8. Senior convertible notes

Senior convertible notes consist of the following (in thousands):


	December 31,
	2015			2014
2015 notes
Principal amount	$	—		$	100,000
Unaccreted debt issuance cost		—			(645	)

Net carrying amount	$	—		$	99,355

2018 notes
Principal amount	$	27,690		$	—
Unamortized premium		660			—
Unaccreted debt issuance costs		(737	)		—

Net carrying amount	$	27,613		$	—

Issuance of new 5.75% Convertible Senior Subordinated Exchange Notes due 2018 in exchange for 2015 notes

On July 28, 2015, the Company entered into privately-negotiated exchange agreements (the “Note Exchange Agreements”) with a select holder of the Company’s 5.75% Senior Convertible Notes due 2015 (the “2015 notes”), pursuant to which the Company agreed to issue $27.7 million aggregate principal amount of new 5.75% Convertible Senior Subordinated Exchange Notes due 2018 (the “2018 notes”) to such holders in exchange for the delivery to the Company of the same principal amount of 2015 notes. The 2018 notes were issued at the closing of the exchange on August 10, 2015. The Company analyzed this exchange under the provisions of ASC 470-50 and concluded that the exchange represents an extinguishment of the 2015 notes and a new issuance of 2018 notes and recorded such notes at fair value which resulted in a premium of $0.7 million.

The 2018 notes are the Company’s general, unsecured, senior obligations, except that the 2018 notes are subordinated in right of payment to the outstanding notes issued pursuant to the Facility Agreement and the Company’s borrowings under the Sanofi Loan Facility with an affiliate of Sanofi-Aventis U.S. LLC. The 2018 notes rank equally in right of payment with the Company’s other unsecured senior debt. The 2018 notes bear interest at the rate of 5.75% per year on the principal amount, payable semiannually in arrears in cash on February 15 and August 15 of each year, beginning February 15, 2016, with interest accruing from August 15, 2015. The 2018 notes mature on August 15, 2018.

The 2018 notes are convertible, at the option of the holder, at any time on or prior to the close of business on the business day immediately preceding the stated maturity date, into shares of the Company’s common stock at an initial conversion rate of 147.0859 shares per $1,000 principal amount of 2018 notes, which is equal to a conversion price of approximately $6.80 per share, the same conversion price as that of the 2015 notes on the date of exchange. The conversion rate is subject to adjustment under certain circumstances described in an indenture governing the 2018 notes dated August 10, 2015 with Wells Fargo, National Association, including in connection with a make-whole fundamental change.

If certain fundamental changes occur, the Company will be obligated to pay a fundamental change make-whole premium on any 2018 notes converted in connection with such fundamental change by increasing the conversion rate on such 2018 notes. In such instances, the amount of the fundamental change make-whole premium will be based on the Company’s common stock price and the effective date of the applicable fundamental change.

If the Company undergoes certain fundamental changes, except in certain circumstances, each holder of 2018 notes will have the option to require the Company to repurchase all or any portion of that holder’s 2018 notes. The fundamental change repurchase price will be 100% of the principal amount of the 2018 notes to be repurchased plus accrued and unpaid interest, if any.

On or after the date that is one year following the original issue date of the 2018 notes, the Company will have the right to redeem for cash all or part of the 2018 notes if the last reported sale price of its common stock exceeds 130% of the conversion price then in effect for 20 or more trading days during the 30 consecutive trading day period ending on the trading day immediately prior to the date of the redemption notice. The redemption price will equal the sum of 100% of the principal amount of the 2018 notes to be redeemed, plus accrued and unpaid interest. Under the terms of the 2018 Note Indenture, the conversion option can be net-share settled and the maximum number of shares that could be required to be delivered under the indenture, including the make-whole shares, is fixed and less than the number of authorized and unissued shares less the maximum number of shares that could be required to be delivered during the term of the 2018 notes under existing commitments. Applying the Company’s sequencing policy, the Company performed an analysis at the time of the offering of the 2018 notes and each reporting date since and has concluded that the number of available authorized shares at the time of the offering and each subsequent reporting date was sufficient to deliver the number of shares that could be required to be delivered during the term of the 2018 notes under existing commitments.

The 2018 notes provide that upon an acceleration of certain indebtedness, including the 9.75% Senior Convertible Notes due 2019 (the “2019 notes”) and the 8.75% Senior Convertible Notes due 2019 (the “Tranche B notes”) issued to Deerfield pursuant to the Facility Agreement (see Note 17 — Facility Agreement), the holders may elect to accelerate the Company’s repayment obligations under the notes if such acceleration is not cured, waived, rescinded or annulled. There can be no assurance that the holders would not choose to exercise these rights in the event such events were to occur.

The Company incurred approximately $0.8 million in issuance costs which are recorded as an offset to the 2018 notes in the accompanying condensed consolidated balance sheet. These costs are being accreted to interest expense using the effective interest method over the term of the 2018 notes.

Accretion of debt issuance expense in connection with the 2018 notes during the year ended December 31, 2015 was $93,000. Amortization of 2018 notes premium during the year ended December 31, 2015 was $86,000.

Issuance of common stock in exchange for 2015 notes

On July 28, 2015, the Company entered into separate, privately-negotiated exchange agreements (the “Stock-for-Note Exchange Agreements”) with certain holders of the 2015 notes pursuant to which the Company agreed to issue shares of its common stock to such holders in exchange for the delivery to the Company of up to $56.9 million aggregate principal amount of 2015 notes.

Pursuant to the Stock-for-Note Exchange Agreements, the parties agreed to price the exchange transactions over a 10 trading day period spanning from July 29, 2015 to and including August 11, 2015. Between July 28, 2015 and August 10, 2015, the Company issued an aggregate of 1.9 million shares of common stock to such holders in exchange for such holders’ delivery to the Company of $8.0 million aggregate principal amount of 2015 notes, resulting in a weighted-average exchange price of $4.40 per share.

Issuance of new 5.75% Convertible Senior Subordinated Exchange Notes due 2015 in exchange for 2015 notes

On August 14, 2015, the Company exchanged $32.1 million aggregate principal amount of newly issued, 5.75% Convertible Senior Subordinated Exchange Notes due 2015 (the “Exchange Notes”) for the same principal amount of the Company’s previously outstanding 2015 notes. The Exchange Notes, payable at maturity on September 30, 2015, were convertible, at the option of each holder thereof, at any time on or prior to the close of business on the business day immediately preceding the stated maturity date. The holders of the Exchange Notes did not elect to convert any of the outstanding principal amount of the Exchange Notes into shares of the Company’s common stock. As a result, on September 30, 2015, the Company paid $32.1 million to settle the Exchange Notes.

Settlement of 2015 notes and Exchange Notes

On August 17, 2015, the Company paid $32.2 million to settle the remaining 2015 notes. As of September 30, 2015, all 2015 notes, including the Exchange Notes, have been settled resulting in a total loss on extinguishment equal to $1.0 million. The loss on extinguishment resulted from write-off of debt discount and debt issuance costs associated with the 2015 notes and Exchange Notes and the difference between the principal amounts being exchanged for shares of the Company’s common stock, pursuant to the various Stock-for-Note Exchange Agreements, and the fair market value of the Company’s common stock issued in exchange for such reduction in principal.

Accretion of debt issuance expense in connection with the 2015 notes during the years ended December 31, 2015, 2014, and 2013 was $0.6 million, $0.9 million, and $0.9 million, respectively.