What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-25 compared with 2020-02-27 · 132 added, 121 removed, 245 unchanged (51% of the section changed)

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References to the words "we," "our," "us," and the "Company" in this report refer to NovoCure Limited, including its consolidated subsidiaries .

We are a global oncology company with a proprietary platform technology called Tumor Treating Fields, the use of electric fields tuned to specific frequencies to disrupt solid tumor cancer cell division.

Our key priorities are to drive adoption of Optune and the NovoTTF-100L, our commercial Tumor Treating Fields delivery systems and to advance clinical and product development programs intended to extend overall survival in some of the most aggressive forms of cancer.

We are a global oncology company with a proprietary platform technology called Tumor Treating Fields ("TTFields"), which are electric fields tuned to specific frequencies that disrupt cancer cell division.

Our key priorities are to drive commercial adoption of Optune and Optune Lua, our commercial TTFields delivery systems, and to advance clinical and product development programs intended to extend overall survival in some of the most aggressive forms of cancer.

Optune is approved by the U.S.

FDA under the PMA pathway for the treatment of adult patients with newly diagnosed GBM in combination with temozolomide, a chemotherapy drug, and for adult patients with GBM following confirmed recurrence after chemotherapy as monotherapy treatment.

We also have approval to market Optune for the treatment of GBM in the EU, Japan and certain other countries.

NovoTTF-100L is approved by the FDA under the HDE pathway to treat MPM in combination with standard chemotherapies.

We have submitted an application to our notified body for CE Certification for NovoTTF-100L in the EU.

We market Optune in the U.S., Austria, Germany, Israel, Japan, Sweden and Switzerland, which we refer to as our active markets, and we market NovoTTF-100L in the U.S.

With respect to the treatment of GBM, our sales and marketing efforts are principally focused on driving adoption with both neuro-oncologists and radiation oncologists.

With respect to the treatment of MPM, our commercial efforts are principally focused on generating awareness with radiation oncologists and on establishing a dialogue with third-party payers around access to NovoTTF-100L.

Food and Drug Administration ("FDA") under the Premarket Approval ("PMA") pathway for the treatment of adult patients with newly diagnosed GBM in combination with temozolomide, a chemotherapy drug, and for adult patients with GBM following confirmed recurrence after chemotherapy as monotherapy treatment.

We also have approval or a CE certificate to market Optune for the treatment of GBM in the European Union ("EU"), Japan and certain other countries.

We market Optune in the U.S., Austria, Germany, Israel, Japan, Sweden and Switzerland, which we refer to as our "active markets." With respect to GBM, our sales and marketing efforts are principally focused on driving adoption with both neuro-oncologists and radiation oncologists.

We are expanding our commercial operations into France with an initial focus on developing key opinion leader relationships in GBM and establishing a path to reimbursement for our Products.

We believe the mechanism of action behind Tumor Treating Fields therapy may be broadly applicable to solid tumor cancers.

Currently, we are conducting phase 3 pivotal trials evaluating the use of Tumor Treating Fields in brain metastases, NSCLC, pancreatic cancer and ovarian cancer.

We are also conducting phase 2 pilot trials evaluating the use of Tumor Treating Fields in liver cancer and gastric cancer.

We plan to initiate additional randomized trials in GBM in order to further advance the scientific evidence supporting the use of Optune in GBM and to gather additional information about Optune's optimal use.

We anticipate expanding our clinical pipeline over time to study the safety and efficacy of Tumor Treating Fields for additional solid tumor indications.

Table of Conten ts

The table below presents the current status of the ongoing or completed clinical trials in our pipeline and anticipated timing of final data.

Our therapy is delivered through a medical device, and we have several product development programs underway intended to improve efficacy and usability for patients.

We believe we have a robust patent and intellectual property portfolio, with over 180 issued patents and numerous patent applications pending worldwide.

We believe we own global commercialization rights to our Products in oncology and that we are well-positioned to extend those rights into the future as we continue to find innovative ways to improve our Products.

In 2018, we granted Zai a license to commercialize Optune in Greater China under the Zai Agreement.

The Zai Agreement also establishes a development partnership intended to accelerate the development of Tumor Treating Fields in multiple solid tumor indications.

Optune Lua is approved by the FDA under the Humanitarian Device Exemption ("HDE") pathway to treat MPM in combination with standard chemotherapies.

We have received CE certification to market Optune Lua (under the name " NovoTTF-100L ") in the EU and Switzerland.

We currently market Optune Lua in the U.S., and are evaluating plans to expand access to our therapy for MPM patients in other markets.

With respect to MPM, our commercial efforts are principally focused on generating awareness and on establishing a dialogue with third-party payers around access to Optune Lua.

We believe the mechanism of action behind TTFields therapy may be broadly applicable to solid tumor cancers.

Currently, we are conducting phase 3 pivotal trials evaluating the use of TTFields in brain metastases from non-small-cell lung cancer ("brain metastases"), non-small-cell lung cancer ("NSCLC"), ovarian cancer and pancreatic cancer.

In 2020, we enrolled our first patient in our global phase 4 TRIDENT trial to test the potential survival benefit of initiating Optune concurrent with radiation therapy versus following radiation therapy in patients with newly diagnosed GBM.

We are also conducting phase 2 pilot trials evaluating the use of TTFields in liver cancer and gastric cancer, as well as testing the potential incremental survival benefit of TTFields delivered using high-intensity arrays versus standard arrays.

We anticipate expanding our clinical pipeline over time to study the safety and efficacy of TTFields for additional solid tumor indications and combinations with other cancer treatment modalities.

In the second quarter of 2021, we plan to launch the KEYNOTE B36 phase 2 pilot trial to study TTFields with pembrolizumab in first-line NSCLC through our clinical trial collaboration with MSD (a tradename of Merck & Co., Inc.).

The table below presents the current status of the ongoing clinical trials in our pipeline and anticipated timing of final data.

Our therapy is delivered through a medical device and we continue to advance our Products with the intention to extend survival and maintain quality of life for patients.

We have several product development programs underway that prioritize impact on both TTFields' dose and patient ease of use.

Our intellectual property portfolio contains over 185 issued patents and numerous patent applications pending worldwide.

We believe we own global commercialization rights to our Products in oncology and are well-positioned to extend those rights into the future as we continue to find innovative ways to improve our Products.

In 2018, we granted Zai Lab (Shanghai) Co., Ltd.

("Zai") a license to commercialize Optune in China, Hong Kong, Macau and Taiwan ("Greater China") under a License and Collaboration Agreement (the "Zai Agreement").

The Zai Agreement also establishes a development partnership intended to accelerate the development of TTFields in multiple solid tumor cancer indications.

For additional information, see Note 12 to the Consolidated Financial Statements.

Our collaboration with Zai could be affected by the recent COVID-19 coronavirus outbreak, as travel restrictions and work curtailment may slow down patient enrollment and regulatory actions by the Chinese government.

Our supply chain includes certain raw materials and component parts sourced from China, the supply of which may also be affected by the outbreak.

The outbreak did not have an effect on our results of operations in 2019, however there can be no assurance that our future results would not be adversely affected, particularly if the outbreak materially impacts our other active markets.

Impact of COVID-19

In March 2020, the World Health Organization (“WHO”) declared COVID-19 a global pandemic.

Since the pandemic began, we have been following the guidance of the WHO, the U.S.

Centers for Disease Control and Prevention, and local health authorities in all of our active markets and we have adjusted the way we conduct business to adapt to the evolving situation.

The COVID-19 pandemic did not have a material impact on our financial results throughout 2020.

The pandemic has had and is having an impact on our day-to-day operations, which varies by region based on factors such as geographical spread, stage of containment and recurrence of the pandemic in each region.

We believe the prolonged disruption caused by COVID-19 is resulting in increased volatility across global health care systems, such as fluctuations in patient volumes and changes in patterns of care in certain regions, which is currently impacting and might continue to impact our business and clinical trials in the future.

For example, we continue to see fluctuations in the timing of surgeries and radiation therapy in certain regions, which has had some adverse influence on the eligible patient population for Optune.

TTFields is an emerging modality in cancer care and requires significant educational effort to drive awareness and acceptance of our therapy.

We have relied heavily on virtual engagement to manage these educational efforts for nearly a year, which poses challenges to our ability to effectively communicate and engage with our customers and partners around the world.

Given the aggressive nature of the cancers that we treat, we believe that the fundamental value proposition of the TTFields platform remains unchanged.

We continue to evaluate and plan for the potential effects of COVID-19 on our business moving forward.

The extent to which the COVID-19 pandemic may impact our business and clinical trials in the future will depend on further developments, which are highly uncertain and cannot be predicted with

The COVID-19 pandemic may also heighten many of the other risks described in our risk factors disclosed in this Annual Report.

We view our operations and manage our business in one operating segment.

Our net revenues were $494.4 million for the year ended December 31, 2020, $351.3 million for the year ended December 31, 2019 and $248.1 million for the year ended December 31, 2018.

Our net loss was $7.2 million for the year ended December 31, 2019, $63.6 million for the year ended December 31, 2018 and $61.7 million for the year ended December 31, 2017.

Our net income was $19.8 million for the year ended December 31, 2020 and net loss $7.2 million for the year ended December 31, 2019 and $63.6 million for the year ended December 31, 2018.

As of December 31, 2020, we had an accumulated deficit of $631.1 million.

Our net loss primarily resulted from costs incurred in connection with our preclinical and clinical trial programs, costs incurred to commercialize our Products and general and administrative costs necessary to operate as a global oncology business.

Our net income resulted primarily from net revenue growth coupled with an ongoing commitment to disciplined management of expenses.

Commentary on Results of Operations

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For additional information regarding the Zai Agreement, see Note 12 to the Consolidated Financial Statements.

Table of Conten ts

Cost of revenues

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Our cost of revenues is primarily comprised of the following:

• disposable transducer arrays;

• disposable arrays;

• depreciation expense for the field equipment, including the electric field generator used by patients;

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Research, development and clinical trials

Our research, development and clinical trials activity is focused on advancing Tumor Treating Fields through clinical trials across multiple solid tumor types and improving the efficacy and usability of our delivery systems.

Our research, development and clinical trials activity is focused on advancing TTFields through clinical trials across multiple solid tumor types and improving the efficacy and usability of our delivery systems.

Research, development and clinical trials costs, including direct and allocated expenses, are expensed as incurred and consist primarily of the following:

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• facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment and laboratory and other supplies.

Table of Conten ts

The following table summarizes our research, development and clinical trial expenses by program for the years ended December 31, 2020, 2019 and 2018:

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INNOVATE - 3 14,190 4,822 510

Additional clinical development programs 2,153 1,941 2,170

Personnel and indirect clinical development costs 10,856 8,075 7,219

TRIDENT 3,709 424 —

Other clinical trials 2,764 1,726 1,941

Clinical administration 13,158 8,834 8,075

Product development 9,710 4,944 3,367

Medical affairs 21,058 15,531 7,714

Other research, development and clinical trial costs (1) 21,177 13,793 10,631

Other research and development costs (1) 34,901 18,538 13,793

Research, development and clinical trials $ 132,010 $ 79,003 $ 50,574

(1) Other research, development and clinical trial costs include regulatory affairs, quality assurance, intellectual property, product safety, allocated facilities, other overhead costs and share-based compensation.

We expect our research, development and clinical trial expenses to increase as we continue to advance clinical and product development programs intended to extend overall survival in multiple solid tumor cancers.

We are committed to investing strategically to maximize the growth potential of the TTFields platform.

We expect growth in our research and development investments to continue into 2021 as we work to advance our pipeline programs and increase acceptance of Tumor Treating Fields across the global oncology community.

Sales and marketing

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GAAP, in preparing our financial statements we must make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of net revenues and expenses during the reporting period.

We develop and periodically change these estimates and assumptions based on historical experience and on various other factors that we believe are reasonable under the circumstances.

We develop and periodically change these estimates and assumptions based on historical experience and on various

other factors that we believe are reasonable under the circumstances.

Actual results may differ from these estimates.

Table of Conten ts

The critical accounting policies requiring estimates, assumptions and judgments that we believe have the most significant impact on our consolidated financial statements are described below.

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The adoption of this standard did not have a material impact on our financial position, results of operations or cash flows.

For additional information, see Note 2(l) to the Consolidated Financial Statements.

For additional information, see Note 2(m) to the Consolidated Financial Statements.

We also receive revenues pursuant to the Zai Agreement.

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Dividend yield 0.00% 0.00% 0.00%

Table of Conten ts

If any of the assumptions used in the Black-Scholes option pricing model change significantly, share-based compensation for future awards may differ materially from the awards granted previously.

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We expect to continue to grant equity awards in the future, and to the extent that we do, our recognized share-based compensation expense will likely increase.

For additional information, see Note 14(b) to the Consolidated Financial Statements.

Long-lived assets

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If the inventories are deemed damaged, if actual demand for our delivery systems declines, or if market conditions are less favorable than those projected, inventory write-offs may be required.

For additional information, see Note 2(g) to the Consolidated Financial Statements.

For additional information, see Note 2(h) to the Consolidated Financial Statements.

As part of the process of preparing our consolidated financial statements, we are required to calculate our income taxes based on taxable income by jurisdiction.

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Recently issued accounting pronouncements

For a description of our recently issued accounting pronouncements, see Note 2(x) to the Consolidated Financial Statements.

For a description of our recently issued accounting pronouncements, see Note 2(aa) to the Consolidated Financial Statements.

Results of operations

The following discussion provides an analysis of our results of operations and reasons for material changes therein for 2020 as compared to 2019.

See "Results of Operations" in Part II, Item 7, Management's Discussion and

Table of Conten ts

Analysis of Financial Condition and Results of Operations in the Company's 2018 Annual Report on Form 10-K, filed with the SEC on February 28, 2019, for an analysis of the 2018 results as compared to 2017.

See "Results of Operations" in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 2019 Annual Report on Form 10-K, filed with the SEC on February 27, 2020, for an analysis of the 2019 results as compared to 2018.

The following table sets forth our consolidated statements of operations data:

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Net income (loss) $ 19,808 $ (7,230) $ (63,559)

Basic and diluted net income (loss) per ordinary share $ (0.07) $ (0.69) $ (0.70)

Weighted average number of ordinary shares used in computing basic and diluted net income (loss) per ordinary share 97,237,549 91,828,043 88,546,719

Basic net income (loss) per ordinary share $ 0.20 $ (0.07) $ (0.69)

Weighted average number of ordinary shares used in computing basic net income (loss) per share 100,930,866 97,237,549 91,828,043

Diluted net income (loss) per ordinary share $ 0.18 $ (0.07) $ (0.69)

Weighted average number of ordinary shares used in computing diluted net income (loss) per share 108,877,648 97,237,549 91,828,043

The following table details the share-based compensation expense included in costs and expenses:

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Prescriptions are a leading indicator of demand.

A "prescription received" is a commercial order for Optune or NovoTTF-100L that is received from a physician certified to treat patients with our Products for a patient not previously on Optune or NovoTTF-100L.

A "prescription received" is a commercial order for Optune or Optune Lua that is received from a physician certified to treat patients with our Products for a patient not previously on Optune or Optune Lua.

Orders to renew or extend treatment are not included in this total.

Table of Conten ts

The following table includes certain commercial operating statistics for and as of the end of the periods presented.

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Japan 265 192 92

2,909 2,383 1,834

Total 3,411 2,909 2,383

Year ended December 31,

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Japan 365 306 162

5,371 5,060 4,119

In the U.S., there were three active MPM patients on therapy as of December 31, 2019 and four MPM prescriptions were received in the year ended December 31, 2019.

Total 5,613 5,371 5,060

In the U.S., there were 16 active MPM patients on therapy as of December 31, 2020 and 55 MPM prescriptions were received in the year ended December 31, 2020.

Year ended December 31, 2020 compared to year ended December 31, 2019

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The increase in net revenues per active patient per month was primarily driven by improving reimbursement approval rates in the U.S.

For the year ended December 31, 2019, we recognized $5.5 million in net revenues from Medicare beneficiaries billed under the newly defined coverage policy, which became effective on September 1, 2019.

We continue to work through typical administrative ramp-up issues and expect our net revenues from Medicare beneficiaries to continue to increase as we gain experience processing Medicare claims.

Table of Conten ts

For the year ended December 31, 2020, we recorded $36 million in revenues from Medicare fee-for-service beneficiaries billed under the coverage policy compared to $6 million for the year ended December 31, 2019.

We have gained a good understanding of how to ensure timely processing of Medicare claims and have sufficient experience to recognize approximately two-thirds of the expected contribution from Medicare beneficiaries.

We also recognized approximately $19 million in incremental net revenues in the second half of 2020 compared to the first half of 2020 resulting from the successful appeal of previously denied claims for Medicare fee-for-service beneficiaries billed prior to established coverage.

Year ended December 31,

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Our cost of revenues increased by $17.9 million, or 20%, to $106.5 million for the year ended December 31, 2020 from $88.6 million for the year ended December 31, 2019.

The increase in cost of revenues was primarily due to the cost of shipping transducer arrays to a higher volume of commercial patients.

Efficiency initiatives and scale drove a 12% decrease in the cost of revenues per active patient per month from $3,133 for the year ended December 31, 2018 to $2,755 for the year ended December 31 2019.

Cost of revenues per active patient is calculated by dividing the cost of revenues for the quarter by the average of the active patients at the end of the prior quarter and the end of the current quarter.

This quarterly figure is then divided by three to estimate the monthly cost of revenues per active patient.

The increase in cost of revenues was primarily due to the cost of shipping arrays to a higher volume of commercial patients.

Excluding sales to Zai, cost of revenues per active patient per month decreased 3% to $2,602 for the year ended December 31, 2020 from $2,694 for the year ended December 31, 2019 due to on-going efficiency initiatives and scale.

Cost of revenues per active patient is calculated by dividing the cost of revenues for the year less product sales to Zai for the year by the average of the active patients at the end of the each quarter in the current year and the end of the year active patients from the prior year.

This annual figure is then divided by twelve to estimate the monthly cost of revenues per active patient.

Sales to Zai are deducted because they are made at cost and in anticipation of future royalties from Zai, and Zai patient counts are not included in our active patient population.

Product sales to Zai totaled $6.3 million for the year ended December 31, 2020 compared to $2.0 million for the year ended December 31, 2019.

Gross margin was 78% for the year ended December 31, 2020 and 75% for the year ended December 31, 2019.

Gross margin continues to benefit from ongoing efficiency initiatives and increasing scale.

Gross margin is also improved with revenue resulting from the successful appeal of previously denied claims for Medicare fee-for-service beneficiaries and tempered by product sales to Zai.

Year ended December 31,

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Research, development and clinical trials expenses increased by $53.0 million, or 67%, to $132.0 million for the year ended December 31, 2020 from $79.0 million for the year ended December 31, 2019.

The change is primarily due to a $13.6 million increase in clinical development expenses driven by our four ongoing phase 3 pivotal trials, a $2.7 million increase in preclinical and basic research expenses and a $12.1 million increase in costs associated with medical affairs, product development and other research, development and clinical trial expenses.

The change is primarily due to increased investments in clinical trials and clinical administration personnel to advance and broaden our clinical development programs, preclinical and basic research to better understand the optimal use of TTFields, product development intended to optimize the delivery of TTFields therapy, and expanded medical affairs efforts to educate the clinical community.

We balance our investments in research and development with our organizational capacity to effectively execute our strategic initiatives.

Sales and marketing expenses.

Sales and marketing expenses increased by $21.3 million, or 22%, to $118.0 million for the year ended December 31, 2020 from $96.7 million for the year ended December 31, 2019.

The change was primarily due to a $5.0 million increase in marketing expenses related to the launch of NovoTTF-100L and a $8.5 million increase in our personnel costs to support our growing commercial business.

The change was primarily due to an increase in personnel and professional services costs to support our growing commercial business and reimbursement efforts and an increase in marketing expenses related to the launch of Optune Lua for MPM.

General and administrative expenses.

General and administrative expenses increased by $19.5 million, or 22%, to $107.4 million for the year ended December 31, 2020 from $87.9 million for the year ended December 31, 2019.

The change was primarily due to an increase in personnel costs and an increase in professional services.

The change was primarily due to an increase in personnel costs, insurance premiums and professional services.

Year ended December 31,

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Financial expenses, net.

Financial expenses, net decreased by $4.4 million, or 36%, to $7.9 million for the year ended December 31, 2019 from $12.3 million for the year ended December 31, 2018.

The change was primarily due to a decrease in amortization costs.

In 2018, accelerated amortization costs were triggered by the repayment of our 2015 term loan credit facility.

Financial expenses, net increased by $4.4 million, or 55%, to $12.3 million for the year ended December 31, 2020 from $7.9 million for the year ended December 31, 2019.

The change was primarily due to a prepayment premium related to the 2018 Credit Facility, amortization costs related to the issuance of our

convertible notes and expenses related to the senior secured revolving credit facility.

See Note 10 to the Consolidated Financial Statements.

Year ended December 31,

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Income taxes.

Income taxes decreased by $19.2 million, or 109%, resulting in a tax benefit of $1.6 million for the year ended December 31, 2019 compared to a $17.6 million expense for the year ended December 31, 2018.

The change was primarily a result of amortization of intellectual property rights, research and development credits claimed in the U.S.

and the tax effect of exercises of previously granted share-based compensation in the U.S.

Table of Conten ts

Income tax benefits increased by $0.1 million, or 7%, resulting in a tax benefit of $1.7 million for the year ended December 31, 2020 compared to a $1.6 million for the year ended December 31, 2019.

The change was primarily a result of the impact of the U.S.

CARES Act partially offset by business growth.

Non-GAAP financial measures

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Income tax (1,706) (1,594) 17,617

Financial income (expenses), net 7,910 12,270 9,169

Financial expenses (income), net 12,299 7,910 12,270

Depreciation and amortization 9,150 8,460 9,006

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At December 31, 2020, our cash, cash equivalents and short-term investments totaled $842.6 million, an increase of $516.5 million compared to $326.1 million at December 31, 2019.

The increase in our cash, cash equivalents and short-term investments was primarily due to net cash provided by operating activities and the exercise of options.

The increase in our cash, cash equivalents and short-term investments was primarily due to convertible notes issued, net cash provided by operating activities and the exercise of options.

We believe our cash, cash equivalents and short-term investments as of December 31, 2020 are sufficient for our operations for at least the next 12 months based on our existing business plan and our ability to control the timing of significant expense commitments.

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Net cash provided by (used in) investing activities (472,847) (51,667) (5,493)

Net cash provided by financing activities 61,681 69,369 5,168

Net cash provided by (used in) financing activities 440,209 61,681 69,369

Effect of exchange rate changes on cash and cash equivalents 247 26 27

Net increase (decrease) in cash, cash equivalents and restricted cash $ 66,757 $ 36,660 $ 62,038

Table of Conten ts

Operating activities

Net cash used in operating activities primarily represents our net loss for the periods presented.

Adjustments to net loss for non-cash items include share-based compensation, depreciation, amortization and asset write-downs.

Operating cash flows are also impacted by changes in operating assets and liabilities, principally trade payables, deferred revenues, other payables, prepaid expenses and trade receivables.

Net cash provided by operating activities was $26.6 million for the year ended December 31, 2019 compared to $1.9 million used in the year ended December 31, 2018.

Gross profit increased by $94.7 million 2019 versus 2018, fully funding incremental investments of $28.4 million in research and development and $33.5 million in sales, marketing, general and administrative expenses.

The year over year increase in cash provided by in operating activities was driven primarily by a decrease in the reported net loss and an increase in the amount of non-cash shared-based compensation included in the reported net loss, offset by an increase in working capital.

For additional information, see Note 12 to the Consolidated Financial Statements.

Net cash provided by operating activities primarily represents our net income for the periods presented.

Adjustments to net income for non-cash items include share-based compensation, depreciation, amortization and asset write-downs.

Operating cash flows are also impacted by changes in operating assets and liabilities, principally trade payables, deferred revenues, other payables, prepaid expenses, inventory and trade receivables.

Net cash provided by operating activities was $99.1 million for the year ended December 31, 2020 compared to $26.6 million for the year ended December 31, 2019.

Gross profit increased by $125.2 million in 2020 versus 2019, fully funding incremental investments of $53.0 million in research and development and $40.8 million in sales, marketing, general and administrative expenses.

The year over year increase in cash provided by operating activities was driven primarily by higher cash earnings, lower interest payments, the receipt of income tax refunds and Zai Lab milestone payments, as well as the timing of receipts and payments in the ordinary course of business.

Upcoming uses of cash in operations will include payments in the normal course of business of $37.5 million in purchase obligations with certain of our suppliers, primarily for the purchase of Product components along with other commitments to purchase goods or services.

These amounts include approximately $29.6 million of commitments with three major suppliers.

We make such commitments through a combination of purchase orders, supplier contracts, and open orders based on projected demand information.

We also have employment agreements with certain employees that require the funding of a specific level of payments if certain events, such as a change in control or termination without cause, occur.

In the course of normal business operations, we also have agreements with contract service providers to assist in the performance of our research and development (including clinical trials) and manufacturing activities.

We could also enter into additional collaborative research, contract research, manufacturing and supplier agreements in the future, which may require up-front payments and even long-term commitments of cash.

Investing activities

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Net cash used in investing activities was $472.8 million for the year ended December 31, 2020 compared to net cash used in investing activities of $51.7 million for the year ended December 31, 2019.

The year-over-year increase in cash used in investing activities is primary related to the purchase of an additional $45.0 million in short-term investments.

The net cash used in investing activities for 2020 was primarily attributable to $15.0 million in property and equipment and the purchase of $607.9 million in short-term investments, mostly upon receipt of proceeds from the convertible note issuance, partially offset by $150.0 million in proceeds of short term investments to repay the 2018 Credit Facility.

The net cash used in investing activities for 2019 was primarily attributable to $10.5 million in property and equipment and the net purchase of $41.2 million in short-term investments.

Financing activities

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Net cash provided by financing activities was $440.2 million for the year ended December 31, 2020 compared to $61.7 million for the year ended December 31, 2019.

The year-over-year decrease in cash provided by financing activities was primarily related to an increase in the exercise of options offset by the 2018 increase in the principal amount of our term loan credit facility.

The net cash provided by financing activities for 2020 was primarily attributable to $558.4 million in proceeds from the convertible note issuance and $31.8 million in proceeds from exercise of options and shares related to the ESPP partially offset by $150.0 million in repayment of the 2018 Credit Facility (see below).

The net cash provided by financing activities for 2019 was primarily attributable to $61.7 million in proceeds from exercise of options and shares related to the ESPP.

Convertible Notes

On November 5, 2020, we issued issued $575.0 million aggregate principal amount of 0% Convertible Senior Notes due 2025 (the “Notes”).

The net proceeds from the offering were approximately $558.4 million.

We intend to use the net proceeds to further advance our clinical and product development programs and to invest in associated pre-commercial and commercial activities, as well as for general corporate purposes.

The Notes are senior unsecured obligations.

The Notes do not bear regular interest, and the principal amount of the Notes will not accrete.

Special interest, if any, payable in accordance with the terms of the Notes will be payable in cash semi-annually in arrears on May 1 and November 1 of each year, beginning on May 1, 2021.

The Notes mature on November 1, 2025, unless earlier repurchased, redeemed or converted.

The Notes are convertible at an initial conversion rate of 5.9439 ordinary shares per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $168.24 per ordinary share.

In January 2021, we irrevocably elected to settle all conversions of Notes by a combination of cash and our ordinary shares and that the cash portion per $1,000 principal amount of Notes for all conversion settlements shall be $1,000, Accordingly, from and after the date of the election, upon conversion of any Notes, holders of Notes will receive, with respect to each $1,000 principal amount of Notes converted, cash in an amount up to $1,000 and the balance of the conversion value, if any, in our ordinary shares

The Notes are not redeemable prior to November 6, 2023, except in the event of certain tax law changes.

We may redeem for cash all or any portion of the Notes, at our option, on or after November 6, 2023 if the last reported sale price of our ordinary shares has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the redemption date.

No sinking fund is provided for the Notes.

Prior to the close of business on the business day immediately preceding August 1, 2025, the Notes are convertible at the option of the holders only upon the satisfaction of certain conditions and during certain periods and if we exercise our right to redeem the Notes as permitted or required by the indenture.

On or after August 1, 2025 until the close of the business on the business day immediately preceding the maturity date, holders may convert all or any portion of their Notes at the conversion rate at any time irrespective of the foregoing conditions.

Term loan credit facility

As of December 31, 2019, our material outstanding indebtedness consisted of $150.0 million of principal outstanding under our term loan credit facility (the "2018 Credit Facility").

Interest on the outstanding loan is 9% annually, payable quarterly in arrears.

The 2018 Credit Facility will mature on February 7, 2023, at which time any unpaid principal and accrued unpaid interest in respect of the loan will be due and payable.

We may prepay amounts outstanding under the 2018 Credit Facility in full at any time.

Any prepayment (whether permitted or mandatory) is subject to a prepayment premium and/or make-whole payment.

The pre-payment fee if we prepay outstanding loan amounts prior to February 7, 2021 is 2.0% and is 1.0% if made after the February 7, 2021 but prior to February 7, 2022.

If we prepay outstanding loan amounts prior to August 7, 2020, we must pay a make-whole amount equal to the amount of interest that would have accrued on the amount of all principal we prepaid from the date of such prepayment through February 7, 2021.

We must prepay the 2018 Credit Facility (i) in full or in part upon the entry into certain licensing arrangements and (ii) in full in the event of a change of control.

All obligations under the 2018 Credit Facility are guaranteed by certain of our domestic direct and indirect subsidiaries.

In addition, the obligations under the 2018 Credit Facility were secured by a first-priority security interest in substantially all of the property and assets of, as well as the equity interests owned by, us and the other guarantors.

The 2018 Credit Facility contains customary covenants.

On November 6, 2020, we entered into a new three-year $150.0 million senior secured revolving credit facility with a syndicate of relationship banks (the "2020 Credit Facility").

We may, subject to certain conditions and limitations, increase the revolving credit commitments outstanding under the 2020 Credit Facility or incur new incremental term loans in an aggregate principal amount not to exceed an additional $100 million.

The commitments under the 2020 Credit Facility are guaranteed by certain of our subsidiaries and secured by a first lien on our and certain of our subsidiaries’ assets.

Outstanding loans will bear interest at a sliding scale based on the our secured leverage ratio from LIBOR plus 2.75% to LIBOR plus 3.25% per annum.

Additionally, the 2020 Credit Facility contains a fee for the unused revolving credit commitments at a sliding scale based on our secured leverage ratio from 0.35% to 0.45%.

The 2020 Credit Facility contains financial covenants requiring maintenance of a minimum fixed charge coverage ratio and specifying a maximum senior secured net leverage ratio, as well as customary events of default which include a change of control.

As of December 31, 2020, we were in compliance with such covenants.

For additional information, see Note 10 to the Consolidated Financial Statements.

Table of Conten ts

Contractual obligations and commitments

The following summarizes our significant contractual obligations and commitments as of December 31, 2019:

Contractual Obligations:

2020 2021 2022 2023 2024 After Total

(in thousands)

Operating leases and other loans $ 5,046 $ 5,030 $ 3,823 $ 2,524 $ 1,934 $ 4,081 $ 22,438

Purchase obligations (1) 27,206 7,325 243 — — 12,119 46,894

Term loan credit facility (2)

— — — — 150,000 — 150,000

Term loan credit facility interest (2)

$ 13,688 $ 13,725 $ 13,688 $ 13,688 $ 1,388 $ — $ 56,177

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(1) Our purchase obligations include commitments with certain of our suppliers, primarily for the purchase of Product components along with other commitments to purchase goods or services in the normal course of business.

We make such commitments through a combination of purchase orders, supplier contracts, and open orders based on projected demand information.

These amounts include approximately $39.1 million of commitments with three major suppliers.

(2) On February 7, 2018, the Company and certain of its subsidiaries entered into a Loan and Security Agreement ("2018 Loan Agreement") with a lender pursuant to which such lender made a term loan to the Company in the principal amount of $150.0 million (the "2018 Credit Facility").

The term loan has a fixed per annum interest rate of 9.0%.

For additional information, see Note 10 to the Consolidated Financial Statements.

Except as described above, there were no material changes in our commitments under contractual obligations in the year ended December 31, 2019.

The total amount of unrecognized tax expenses for uncertain tax positions was $0.1 million and $0.1 million at December 31, 2019 and December 31, 2018, respectively.

Payment of these obligations would result from settlements with taxing authorities.

Due to the difficulty in determining the timing of settlements, these obligations are not included in the above table.

We do not expect a significant tax payment related to these obligations within the next year.

We also have employment agreements with certain employees that require the funding of a specific level of payments if certain events, such as a change in control or termination without cause, occur.

Off-balance sheet arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under SEC rules.

As of December 31, 2020, we had no outstanding balance borrowed under the 2020 Credit Facility.

For additional information, see Note 12(c) to the Consolidated Financial Statements.

Prepayment of 2018 term loan

In 2018, we entered into a Loan and Security Agreement ("2018 Loan Agreement") pursuant to which we borrowed a term loan in the aggregate principal amount of $150.0 million (the "2018 Credit Facility").

The term loan, which was drawn in full upon execution of the 2018 Loan Agreement, bore interest at 9.0% per annum, payable quarterly in arrears.

In 2020, we terminated the 2018 Credit Facility and prepaid the principal amount in full.

The prepayment included $150.0 million in principal repayment and $3.0 million in prepayment premium, plus accrued and unpaid interest and expenses payable through the payoff date.

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What changed 10-K

Item 7. Management’s Discussion and Analysis