Long-Term Obligations and Commitments |
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Long-Term Obligations and Commitments |
4. Long-Term Obligations and Commitments
The carrying value of our long-term obligations was as follows (in thousands):
Convertible Debt and Call Spread
0 Percent
Convertible Senior Notes and Call Spread
In April 2021, we completed a $632.5
million offering of convertible senior notes. We used a portion of the net proceeds from the issuance of the 0% Notes to repurchase $247.9 million in principal of our 1% Notes for $257.0 million.
At December 31, 2022,
we had the following 0% Notes outstanding (in millions except interest rate and price per share data):
In conjunction with the April 2021 offering, we entered into a call spread transaction, which was comprised of purchasing note hedges and
selling warrants, to minimize the impact of potential economic dilution upon conversion of our 0% Notes by increasing the effective conversion
price on our 0% Notes. We increased our effective conversion price to $76.39 with the same number of underlying shares as our 0% Notes. The call spread cost
us $46.9 million, of which $136.7
million was for the note hedge purchase, offset by $89.8 million we received for selling the warrants. Similar to our 0% Notes, our note hedges are subject to adjustment. Additionally, our note hedges are exercisable upon conversion of the 0% Notes. The note hedges will expire upon maturity of the 0%
Notes, or April 2026. The note hedges and warrants are separate transactions and are not part of the terms of our 0% Notes. The holders of the 0% Notes do not have any rights with respect to the note hedges and warrants.
We recorded the amount we paid for the note hedges and the amount we received for the warrants in additional paid-in capital in our
consolidated balance sheets. Refer to Part IV, Item 15, Note 1, Organization and Significant Accounting Policies, for our Call Spread accounting policy. We reassess our ability to continue to classify the note hedges and warrants in shareholders’ equity at each reporting period.
0.125 Percent
Convertible Senior Notes and Call Spread
In December 2019, we entered into privately negotiated exchange and/or subscription agreements with certain new investors and certain
holders of our existing 1% Notes to exchange $375.6
million of our 1% Notes for $439.3
million of our 0.125% Notes, and to issue $109.5
million of our 0.125% Notes.
At December 31, 2022,
we had the following 0.125% Notes outstanding with interest payable semi-annually (in millions except interest rate and price per share data):
In conjunction with the issuance of our 0.125% Notes in December 2019, we entered into a call spread transaction, which
was comprised of purchasing note hedges and selling warrants, to minimize the impact of potential economic dilution upon conversion of our 0.125%
Notes by increasing the effective conversion price on our 0.125% Notes. We increased our effective conversion price to $123.38 with the same number of underlying shares as our 0.125% Notes. The call spread cost us $52.6 million, of
which $108.7 million was for the note hedge purchase,
offset by $56.1 million we received for selling the
warrants. Similar to our 0.125% Notes, our note hedges are
subject to adjustment. Additionally, our note hedges are exercisable upon conversion of the 0.125% Notes. The note hedges will expire upon maturity of the 0.125% Notes, or December 2024. The note hedges and warrants are separate transactions and are not part of the terms of our 0.125% Notes. The holders of the 0.125% Notes do not have any rights with respect to the note hedges and warrants.
We recorded the amount we paid for the note hedges and the amount we received for the warrants in additional paid-in capital in our
consolidated balance sheets. Refer to Part IV, Item 15, Note 1, Organization and Significant Accounting Policies, for our Call Spread accounting policy. We reassess our ability to continue to classify the note hedges and warrants in shareholders’ equity at each reporting period.
1 Percent
Convertible Senior Notes
In April 2021, we repurchased $247.9
million in aggregate principal amount of our 1% Notes in privately negotiated transactions. As a result of the repurchase, we recognized an $8.6 million loss on early retirement of debt in the second quarter of 2021, reflecting the early retirement of a significant portion of our 1% Notes. The loss on the early retirement of our debt is the difference between the amount paid to retire our 1% Notes and the net carrying balance of the liability at the time that we retired the debt. We paid the remaining principal balance of our 1% Notes with $62.0 million of cash at maturity in November 2021.
Other Terms of Convertible Senior Notes
The 0% and 0.125% Notes are convertible under certain conditions, at the option of the note holders. We can settle conversions of the notes, at our election, in cash,
shares of our common stock or a combination of both. We may not redeem the notes prior to maturity, and we do not have to provide a sinking fund for them. Holders of the notes may require us to purchase some or all of their notes upon the occurrence of
certain fundamental changes, as set forth in the indentures governing the notes, at a purchase price equal to 100 percent of the principal
amount of the notes to be purchased, plus any accrued and unpaid interest. The 1% Notes were subject to similar terms.
Our total interest expense for our outstanding senior convertible notes for the years ended December 31, 2022, 2021 and 2020 included $5.3 million, $4.9 million and $3.2 million, respectively, of
non-cash interest expense related to the amortization of debt issuance costs for our convertible notes.
Financing Arrangements
Operating Facilities
In July 2017, we purchased the building that houses our primary R&D facility for $79.4 million and our manufacturing facility for $14.0 million. We financed the purchase
of these two facilities with mortgage debt of $60.4
million in total. Our primary R&D facility mortgage had an interest rate of 3.88 percent. Our manufacturing facility mortgage has an
interest rate of 4.20 percent. During the first five years of both mortgages, we were only required to make interest payments. We began making principal payments in 2022. Our manufacturing facility mortgage matures in August 2027. We repaid
our primary R&D facility mortgage in October 2022 in conjunction with a sale and leaseback transaction.
In October 2022, we concurrently entered into two purchase and sale agreements with a real estate investor. Under the agreements, we sold and leased back the facilities at our headquarters location in Carlsbad, California and will sell,
subject to meeting certain closing conditions, two lots of undeveloped land adjacent to our headquarters. We sold the facilities at our
headquarters, which includes our primary R&D facility, for a total purchase price of $263.4 million and we expect to receive total proceeds
of $33.0 million upon the close of the sale of the two
lots. We used a portion of the sale proceeds to extinguish our outstanding mortgage debt on our primary R&D facility of $51.3 million.
Debt Maturity Schedules
Annual convertible and mortgage debt maturities, including fixed and determinable interest, at December 31, 2022 are as follows (in thousands):
Royalty Revenue Monetization
In January 2023, we entered into a royalty purchase agreement with Royalty Pharma Investments, or Royalty Pharma, to monetize a portion of
our future SPINRAZA and pelacarsen royalties we are entitled to under our agreements with Biogen and Novartis, respectively. As a result, we received an upfront payment of $500 million and we are eligible to receive up to $625 million in additional milestone
payments. Under the terms of the agreement, Royalty Pharma will receive 25 percent of our SPINRAZA royalty payments from 2023 through 2027,
increasing to 45 percent of royalty payments in 2028, on up to $1.5 billion in annual sales. In addition, Royalty Pharma will receive 25 percent of
any future royalty payments on pelacarsen, our medicine in development for lipoprotein(a), or Lp(a), driven cardiovascular disease. Royalty Pharma’s royalty interest in SPINRAZA will revert to us after total SPINRAZA royalty payments to Royalty Pharma
reach either $475 million or $550
million, depending on the timing and occurrence of FDA approval of pelacarsen. We will begin accounting for the royalty monetization agreement in the first quarter of 2023.
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Long-Term Obligations and Commitments |
Operating Leases
Carlsbad Leases
We lease a facility adjacent to our manufacturing facility that has laboratory and office space that we use to support our manufacturing
facility. We lease this space under a non-cancelable operating lease. In May 2020, we exercised our option to extend our lease, extending our lease term from June 2021 to August 2026. We have one remaining option to extend the lease for an additional five-year period.
We also lease additional office spaces in Carlsbad. We lease these spaces under non-cancelable operating leases. In September 2022, we
exercised our option to extend one of these leases, extending our term from January 2023 to May 2027. We have no remaining options to extend this lease. Our other office space lease in Carlsbad has an initial term ending in 2023.
As discussed above in the section titled, Financing Arrangements, we lease our headquarters, which includes our primary R&D facility, as part of a sale and leaseback transaction that closed in October 2022. The initial lease term for our headquarters facilities is 15 years with options to extend the lease for 2
additional terms of five years each. We determined at lease inception that it was not reasonably certain that we would exercise any of the
options to extend the lease. We expect our lease payments over the initial term to total approximately $280 million. In connection with the sale
of our two undeveloped lots, we will enter into a build-to-suit lease agreement with the same real estate investor who will build a new R&D
facility for us on those lots. Once this new facility is completed, our lease will commence.
Oceanside Lease
In October 2022, we entered into a build-to-suit lease agreement to lease a development chemistry and manufacturing facility in Oceanside,
California. The lessor will develop and construct a building composed of manufacturing space, office space, research and development space and warehouse space. We will design and construct tenant improvements to customize the facility’s interior space.
We will lease the facility for an initial term of 20 years and 3 months with options to extend the lease for two additional terms of 10 years each. The lease
will commence when the lessor’s construction is complete and we are able to begin constructing tenant improvements.
Boston Leases
We entered into an operating lease agreement for office space located in Boston, Massachusetts which commenced in August 2018. We are
leasing this space under a non-cancelable operating lease with an initial term ending after 123 months and an option to extend the lease for an
additional five-year term. Under the lease agreement, we received a three-month free rent period.
In January 2022, we entered into a sublease agreement for our office space located in Boston, Massachusetts. The sublease commencement
date was in January 2022 when the office space was ready for our tenant’s occupancy. We are subleasing this space under a non-cancelable operating sublease with a sublease term ending 83 months following the sublease commencement date with no option to extend the sublease. Under the sublease agreement we provided a seven-month free rent period, which commenced on January 6, 2022. We will receive lease payments over the sublease term totaling $9.6 million.
We entered into an operating lease agreement for another office space located in Boston, Massachusetts which commenced in November 2021.
We are leasing this space under a non-cancelable operating lease with an initial term ending 91 months following the lease commencement date and
an option to extend the lease for
additional five-year
term. Under the lease agreement, we received a seven-month free rent period, which commenced on November 1, 2021. Our lease payments over the
initial term total $6.8 million.When we determined our lease term for our operating lease right-of-use assets and lease liabilities for these leases, we did not include
the extension options for these leases in the original lease term because it was not reasonably certain we would exercise those extension options.
Amounts related to our operating leases were as follows (dollar amounts in millions):
During the years ended December 31, 2022,
2021, and 2020 we paid $4.0 million, $3.3 million and $3.8 million of lease payments, which were included in operating activities in our consolidated statements of cash flows.
As of December 31, 2022, the future payments for our operating lease liabilities are as follows (in thousands):
Rent expense was $8.3 million,
$3.4 million and $3.7 million for the
years ended December 31, 2022, 2021
and 2020, respectively.
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