4. Long-Term Obligations and Commitments

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

	December 31,
	2013			2012
2¾ percent convertible senior notes	$	150,334		$	143,990
Long-term financing liability for leased facility	71,288			70,550
Equipment financing arrangement	7,461			9,993
Leases and other obligations	3,489			2,288
Total	$	232,572		$	226,821
Less: current portion	(4,408		)	(4,879		)
Total Long-Term Obligations	$	228,164		$	221,942

Convertible Notes

In August 2012, we completed a $201.3 million convertible debt offering, which raised net proceeds of $194.7 million, after deducting $6.6 million in issuance costs. The $201.3 million convertible senior notes mature in 2019 and bear interest at 2¾ percent, which is payable semi-annually in arrears on April 1 and October 1 of each year. In September 2012, we used a substantial portion of the net proceeds from the issuance of the 2¾ percent notes to redeem the entire $162.5 million in principal of our 25/8 percent notes at a price of $164.0 million including accrued interest. The $162.5 million convertible subordinated notes had a maturity date of 2027 and bore interest at 25/8 percent, which was payable in cash semi-annually. We recognized a $4.8 million loss as a result of the redemption of the 25/8 percent notes. A significant portion of the loss, or $3.6 million, was non-cash and related to the unamortized debt discount and debt issuance costs and the remainder was related to a $1.2 million early redemption premium we paid to the holders of the 25/8 percent notes.

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 initially convertible into approximately 12.1 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.

The price of our common stock exceeded the conversion threshold price during the quarter ended December 31, 2013. As a result, the 2¾ percent notes are convertible at the option of the holders during the quarter ending March 31, 2014. We have not received a notice of conversion and we do not believe we will receive a conversion request. As of December 31, 2013, 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 $281.0 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 debt at a discount, which we are amortizing as additional non-cash interest expense over the expected life of the debt. We are amortizing the debt discount for our 2¾ percent notes over seven years. We were amortizing the debt discount for our 25/8 percent notes over seven years until we redeemed the notes in September 2012. Using a combination of the present value of the debt’s cash flows and a Black-Scholes valuation model, we determined that our nonconvertible debt borrowing rate was eight percent and 9.3 percent for the 2¾ percent notes and 25/8 percent notes, respectively. At December 31, 2013 the principal and accrued interest payable on the 2¾ percent notes was $202.6 million and the fair value based on quoted market prices was $505.1 million. Interest expense for the year ended December 31, 2013, 2012 and 2011 included $6.3 million, $8.4 million and $8.6 million, respectively, of non-cash interest expense related to the amortization of the debt discount for our convertible notes.

The following table summarizes information about the equity and liability components of our 2¾ percent notes, (in thousands):

	December 31,
	2013			2012
Principal amount of convertible notes outstanding	$	201,250		$	201,250
Unamortized portion of liability component	(50,916		)	(57,260		)
Long-term debt	$	150,334		$	143,990

Carrying value of equity component	$	59,528		$	59,528

Equipment Financing Arrangement

In October 2008, we entered into an equipment financing loan agreement, and in September 2009 and June 2012 we amended the loan agreement to increase the aggregate maximum amount of principal we could draw under the agreement. Each draw down under the loan agreement has a term of three years, with principal and interest payable monthly. Interest on amounts we borrow under the loan agreement is based upon the three year interest rate swap at the time we make each draw down plus 3.5 or four percent, depending on the date of the draw. We are using the equipment purchased under the loan agreement as collateral. In June 2012, we drew down $9.1 million in principal under the loan agreement at an interest rate of 4.12 percent and in June 2013 we drew down $2.5 million in principal at an interest rate of 4.39 percent. As of December 31, 2013, our outstanding borrowings under this loan agreement were at a weighted average interest rate of 4.28 percent and we can borrow up to an additional $3.4 million in principal until April 2014 to finance the purchase of equipment. The carrying balance under this loan agreement at December 31, 2013 and 2012 was $7.5 million and $10.0 million, respectively.

Maturity Schedules

Annual debt and other obligation maturities, including fixed and determinable interest, at December 31, 2013 are as follows (in thousands):

2014	$	10,246
2015	8,544
2016	6,117
2017	5,594
2018	5,594
Thereafter	207,805
Subtotal	$	243,900
Less: current portion	(4,408		)
Less: fixed and determinable interest	(34,498		)
Less: debt discount	(50,916		)
Plus: Deferred rent	1,647
Total	$	155,725

Operating Leases

We lease office and laboratory space under non-cancelable operating leases with terms through December 2031. We are located in three buildings in Carlsbad, California and occupy approximately 231,000 square feet of laboratory and office space. Our facilities include a 176,000 square foot facility that we use for our primary research and development activities, a 28,704 square foot manufacturing facility and a 25,792 square foot building adjacent to our manufacturing facility. Our 28,704 square foot facility houses manufacturing suites for our drug development business built to meet current Good Manufacturing Practices and our 25,792 square foot facility has laboratory and office space that we use to support our manufacturing activities. The lease for our 28,704 square foot 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 25,792 square foot facility has an initial term ending in June 2021 with an option to extend the lease for up to two five-year periods. We account for the lease of our 176,000 square foot facility as a financing obligation as discussed below. 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, 2013 are as follows (in thousands):

	Operating Leases
2014	$	1,470
2015	1,395
2016	1,538
2017	1,481
2018	1,451
Thereafter	19,126
Total minimum payments	$	26,461

Rent expense for the years ended December 31, 2013, 2012 and 2011 was $1.8 million, $1.9 million and $4.6 million, respectively. We recognize rent expense on a straight line basis over the lease term for the lease on our manufacturing facility and the lease on our building adjacent to our manufacturing facility, which resulted in a deferred rent balance of $1.6 million and $1.4 million at December 31, 2013 and 2012, 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, 2013 and 2012, the facility and associated parcel of land had a net book value of $66.7 million and $68.9 million, respectively, which included $5.5 million and $3.2 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, 2013 and 2012 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, 2013 for our primary research and development facility are as follows (in thousands):

	Future Rent Payments
2014	$	6,179
2015	6,179
2016	6,550
2017	6,550
2018	6,943
Thereafter	105,508
Total minimum payments	$	137,909