Long-Term Obligations and Commitments

12 Months Ended

Dec. 31, 2023

Long-Term Obligations and Commitments [Abstract]

Long-Term Obligations and Commitments

7. Long-Term Obligations and Commitments

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

	December 31,
	2023			2022
1.75% convertible senior notes	$	562,285		$	—
0% convertible senior notes		625,380			622,242
0.125% convertible senior notes		—			544,504
Liability related to sale of future royalties		513,736			—
Lease liabilities		178,969			186,156
Mortgage debt		8,859			8,998
Other obligations		33,714			7,295
Total	$	1,922,943		$	1,369,195
Less: current portion		(8,831	)		(7,535	)
Total Long-Term Obligations	$	1,914,112		$	1,361,660

As of December 31, 2023, our 0.125% Notes was classified as a current liability because it matures in December 2024.

Convertible Debt and Call Spread

1.75% Convertible Senior Notes

In 2023, we completed a $575.0 million offering of convertible senior notes and used $488.2 million of the net proceeds from the issuance of the 1.75% Notes to repurchase $504.4 million in principal of our 0.125% Notes. We expect to use the remaining net proceeds to settle the 0.125% Notes that remain outstanding.

At December 31, 2023, we had the following 1.75% Notes outstanding (in millions, except interest rate and price per share data):

	1.75% Notes
Outstanding principal balance	$	575.0
Unamortized debt issuance costs	$	12.7
Maturity date	June 2028
Interest rate		1.75	%
Effective interest rate		2.3	%
Conversion price per share	$	53.73
Total shares of common stock subject to conversion		10.7

0% Convertible Senior Notes and Call Spread

In 2021, we completed a $632.5 million offering of convertible senior notes. We used $319.0 million of the net proceeds from the issuance of the 0% Notes to pay the remaining $309.9 million principal balance of our 1% Notes in 2021.

At December 31, 2023, we had the following 0% Notes outstanding (in millions, except interest rate and price per share data):

	0% Notes
Outstanding principal balance	$	632.5
Unamortized debt issuance costs	$	7.2
Maturity date	April 2026
Interest rate		0	%
Effective interest rate		0.5	%
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 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 sheets. Refer to Note 1, Organization and Significant Accounting Policies, for our Call Spread accounting policy. We reassess our ability to continue to classify the note hedges and warrants in shareholders’ equity at each reporting period.

0.125% Convertible Senior Notes and Call Spread

In 2019, we entered into privately negotiated exchange and/or subscription agreements with certain new investors and certain holders of our 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.

As discussed above, in 2023, we repurchased $504.4 million of our 0.125% Notes. We are holding the repurchased 0.125% Notes in treasury until maturity. As a result, the remaining principal balance of our 0.125% Notes was $44.5 million as of December 31, 2023. Additionally, during the year ended December 31, 2023, we recorded a $13.4 million gain on the early retirement of debt, which we recorded as other income in our consolidated statements of operations. The gain on the early retirement of our debt is the difference between the amounts paid to repurchase our 0.125% Notes and the net carrying balance of the liability at the time that we completed the repurchases.

At December 31, 2023, we had the following 0.125% Notes outstanding with interest payable semi-annually (in millions, except interest rate and price per share data):

	0.125% Notes
Outstanding principal balance	$	44.5
Unamortized debt issuance costs	$	0.2
Maturity date	December 2024
Interest rate		0.125	%
Effective interest rate		0.5	%
Conversion price per share	$	83.28
Effective conversion price per share with call spread	$	123.38
Total shares of common stock subject to conversion, excluding shares related to 0.125% Notes we have repurchased and are currently holding in treasury		0.5

In conjunction with the issuance of our 0.125% Notes in 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 sheets. Refer to Note 1, Organization and Significant Accounting Policies, for our Call Spread accounting policy. We reassess our ability to continue to classify the note hedges and warrants in shareholders’ equity at each reporting period.

Other Terms of Convertible Senior Notes

The 1.75%, 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.

Our total interest expense for our outstanding senior convertible notes for the years ended December 31, 2023, 2022 and 2021 included $5.9 million, $5.3 million and $4.9 million, respectively, of non-cash interest expense related to the amortization of debt issuance costs for our convertible notes.

Financing Arrangements

Operating Facilities

In 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 had 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 were only required to make interest payments. We began making principal payments in 2022. Our manufacturing facility mortgage matures in August 2027. We repaid our primary R&D facility mortgage in 2022 in conjunction with a sale and leaseback transaction.

In 2022, we concurrently entered into two purchase and sale agreements with a real estate investor. In the same period, we closed the first transaction in which we sold the facilities at our headquarters in Carlsbad, California, which includes our primary R&D facility, for a purchase price of $263.4 million. As a result, we de-recognized the related land and improvements, building and building improvements, which resulted in a net gain of $150.1 million that we reported in other income in our consolidated statements of operations. We used a portion of the sale proceeds to extinguish our outstanding mortgage debt on our primary R&D facility of $51.3 million. In connection with this transaction, we leased back our headquarters facilities for an initial lease term of 15 years with options to extend the lease for two additional terms of five years each.

In August 2023, we closed the second transaction and transferred legal ownership of two lots of undeveloped land adjacent to our headquarters to the real estate investor for a purchase price of $33 million. In connection with this transaction, we entered into a build-to-suit lease agreement with the same real estate investor to lease a new R&D facility. The lessor will develop and construct a new building composed of R&D and office space. We will design and construct tenant improvements to customize the facility’s interior space. We will lease the facility for an initial term of 15 years with options to extend the lease for two additional terms of five years each. The lease will commence once the structure of this new facility is completed.

Since the building is under construction and unavailable to lease, we are unable to complete the sale-leaseback evaluation under ASC 842, Leases. As a result, the land remains in our consolidated balance sheets and we accounted for the proceeds as a financial liability. We will reassess the transaction under the sale-leaseback accounting guidance when the facilities are available for lease commencement.

Debt Maturity Schedules

Annual convertible and mortgage debt maturities, including fixed and determinable interest, at December 31, 2023 are as follows (in thousands):

2024	$	55,298
2025		10,657
2026		643,157
2027		10,509
2028		580,277
Thereafter		8,462
Total debt and mortgage maturities	$	1,308,360
Less: Current portion included in other current liabilities		(157	)
Less: Fixed and determinable interest		(47,138	)
Less: Debt issuance costs		(20,061	)
Total debt	$	1,241,004

Royalty Revenue Monetization

In January 2023, we entered into a royalty purchase agreement with Royalty Pharma Investments, or Royalty Pharma, to monetize a portion of our future SPINRAZA and pelacarsen royalties we are entitled to under our agreements with Biogen and Novartis, respectively. As a result, we received an upfront payment of $500 million and we are eligible to receive up to $625 million in additional milestone payments. Under the terms of the agreement, Royalty Pharma will receive 25 percent of our SPINRAZA royalty payments from 2023 through 2027, increasing to 45 percent of royalty payments in 2028, on up to $1.5 billion in annual sales. In addition, Royalty Pharma will receive 25 percent of any future royalty payments on pelacarsen. Royalty Pharma’s royalty interest in SPINRAZA will revert to us after total SPINRAZA royalty payments to Royalty Pharma reach either $475 million or $550 million, depending on the timing and occurrence of FDA approval of pelacarsen.

We recorded the upfront payment of $500 million as a liability related to the sale of future royalties, net of transaction costs of $10.4 million, which we are amortizing over the estimated life of the arrangement using the effective interest rate method. We recognize royalty revenue in the period in which the counterparty sells the related product and recognizes the related revenue. We record royalty payments made to Royalty Pharma as a reduction of the liability.

We determine the effective interest rate used to record interest expense under this agreement based on an estimate of future royalty payments to Royalty Pharma. As of December 31, 2023, the estimated effective interest rate under the agreement was 13.5 percent.

The following is a summary of our liability related to sale of future royalties for the year ended December 31, 2023 (in thousands):

Proceeds from sale of future royalties	$	500,000
Royalty payments to Royalty Pharma		(44,628	)
Interest expense related to sale of future royalties		68,238
Liability related to sale of future royalties as of December 31, 2023		523,610
Issuance costs related to sale of future royalties		(10,434	)
Amortization of issuance costs related to sale of future royalties as of December 31, 2023		560
Net liability related to sale of future royalties as of December 31, 2023	$	513,736

There are numerous factors, most of which are not within our control, that could materially impact the amount and timing of royalty payments from Biogen and Novartis, and result in changes to our estimate of future royalty payments to Royalty Pharma. Such factors include, but are not limited to, the commercial sales of SPINRAZA, the regulatory approval and commercial sales of pelacarsen, competing products or other significant events.

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 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 an additional office space and warehouse space in Carlsbad. We lease these spaces under non-cancelable operating leases. In 2022, we exercised our option to extend the office space lease, extending our term from January 2023 to May 2027. We have no remaining options to extend this lease. Our warehouse space lease in Carlsbad has an initial term ending in 2028 with no options to extend the lease.

As discussed above in the section titled, Financing Arrangements, we lease our headquarters, which includes our primary R&D facility, as part of a sale and leaseback transaction that closed in 2022. The initial lease term for our headquarters facilities is 15 years with options to extend the lease for two additional terms of five years each. We determined at lease inception that it was not reasonably certain that we would exercise any of the options to extend the lease. We expect our lease payments over the initial term to total approximately $280 million. In connection with the transfer of legal ownership of the two lots of undeveloped land to the real estate investor, we entered into a build-to-suit lease agreement with the same real estate investor who will build a new R&D facility for us on those lots. The lease will commence once the structure of this new facility is completed.

Oceanside Lease

In 2022, we entered into a build-to-suit lease agreement to lease a development chemistry and manufacturing facility to be constructed by the lessor in Oceanside, California. We capitalized costs that we incurred related to the design and development of tenant improvements as construction-in-progress in our consolidated balance sheets. In August 2023, we reached a mutual agreement with the lessor to terminate the lease agreement. As a result, we recorded a charge of $20 million, primarily associated with the impairment of construction-in-progress assets, within SG&A expense in our consolidated statements of operations.

Boston Leases

We entered into an operating lease agreement for office space located in Boston, Massachusetts which commenced in August 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.

In 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 in January 2022. We will receive lease payments over the sublease term totaling $9.6 million.

We entered into an operating lease agreement for another office space located in Boston, Massachusetts which commenced in 2021. 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 received a seven-month free rent period, which commenced in November 2021. Our lease payments over the initial term total $6.8 million.

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 because it was not reasonably certain we would exercise those extension options.

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

	At December 31, 2023
Right-of-use operating lease assets	$	171.9
Operating lease liabilities	$	179.0
Weighted average remaining lease term	13.0 years
Weighted average discount rate		6.9	%

During the years ended December 31, 2023, 2022, and 2021 we paid $20.1 million, $4.0 million and $3.3 million of lease payments, which were included in operating activities in our consolidated statements of cash flows.

As of December 31, 2023, the future payments for our operating lease liabilities are as follows (in thousands):

	Operating Leases
Year ending December 31,
2024	$	20,398
2025		20,645
2026		20,781
2027		20,800
2028		20,774
Thereafter		176,138
Total minimum lease payments		279,536
Less: Imputed interest		(100,567	)
Less: Current portion (included in other current liabilities)		(8,094	)
Total long-term lease liabilities	$	170,875

Rent expense was $23.1 million, $8.3 million and $3.4 million for the years ended December 31, 2023, 2022 and 2021, respectively.