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Convertible Notes | 9 Months Ended
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Sep. 30, 2022
Debt Disclosure [Abstract] |
Convertible Notes | 9. Convertible Notes Senior Unsecured Convertible Notes In May 2021, we entered into a note purchase agreement with funds affiliated with Baker Bros. Advisors LP for a private placement of $150.0 million in Senior Unsecured Convertible Notes (“Notes”). We received a total of $149.0 million, net of issuance costs, from the issuance of these Notes. The Notes were issued at par. The Notes bear interest at a rate of 1.5% per annum, payable in cash semi-annually in arrears on June 15th and December 15th of each year, beginning on December 15, 2021. The Notes mature on May 26, 2026, unless earlier converted, redeemed or repurchased. The Notes will be subject to redemption at our option, between May 24, 2024 and May 24, 2025, but only if the last reported sale price per share of our common stock exceeds 250% of the conversion price for a specified period of time, or on or after May 24, 2025 if the last reported sale price per share of our common stock exceeds 200% of the conversion price for a specified period of time. The redemption price will be equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest. Upon conversion, we will settle the Notes in shares of our common stock. The initial conversion rate for the Notes is 65.4620 shares per $1,000 principal amount of the Notes (equivalent to an initial conversion price of $15.276 per share of common stock). If a holder of the Notes converts upon a make-whole fundamental change or company redemption, the holder may be eligible to receive a make-whole premium through an increase to the conversion rate. In May 2021, we filed a registration statement with the SEC to register for resale 12.4 million shares of our common stock underlying the Notes, including the maximum number of shares of common stock issuable under the make-whole premium. The Notes were accounted for in accordance with ASC Subtopic 470-20, Debt with Conversion and Other Options (“ASC 470-20”) and ASC Subtopic 815-40, Contracts in Entity’s Own Equity (“ASC 815-40”). Under ASC 815-40, to qualify for equity classification (or non-bifurcation, if embedded), the instrument (or embedded feature) must be both (1) indexed to the issuer’s stock and (2) meet the requirements of the equity classification guidance. Based upon our analysis, it was determined that the Notes do contain embedded features indexed to our own stock, but do not meet the requirements for bifurcation, and therefore do not need to be separately accounted for as an equity component. Since the embedded conversion feature meets the equity scope exception from derivative accounting, and, also since the embedded conversion option does not need to be separately accounted for as an equity component under ASC 470-20, the proceeds received from the issuance of the Notes were recorded as a liability on the condensed consolidated balance sheets. We incurred issuance costs related to the Notes of $1.0 million, which we recorded as debt issuance costs and are included as a reduction to the Notes on the condensed consolidated balance sheets. The debt issuance costs are being amortized to interest expense using the effective interest rate method over the term of the Notes, resulting in an effective interest rate of 1.6%. For the three months ended September 30, 2022, interest expense related to the Notes was $614,000, which included $563,000 related to the stated interest rate and $51,000 related to the amortization of debt issuance costs. For the nine months ended September 30, 2022, interest expense related to the Notes was $1.8 million, which included $1.7 million related to the stated interest rate and $0.1 million related to the amortization of debt issuance costs. For the three months ended September 30, 2021, interest expense related to the Notes was $612,000, which included $562,000 related to the stated interest rate and $50,000 related to the amortization of debt issuance costs. For the nine months ended September 30, 2021, interest expense related to the Notes was $844,000, which included $775,000 related to the state interest rate and $69,000 related to the amortization of debt issuance costs. As of September 30, 2022, the carrying value of the Notes was $149.2 million, which is comprised of the $150.0 million principal amount of the Notes outstanding, less debt issuance costs of $0.8 million. Senior Secured Convertible Notes In April 2011, we entered into a securities purchase agreement for a private placement of up to $4.5 million in Senior Secured Convertible Notes (“Convertible Notes”) with certain investors, including Tang Capital Partners, LP. We received a total of $4.3 million, net of issuance costs, from the issuance of these Convertible Notes. The Convertible Notes bore interest at 6% per annum, payable quarterly in cash or in additional principal amount of Convertible Notes, at the election of the purchasers. The Convertible Notes matured on May 2, 2021. The Convertible Notes contained an embedded conversion feature that was in-the-money on the issuance dates. Based on an effective fixed conversion rate of 1,250 shares for every $1,000 of principal and accrued interest due under the Convertible Notes, the total conversion benefit at issuance exceeded the loan proceeds. Therefore, a debt discount was recorded in an amount equal to the face value of the Convertible Notes on the issuance dates, and we amortized the resultant debt discount over the respective 10-year term of the Convertible Notes which ended in May 2021. There was no interest expense for the three months ended September 30, 2021, as the Convertible Notes matured in May 2021. For nine months ended September 30, 2021, interest expense relating to the stated rate was $0.2 million and interest expense relating to the amortization of the debt discount was $0.8 million. In May 2021, holders of the Convertible Notes exercised their right to convert the outstanding principal and accrued interest into shares, which resulted in the issuance of 9.8 million shares of common stock. Upon issuance of these shares, there were no remaining obligations under the Convertible Notes.

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