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Convertible Notes
9 Months Ended
Sep. 30, 2017
Debt Disclosure [Abstract]  
Convertible Notes

6.

Convertible Notes

On February 29, 2016, the Company issued and sold $100.0 million aggregate principal amount of its 8.2% Convertible Senior Notes (the “Convertible Notes”). The Convertible Notes constitute general, senior unsubordinated obligations of the Company and are guaranteed by certain subsidiaries of the Company. The Convertible Notes bear interest at a fixed coupon rate of 8.2% per annum payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, which commenced on March 31, 2016, and mature on March 31, 2022, unless earlier converted, redeemed or repurchased. The Convertible Notes also bear a premium of 9% of their principal amount, which is payable when the Convertible Notes mature or are repurchased or redeemed by the Company.  

The Convertible Notes were issued to Healthcare Royalty Partners III, L.P., for $75.0 million in aggregate principal amount, and to three related party investors, KKR Biosimilar L.P., MX II Associates LLC, and KMG Capital Partners, LLC, for $20.0 million, $4.0 million, and $1.0 million, respectively, in aggregate principal amount.

The Convertible Notes are convertible at the option of the holder at any time prior to the close of business on the business day immediately preceding March 31, 2022 at the initial conversion rate of 44.7387 shares of common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $22.35 per share, and is subject to adjustment in certain events. Upon conversion of the Convertible Notes by a holder, the holder will receive shares of the Company’s common stock together, if applicable, with cash in lieu of any fractional share.

The Convertible Notes are redeemable in whole, and not in part, at the Company’s option on or after March 31, 2020, if the last reported sale price per share of common stock exceeds 160% of the conversion price on 20 or more trading days during the 30 consecutive trading days preceding the date on which the Company sends notice of such redemption to the holders of the Convertible Notes. At maturity or redemption, if not earlier converted, the Company will pay 109% of the principal amount of the Convertible Notes maturing or being redeemed, together with accrued and unpaid interest, in cash.

The Convertible Notes contain customary negative covenants and events of default (as defined in the Convertible Note purchase agreement), the occurrence of which could result in the acceleration of all amounts due under the Convertible Note. As of September 30, 2017, the Company was in full compliance with these covenants and there were no events of default under the Convertible Notes.

The Convertible Notes are accounted for in accordance with ASC Subtopic 470-20, Debt with Conversion and Other Options. Pursuant to ASC Subtopic 470-20, the Company evaluated the features embedded in the Convertible Notes and concluded that the embedded features are not required to be bifurcated and accounted for separately from the host debt instrument.

The following table summarizes information about the components of the Convertible Notes (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Principal amount of the Convertible Notes

 

$

81,750

 

 

$

81,750

 

Unamortized debt discount and debt issuance costs

 

 

(5,806

)

 

 

(6,558

)

Convertible Notes

 

$

75,944

 

 

$

75,192

 

 

 

 

 

 

 

 

 

 

Principal amount of the Convertible Notes - related parties

 

$

27,250

 

 

$

27,250

 

Unamortized debt discount and debt issuance costs - related parties

 

 

(1,936

)

 

 

(2,186

)

Convertible Notes - related parties

 

$

25,314

 

 

$

25,064

 

Total Convertible Notes

 

$

101,258

 

 

$

100,256

 

 

If the Convertible Notes were to be converted on September 30, 2017, the holders of the Convertible Notes would receive common shares with an aggregate value of $59.7 million based on the Company’s closing stock price of $13.35.

The following table presents the components of interest expense (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Stated coupon interest

 

$

1,538

 

 

$

1,538

 

 

$

4,612

 

 

$

3,621

 

Accretion of debt discount and debt issuance costs

 

 

256

 

 

 

233

 

 

 

752

 

 

 

542

 

Interest expense

 

$

1,794

 

 

$

1,771

 

 

$

5,364

 

 

$

4,163

 

Stated coupon interest - related parties

 

$

512

 

 

$

512

 

 

$

1,538

 

 

$

1,207

 

Accretion of debt discount and debt issuance costs - related

   parties

 

 

86

 

 

 

78

 

 

 

250

 

 

 

181

 

Interest expense - related parties

 

$

598

 

 

$

590

 

 

$

1,788

 

 

$

1,388

 

Total interest expense

 

$

2,392

 

 

$

2,361

 

 

$

7,152

 

 

$

5,551

 

 

The remaining unamortized debt discount and debt offering costs related to the Company’s Convertible Notes of approximately $7.7 million as of September 30, 2017, will be amortized using the effective interest rate over the remaining term of the Convertible Notes of 4.50 years. The annual effective interest rate is 9.48% for the Convertible Notes. The Company recognized total interest expense of $2.4 million for both three month periods ended September 30, 2017 and 2016, and $7.2 million and $5.6 million for the nine months ended September 30, 2017 and 2016, respectively, related to the Convertible Notes’ accrued interest and amortization of the debt discount.

Future payments on the Convertible Notes as of September 30, 2017 are as follows (in thousands):

 

Year ending December 31,

 

 

 

 

Remainder of 2017

 

$

2,050

 

2018

 

 

8,200

 

2019

 

 

8,200

 

2020

 

 

8,200

 

2021

 

 

8,200

 

2022

 

 

111,050

 

Total minimum payments

 

 

145,900

 

Less amount representing interest

 

 

(36,900

)

Convertible Notes, principal amount

 

 

109,000

 

Less debt discount and debt issuance costs on Convertible Notes

 

 

(7,742

)

Net carrying amount of Convertible Notes

 

$

101,258