Plus: lease liabilities		22,058
Plus: other liabilities		7,181
Total long-term debt	$	1,247,524

Long-Term Obligations and Commitments

Operating Leases

Carlsbad Leases

We lease a facility adjacent to our manufacturing facility that has laboratory and office space that we use to support our manufacturing facility. We lease this space under a non-cancelable operating lease. In May 2020, we exercised our option to extend our lease, extending our lease term from June 2021 to August 2026. We have one remaining option to extend the lease for an additional five-year period.

We also lease additional office spaces in Carlsbad. We lease these spaces under non-cancelable operating leases with initial terms ending in 2023 with options to extend each of the leases for one five-year period.

Boston Leases

We entered into an operating lease agreement for office space located in Boston, Massachusetts in the second quarter of 2018. The lease commencement date was in August 2018 and we took occupancy in September 2018. We are leasing this space under a non-cancelable operating lease with an initial term ending after 123 months and an option to extend the lease for an additional five-year term. Under the lease agreement, we received a three-month free rent period, which commenced on August 15, 2018, and a tenant improvement allowance up to $3.8 million.

In January 2022, we entered into a sublease agreement for our office space located in Boston, Massachusetts. The sublease commencement date was in January 2022 when the office space was ready for our tenant’s occupancy. We are subleasing this space under a non-cancelable operating sublease with a sublease term ending 83 months following the sublease commencement date with no option to extend the sublease. Under the sublease agreement we provided a seven-month free rent period, which commenced on January 6, 2022. We will receive lease payments over the sublease term totaling $9.6 million.

In September 2021, we entered into an operating lease agreement for another office space located in Boston, Massachusetts. The lease commencement date was in November 2021 when the office space was ready for our occupancy. We are leasing this space under a non-cancelable operating lease with an initial term ending 91 months following the lease commencement date and an option to extend the lease for an additional five-year term. Under the lease agreement, we will receive a seven-month free rent period, which commenced on November 1, 2021. Our lease payments over the initial term total $6.8 million. We recognized a right-of-use lease asset and lease liability in the fourth quarter of 2021 upon the lease commencement date.

When we determined our lease term for our operating lease right-of-use assets and lease liabilities for these leases, we did not include the extension options for these leases in the original lease term.

Amounts related to our operating leases were as follows (dollar amounts in millions):

	At December 31, 2021
Right-of-use operating lease assets (1)	$	18.0
Operating lease liabilities (2)	$	22.1
Weighted average remaining lease term	6.6 years
Weighted average discount rate		6.0	%

________________

(1) Included in deposits and other assets on our consolidated balance sheet.

(2) Current portion of $2.6 million was included in current portion of long-term obligations on our consolidated balance sheet, with the difference included in long-term obligations.

During the years ended December 31, 2021, 2020, and 2019 we paid $3.3 million, $3.8 million and $3.9 million of lease payments, which were included in operating activities in our consolidated statements of cash flows.

As of December 31, 2021, the future payments for our operating lease liabilities are as follows (in thousands):

	Operating Leases
Year ending December 31,	$
2022		4,075
2023		4,314
2024		4,223
2025		4,062
2026		3,778
Thereafter		7,035
Total minimum lease payments		27,487
Less:
Imputed interest		(5,429	)
Total operating lease liabilities	$	22,058

Rent expense was $3.4 million, $3.7 million and $3.6 million for the years ended December 31, 2021, 2020 and 2019, respectively.