Long-term Debt - Note 6

3 Months Ended

Mar. 31, 2014

Long-Term Debt Disclosure

Long-Term Debt

(6) Long-term Debt

The following table reflects the carrying value of the Company's long-term debt under various financing arrangements as of March 31, 2014 and December 31, 2013 (in thousands):

		March 31,		December 31,
		2014		2013
Convertible notes	$	16,545	$	16,545
Non-recourse debt		123,711		132,387
Total debt		140,256		148,932
Less current portion		23,736		25,297
Total long-term debt	$	116,520	$	123,635

(a) Convertible Notes

On April 8, 2014, the holders of the 5.75% Convertible Notes converted the remaining outstanding notes at a conversion price of $5.44 per share. The Company issued 3,041,451 shares pursuant to this conversion and retired the remaining $16.5 million of the outstanding 5.75% Convertible Notes.

The Company had $16.5 million of its 5.75% Convertible Notes ("5.75% Convertible Notes") outstanding as of March 31, 2014. The 5.75% Convertible Notes originated from an August 2007 private placement of $50.0 million in 5.75% Convertible Notes due August 7, 2014. The 5.75% Convertible Notes accrued interest at an annual rate of 5.75% payable quarterly in arrears on the first day of the succeeding calendar quarter commencing January 1, 2008. As of March 31, 2014, the Company classified the 5.75% Convertible Notes as current debt. Accrued interest on the 5.75% Convertible Notes was $0 as of March 31, 2014 and December 31, 2013. The Company incurred debt issuance costs of approximately $600,000, which were deferred and which were being amortized over a seven-year period, unless earlier converted, in which case the unamortized costs are recorded in additional paid-in capital. The effective interest rate on the 5.75% Convertible Notes, including debt issuance costs, is 5.9%.

(b) Non-recourse Debt

Sensipar and Mimpara-Secured Non-recourse Debt

As of March 31, 2014 and December 31, 2013, the outstanding principal balances on Sensipar and Mimpara-secured non-recourse debt were $47.6 million and $54.4 million, respectively. The Sensipar and Mimpara-secured debt is non-recourse to the Company and solely secured and serviced by Sensipar and Mimpara (cinacalcet HCl) royalties. The Company amended its agreement with Amgen effective September 30, 2011 whereby Amgen advanced $145.0 million of Sensipar and Mimpara royalties to the Company (the "Sensipar Notes"). The Sensipar Notes accrue interest at an annual rate of 9%, compounded quarterly and payable forty-five days after the close of each quarter. The payment of the royalty advance and discount shall be satisfied solely by Amgen's withholding of royalties and except in the event of a breach of certain customary representations and warranties under the agreement, the Company will have no obligation to repay any unsettled amount. The Company further amended the agreement with Amgen effective June 29, 2012, limiting the royalty offset of the royalty advance up to $8.0 million per quarter with royalties in excess of $8.0 million paid to the Company for the respective quarter, thereby extending the royalty advance repayment period. After the payment of the royalty advance and a 9% per annum discount on the balance of the advance, Amgen will resume paying NPS Pharma all royalties earned through December 31, 2018. As of March 31, 2014 and December 31, 2013, the Company classified $6.8 million and $6.7 million, respectively, of the Sensipar Notes as current based on royalty payments accrued as of March 31, 2014 and December 31, 2013. Accrued interest on the Sensipar Notes was approximately $518,000 and $592,000 as of March 31, 2014 and December 31, 2013, respectively. The Company incurred debt issuance costs of $96,000, which are being amortized using the effective interest method. The effective interest rate on the Sensipar Notes, including debt issuance costs, is approximately 9%.

PTH 1-84-Secured Non-recourse Debt

As of March 31, 2014 and December 31, 2013, the outstanding principal balances on PTH 1-84-secured debt were $42.8 million, respectively. In July 2007, the Company entered into an agreement (the "2007 DRI Agreement") with DRI Capital ("DRI"), formerly Drug Royalty L.P.3, in which the Company sold to DRI its right to receive future royalty payments arising from sales of recombinant human parathyroid hormone 1-84 [rDNA origin] ("PTH") under its license agreement with Takeda (the "Takeda License Agreement"). Under the 2007 DRI Agreement, DRI paid the Company an up-front purchase price of $50.0 million. If and when DRI receives two and a half times the amount paid to the Company, the 2007 DRI Agreement will terminate and the remainder of the royalties, if any, will revert back to the Company. In connection with the Company's 2007 DRI Agreement, the Company granted DRI a security interest in its Takeda License Agreement for Preotact and certain of its patents and other intellectual property underlying the Takeda License Agreement. In the event of a default by NPS Pharma under the 2007 DRI Agreement, DRI would be entitled to enforce its security interest against the property described above.

In December 2013, the Company entered into an amendment and restatement (the "Amendment and Restatement") to the 2007 DRI Agreement. Pursuant to the March 18, 2013 Termination and Transition Agreement between NPS Pharma and Takeda (the "Termination and Transition Agreement"), the Takeda License Agreement was terminated and NPS Pharma re-acquired exclusive rights worldwide, excluding Israel, to develop and commercialize PTH. Preotact is the brand name that Takeda had used to market PTH for the treatment of osteoporosis in certain of its licensed territories. NPS Pharma is developing PTH in the U.S. under the trade name Natpara for the treatment of hypoparathyroidism. NPS Pharma filed a Biologic License Application ("BLA") for Natpara with the U.S. Food and Drug Administration (the "FDA") in October 2013.

Pursuant to the Amendment and Restatement, (i) DRI has consented to the commercialization of PTH by the Company, (ii) the terms of the 2007 DRI Agreement are tolled, and (iii) the parties' rights and obligations regarding PTH and related technology are governed by the Amendment and Restatement.

The Company will be required to pay royalties in the mid-single digits to DRI based upon sales of PTH by the Company and its licensees (if any) worldwide, excluding Israel. The Company has agreed to undertake certain efforts to commercialize PTH. If the Company does not submit a Marketing Authorization Application to the European Medicines Agency for PTH in the European Union by an agreed upon date, DRI will have the right to revoke the consent granted in the Amendment and Restatement, reinstate the 2007 DRI Agreement, and either cause the Company to enter into a new license agreement with a third party with respect to PTH on terms that are substantially similar and no more extensive (when taken as a whole) than the terms contained in the terminated Takeda License Agreement, or negotiate such an agreement on NPS Pharma's behalf.

The Company's obligation to pay royalties to DRI under the Amendment and Restatement shall expire on a country-by-country basis upon the later of (i) the last to expire patent controlled by the Company with claims covering PTH in such country or (ii) the expiration of any period of regulatory exclusivity applicable to PTH in such country. The Company's obligation to pay royalties to DRI under the Amendment and Restatement shall terminate in its entirety once cumulative royalty payments made to DRI by Takeda and the Company total $125.0 million. As of March 31, 2014, $45.5 million in royalties had been paid to DRI.

DRI continues to maintain a security interest in NPS Pharma patents that contain claims covering PTH and certain other NPS Pharma intellectual property related to PTH. In the event of a default by NPS Pharma under the Amendment and Restatement, DRI would be entitled to enforce its security interest against NPS Pharma and such intellectual property.

The Company determined the initial up-front purchase price is debt and is being amortized into earnings using the effective interest method over the estimated life. Accrued interest under the Amendment and Restatement was $1.5 million and $0 as of March 31, 2014 and December 31, 2013, respectively and is included as a component of other liabilities. The repayment of the remaining $42.8 million principal is secured solely by future royalty payments arising from sales of PTH by the Company. The PTH-secured debt is non-recourse to the Company.

REGPARA-Secured Non-recourse Debt

As of March 31, 2014 and December 31, 2013, the outstanding principal balances on REGPARA-secured debt were $33.3 million and $35.2 million, respectively. In February 2010, the Company entered into an agreement with an affiliate of DRI (the "2010 DRI Agreement"), in which the Company sold to DRI its right to receive future royalty payments arising from sales of REGPARA^® (cinacalcet HC1) under its license agreement with Kyowa Hakko Kirin. Under the 2010 DRI Agreement, DRI paid the Company an upfront purchase price of $38.4 million. If and when DRI receives two and a half times the amount paid to the Company, the 2010 DRI Agreement will terminate and the remainder of the royalties, if any, will revert back to the Company. In connection with the 2010 DRI Agreement, the Company granted DRI a security interest in its license agreement with Kyowa Hakko Kirin for REGPARA and certain of its patents and other intellectual property underlying that agreement. In the event of a default by NPS Pharma under the 2010 DRI Agreement, DRI would be entitled to enforce its security interest against NPS Pharma and the property described above. The Company classified the initial upfront purchase price as debt which is being amortized using the effective interest method over the estimated life of approximately 11 years. As of March 31, 2014 and December 31, 2013, the Company classified $0 of the REGPARA-secured debt as current based on royalty payments accrued as of March 31, 2014 and December 31, 2013. Accrued interest under the 2010 DRI Agreement was $0 and $1.1 million as of March 31, 2014 and December 31, 2013, respectively. Through March 31, 2014, $31.9 million has been paid to DRI. The repayment of the remaining $33.3 million principal as of March 31, 2014, is secured solely by future royalty payments arising from sales of REGPARA by Kyowa Hakko Kirin. The effective interest rate under the 2010 DRI Agreement, including issuance costs, is approximately 15.8%. The REGPARA-secured debt is non-recourse to the Company.