Travere Therapeutics, Inc. 10-Q

Item 1. Financial Statements RETROPHIN, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par value and share amounts) June 30, 2020 December 31, 2019 Assets (unaudited) Current assets: Cash and cash equivalents $ 237,170 $ 62,436 Available-for-sale debt securities, at fair value (amortized cost $218,596, allowance for credit losses of $0 as of June 30, 2020; amortized cost $335,206, allowance for credit losses of $0 as of December 31, 2019) 220,206 336,088 Accounts receivable, net 14,077 18,048 Inventory, net 6,286 6,082 Prepaid expenses and other current assets 7,714 5,015 Tax receivable 20,109 1,395 Total current assets 505,562 429,064 Property and equipment, net 2,930 2,891 Other non-current assets 13,895 14,709 Intangible assets, net 155,371 157,200 Goodwill 936 936 Total assets $ 678,694 $ 604,800 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 10,198 $ 26,614 Accrued expenses 44,379 51,745 Other current liabilities 7,356 8,590 Business combination-related contingent consideration 8,000 8,500 Total current liabilities 69,933 95,449 Convertible debt 210,009 204,861 Other non-current liabilities 19,507 20,894 Business combination-related contingent consideration, less current portion 60,600 62,400 Total liabilities 360,049 383,604 Stockholders' Equity: Preferred stock $0.0001 par value; 20,000,000 shares authorized; 0 issued and outstanding as of June 30, 2020 and December 31, 2019 — — Common stock $0.0001 par value; 100,000,000 shares authorized; 50,902,874 and 43,088,921 issued and outstanding as of June 30, 2020 and December 31, 2019, respectively 5 4 Additional paid-in capital 758,945 636,910 Accumulated deficit ( 441,704 ) ( 416,444 ) Accumulated other comprehensive income 1,399 726 Total stockholders' equity 318,645 221,196 Total liabilities and stockholders' equity $ 678,694 $ 604,800 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents RETROPHIN, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except share and per share amounts) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Net product sales $ 48,430 $ 44,707 $ 96,199 $ 84,277 Operating expenses: Cost of goods sold 1,494 979 2,864 1,996 Research and development 30,790 37,934 61,038 71,377 Selling, general and administrative 34,971 38,970 68,110 71,639 Change in fair value of contingent consideration 4,286 3,353 2,363 6,522 Write off of L-UDCA IPR&D intangible asset — — — 25,500 Write off of L-UDCA contingent consideration — — — ( 18,000 ) Total operating expenses 71,541 81,236 134,375 159,034 Operating loss ( 23,111 ) ( 36,529 ) ( 38,176 ) ( 74,757 ) Other income (expenses), net: Other income (expense), net 426 125 235 ( 177 ) Interest income 1,316 2,589 3,291 5,408 Interest expense ( 4,634 ) ( 4,817 ) ( 9,521 ) ( 9,682 ) Total other expense, net ( 2,892 ) ( 2,103 ) ( 5,995 ) ( 4,451 ) Loss before income taxes ( 26,003 ) ( 38,632 ) ( 44,171 ) ( 79,208 ) Income tax (expense) benefit ( 65 ) ( 69 ) 18,911 ( 470 ) Net loss $ ( 26,068 ) $ ( 38,701 ) $ ( 25,260 ) $ ( 79,678 ) Basic and diluted net loss per common share $ ( 0.58 ) $ ( 0.92 ) $ ( 0.57 ) $ ( 1.91 ) Basic and diluted weighted average common shares outstanding 44,763,843 41,957,860 43,943,370 41,685,599 Comprehensive loss: Net loss $ ( 26,068 ) $ ( 38,701 ) $ ( 25,260 ) $ ( 79,678 ) Foreign currency translation ( 247 ) ( 91 ) ( 56 ) 27 Unrealized gain on debt securities 3,146 815 729 2,284 Comprehensive loss $ ( 23,169 ) $ ( 37,977 ) $ ( 24,587 ) $ ( 77,367 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents RETROPHIN, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands) For the Six Months Ended June 30, 2020 2019 Cash Flows From Operating Activities: Net loss $ ( 25,260 ) $ ( 79,678 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 11,507 9,742 Non-cash interest expense 893 798 Amortization (accretion) of discounts/premiums on investments, net 337 ( 580 ) Amortization of debt discount and issuance costs 5,147 4,933 Provision for Inventory 662 ( 358 ) Share-based compensation 11,474 11,947 ESPP expense 390 345 Change in fair value of contingent consideration 2,363 ( 11,478 ) Payments related to change in fair value of contingent consideration ( 8,674 ) ( 2,767 ) Write off of IPR&D intangible assets — 25,500 Unrealized foreign currency transaction gain (loss) ( 222 ) 14 Other 496 60 Changes in operating assets and liabilities: Accounts receivable 3,979 ( 2,396 ) Inventory ( 875 ) 918 Tax receivable ( 18,714 ) — Other current and non-current operating assets ( 2,508 ) ( 10,101 ) Accounts payable and accrued expenses ( 16,407 ) 6,305 Other current and non-current operating liabilities ( 196 ) 7,195 Net cash used in operating activities ( 35,608 ) ( 39,601 ) Cash Flows From Investing Activities: Purchase of fixed assets ( 518 ) ( 21 ) Cash paid for intangible assets ( 8,532 ) ( 7,347 ) Proceeds from the sale/maturity of debt securities 153,146 115,998 Purchase of debt securities ( 36,743 ) ( 94,812 ) Net cash provided by investing activities 107,353 13,818 Cash Flows From Financing Activities: Payment of acquisition-related contingent consideration ( 6,101 ) ( 1,722 ) Payment of guaranteed minimum royalty ( 1,050 ) ( 1,034 ) Proceeds from exercise of stock options 431 317 Proceeds from issuance of common stock, net of issuance costs 108,644 — Proceeds from issuances under employee stock purchase plan 1,098 1,005 Net cash provided by (used in) financing activities 103,022 ( 1,434 ) Effect of exchange rate changes on cash ( 33 ) 1 Net change in cash and cash equivalents 174,734 ( 27,216 ) Cash and cash equivalents, beginning of year 62,436 102,873 Cash and cash equivalents, end of period $ 237,170 $ 75,657 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents RETROPHIN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (unaudited, in thousands, except share amounts ) Three Months Ended June 30, 2020 Three Months Ended June 30, 2019 Common Stock Additional Paid in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity Common Stock Additional Paid in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity Shares Amount Shares Amount Balance - March 31 43,153,215 $ 4 $ 642,880 $ ( 1,500 ) $ ( 415,636 ) $ 225,748 41,438,020 $ 4 $ 596,644 $ 57 $ ( 310,994 ) $ 285,712 Share based compensation 5,760 5,760 5,577 5,577 Issuance of common stock under the equity incentive plan and proceeds from exercise 177,115 371 371 100,151 12 12 Equity offering 7,475,000 1 108,643 108,644 Unrealized gain on debt securities 3,146 3,146 815 815 Foreign currency translation adjustments ( 247 ) ( 247 ) ( 91 ) ( 91 ) Issuance of common stock from maturity of the 2019 Convertible debt outstanding 1,297,343 22,590 22,590 ESPP stock purchase and expense 97,544 1,291 1,291 63,804 1,176 1,176 Net loss ( 26,068 ) ( 26,068 ) ( 38,701 ) ( 38,701 ) Balance - June 30 50,902,874 $ 5 $ 758,945 $ 1,399 $ ( 441,704 ) $ 318,645 42,899,318 $ 4 $ 625,999 $ 781 $ ( 349,695 ) $ 277,089 Six Months Ended June 30, 2020 Six Months Ended June 30, 2019 Common Stock Additional Paid in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity Common Stock Additional Paid in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity Shares Amount Shares Amount Balance - December 31 43,088,921 $ 4 $ 636,910 $ 726 $ ( 416,444 ) $ 221,196 41,389,524 $ 4 $ 589,795 $ ( 1,529 ) $ ( 270,017 ) $ 318,253 Share based compensation 11,474 11,474 11,947 11,947 Issuance of common stock under the equity incentive plan and proceeds from exercise 241,409 431 431 148,647 317 317 Equity offering 7,475,000 1 108,643 108,644 Unrealized gain on debt securities 729 729 2,284 2,284 Foreign currency translation adjustments ( 56 ) ( 56 ) 26 26 Issuance of common stock from maturity of the 2019 Convertible debt outstanding 1,297,343 22,590 22,590 ESPP stock purchase and expense 97,544 1,487 1,487 63,804 1,350 1,350 Net loss ( 25,260 ) ( 25,260 ) ( 79,678 ) ( 79,678 ) Balance - June 30 50,902,874 $ 5 $ 758,945 $ 1,399 $ ( 441,704 ) $ 318,645 42,899,318 $ 4 $ 625,999 $ 781 $ ( 349,695 ) $ 277,089 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents RETROPHIN, INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. DESCRIPTION OF BUSINESS Organization and Description of Business Retrophin, Inc. (“we”, “our”, “us”, “Retrophin” and the “Company”) refers to Retrophin, Inc., a Delaware corporation, as well as our direct and indirect subsidiaries. Retrophin is a fully integrated biopharmaceutical company headquartered in San Diego, California, focused on identifying, developing and delivering life-changing therapies to people living with rare diseases. We regularly evaluate and, where appropriate, act on opportunities to expand our product pipeline through licenses and acquisitions of products in areas that will serve patients with serious or rare diseases and that we believe offer attractive growth characteristics. On January 30, 2020, the World Health Organization (“WHO”) declared that the recent novel coronavirus (COVID-19) outbreak was a global health emergency, which prompted national governments to begin putting actions in place to slow the spread of COVID-19. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic. The outbreak of COVID-19 has resulted in travel restrictions, quarantines, “stay-at-home” and “shelter-in-place” orders and extended shutdown of certain businesses around the world. While the impact of the COVID-19 pandemic did not have a material adverse effect on our financial position or results of operations for the three and six months ended June 30, 2020, these governmental actions and the widespread economic disruption arising from the pandemic have the potential to materially impact our business and influence our business decisions. The extent and duration of the pandemic is unknown, and the future effects on our business are uncertain and difficult to predict. The Company is continuing to monitor the events and circumstances surrounding the COVID-19 pandemic, which may require adjustments to the Company’s estimates and assumptions in the future. Clinical Programs: Sparsentan , also known as RE-021, is an investigational product candidate with a dual mechanism of action, selective endothelin receptor antagonist (“ERA”), with in vitro selectivity toward endothelin receptor type A, and a potent angiotensin receptor blocker (“ARB”). Sparsentan is currently being evaluated in two pivotal Phase 3 clinical studies in the following indications: • Focal segmental glomerulosclerosis ("FSGS") is a rare kidney disease characterized by proteinuria where the glomeruli become progressively scarred. FSGS is a leading cause of end-stage renal disease. • Immunoglobulin A nephropathy ("IgAN") is an immune-complex-mediated glomerulonephritis characterized by hematuria, proteinuria, and variable rates of progressive renal failure. IgAN is the most common primary glomerular disease. Chenodal® has been recognized as the standard of care for cerebrotendinous xanthomatosis (“CTX”) patients for more than three decades but is not currently labeled for this indication. In January 2020, we randomized the first patients in a Phase 3 clinical trial to evaluate the effects of Chenodal in adult and pediatric patients with CTX. The pivotal study, known as the RESTORE study, is intended to support a new drug application (“NDA”) submission for marketing authorization of Chenodal for CTX in the United States. Cooperative Research and Development Agreements ("CRADAs"): The Company is a participant in two CRADAs, which form a multi-stakeholder approach to pool resources with leading experts, and incorporates the patient perspective early in the identification and development process. Retrophin has partnered with the National Institutes of Health’s National Center for Advancing Translational Sciences ("NCATS") and leading patient advocacy organizations, NGLY1.org and Alagille Syndrome Alliance ("ALGSA"), aimed at the identification of potential small molecule therapeutics for NGLY1 deficiency and Alagille syndrome, respectively. There are no treatment options currently approved for these diseases. Approved products: • Chenodal (chenodiol tablets) is approved in the United States for the treatment of patients suffering from gallstones in whom surgery poses an unacceptable health risk due to disease or advanced age. Chenodal has been the standard of care for CTX patients for more than three decades. • Cholbam® (cholic acid capsules) is approved in the United States for the treatment of bile acid synthesis disorders due to single enzyme defects and is further indicated for adjunctive treatment of patients with peroxisomal disorders. • Thiola® and Thiola EC® (tiopronin tablets) are approved in the United States for the prevention of cystine (kidney) stone formation in patients with severe homozygous cystinuria. 7 Table of Contents NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the 2019 10-K filed with the SEC on February 24, 2020. The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions for Form 10-Q and the rules and regulations of the SEC. Accordingly, since they are interim statements, the accompanying condensed consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements, but reflect all adjustments consisting of normal, recurring adjustments, that are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of the results that may be expected for any future periods. The December 31, 2019 balance sheet information was derived from the audited financial statements as of that date. A summary of the significant accounting policies applied in the preparation of the accompanying condensed consolidated financial statements follows: Principles of Consolidation The unaudited condensed consolidated financial statements represent the consolidation of the accounts of the Company and its subsidiaries in conformity with GAAP. All intercompany accounts and transactions have been eliminated in consolidation. Revenue Recognition The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect substantially all the consideration it is entitled to in exchange for the goods or services it transfers to the customer. See Note 3 for further discussion. Research and Development Expenses Research and development expenses are comprised of salaries and bonuses, benefits, non-cash share-based compensation, license fees, costs paid to third-party contractors to perform research, conduct clinical trials and pre/non-clinical trials, develop drug materials, and associated overhead expenses and facilities. We also incur indirect costs that are not allocated to specific programs because such costs benefit multiple development programs and allow us to increase our pharmaceutical development capabilities. These consist of internal shared resources related to the development and maintenance of systems and processes applicable to all of our programs. Clinical Trial Expenses Our clinical trials are conducted pursuant to contracts with contract research organizations ("CROs") that support conducting and managing clinical trials. The financial terms and activities of these agreements vary from contract to contract and may result in uneven expense levels. Generally, these agreements set forth activities that drive the recording of expenses such as start-up, initiation activities, enrollment, treatment of patients, or the completion of other clinical trial activities. Expenses related to clinical trials are accrued based on our estimates and/or representations from service providers regarding work performed, including actual level of patient enrollment, completion of patient studies and progress of the clinical trials. Other incidental costs related to patient enrollment or treatment are accrued when reasonably certain. If the amounts we are obligated to pay under our clinical trial agreements are modified (for instance, as a result of changes in the clinical trial protocol or scope of work to be performed), we adjust our accruals accordingly on a prospective basis. Revisions to our contractual payment obligations are charged to expense in the period in which the facts that give rise to the revision become reasonably certain. We currently have three Phase 3 clinical trials in process that are in varying stages of activity, with ongoing non-clinical support trials. As such, clinical trial expenses will vary depending on all the factors set forth above and may fluctuate significantly from quarter to quarter. Adoption of New Accounting Standards In June 2016, the FASB issued ASU No. 2016-13 , Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. This ASU update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company's adoption of this standard has had an immaterial impact on our condensed consolidated financial statements, and there was no recorded impact to our opening accumulated deficit balance for the cumulative-effect adjustment. As of June 30, 2020, the Company held $ 14.1 million in trade receivables and $ 220.2 million in available-for-sale debt securities. Expected credit losses on our trade receivables are estimated to be immaterial and the Company has zero recorded allowances for expected credit losses on the available-for-sale debt securities held as of June 30, 2020. See Note 16 and Note 4 for further discussion. 8 Table of Contents NOTE 3. REVENUE RECOGNITION Product Revenue, Net Product sales consist of Bile Acid products (Chenodal and Cholbam) and Tiopronin products (Thiola and Thiola EC). The Company sells its products through direct-to-patient distributors worldwide, with more than 95 % of the revenue generated in North America. Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs upon delivery to the customer. The Company receives payments from its product sales based on terms that generally are within 30 days of delivery of product to the patient. Deductions from Revenue Revenues from product sales are recorded at the net sales price, which includes provisions resulting from discounts, rebates and co-pay assistance that are offered to customers, health care providers, payors and other indirect customers relating to the Company’s sales of its products. These provisions are based on the amounts earned or to be claimed on the related sales and are classified as a reduction of accounts receivable (if the amount is payable to a customer) or as a current liability (if the amount is payable to a party other than a customer). Where appropriate, these reserves take into consideration the Company’s historical experience, current contractual and statutory requirements and specific known market events and trends. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. If actual results in the future vary from the Company’s provisions, the Company will adjust the provision, which would affect net product revenue and earnings in the period such variances become known. Our historical experience is that such adjustments have been immaterial. Government Rebates: We calculate the rebates that we will be obligated to provide to government programs and deduct these estimated amounts from our gross product sales at the time the revenues are recognized. Allowances for government rebates and discounts are established based on actual payer information, which is reasonably estimated at the time of delivery, and the government-mandated discounts applicable to government-funded programs. Rebate discounts are included in other current liabilities in the accompanying consolidated balance sheets. Commercial Rebates: We calculate the rebates that we incur due to contracts with certain commercial payors and deduct these amounts from our gross product sales at the time the revenues are recognized. Allowances for commercial rebates are established based on actual payer information, which is reasonably estimated at the time of delivery. Rebate discounts are included in other current liabilities in the accompanying consolidated balance sheets. Prompt Pay Discounts: We offer discounts to certain customers for prompt payments. We accrue for the calculated prompt pay discount based on the gross amount of each invoice for those customers at the time of sale. Product Returns: Consistent with industry practice, we offer our customers a limited right to return product purchased directly from the Company, which is principally based upon the product’s expiration date. Generally, shipments are only made upon a patient prescription thus returns are minimal. Co-pay Assistance: We offer a co-pay assistance program, which is intended to provide financial assistance to qualified commercially insured patients with prescription drug co-payments required by payors. The calculation of the accrual for co-pay assistance is based on an identification of claims and the cost per claim associated with product that has been recognized as revenue. The following table summarizes net product revenues for the three and six months ended June 30, 2020 and 2019 ( in thousands ): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Bile acid products $ 21,573 $ 20,929 $ 43,854 $ 39,319 Tiopronin products 26,857 23,778 52,345 44,958 Total net product revenue $ 48,430 $ 44,707 $ 96,199 $ 84,277 NOTE 4. DEBT SECURITIES The Company's debt securities as of June 30, 2020 and December 31, 2019 were comprised of available-for-sale corporate and govenrment debt securities. These securities are carried at fair value, with the unrealized gains and losses reported in accumulated other comprehensive income (loss), unless an impairment is determined to be the result of credit-related factors or the Company intends to sell the security or it is more likely than not that the Company will be required to sell the security before recovery. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion is included in interest income. Realized gains and losses and declines in value that are determined to be the result of credit losses, if any, on available-for-sale securities are included in other income or expense. Unrealized losses that are determined to be credit-related are also recorded as an allowance against the amortized cost basis. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income. All available-for-sale securities are classified as current assets, even if the maturity when acquired by the Company is greater than one year due to the ability to liquidate within the next 12 months. During the six months ended June 30, 2020, investment activity for the Company included $ 153.3 million in maturities and $ 36.7 million in purchases, all relating to debt based marketable securities. 9 Table of Contents Debt securities consisted of the following ( in thousands ): June 30, 2020 December 31, 2019 Commercial paper $ — $ 17,152 Corporate debt securities 210,205 306,436 Securities of government sponsored entities 10,001 12,500 Total debt securities: $ 220,206 $ 336,088 The following is a summary of short-term debt securities classified as available-for-sale as of June 30, 2020 ( in thousands ): Remaining Contractual Maturity (in years) Amortized Cost Unrealized Gains Unrealized Losses Aggregate Estimated Fair Value Commercial paper Less than 1 $ — $ — $ — $ — Corporate debt securities Less than 1 132,352 770 — 133,122 Total maturity less than 1 year 132,352 770 — 133,122 Corporate debt securities 1 to 2 76,244 848 ( 9 ) 77,083 Securities of government-sponsored entities 1 to 2 10,000 1 — 10,001 Total maturity 1 to 2 years 86,244 849 ( 9 ) 87,084 Total available-for-sale securities $ 218,596 $ 1,619 $ ( 9 ) $ 220,206 The following is a summary of short-term debt securities classified as available-for-sale as of December 31, 2019 ( in thousands ): Remaining Contractual Maturity (in years) Amortized Cost Unrealized Gains Unrealized Losses Aggregate Estimated Fair Value Commercial paper Less than 1 $ 17,136 $ 16 $ — $ 17,152 Corporate debt securities Less than 1 191,770 582 ( 10 ) 192,342 Total maturity less than 1 year 208,906 598 ( 10 ) 209,494 Corporate debt securities 1 to 2 113,799 351 ( 56 ) 114,094 Securities of government-sponsored entities 1 to 2 12,501 — ( 1 ) 12,500 Total maturity 1 to 2 years 126,300 351 ( 57 ) 126,594 Total available-for-sale securities $ 335,206 $ 949 $ ( 67 ) $ 336,088 The primary objective of the Company’s investment portfolio is to enhance overall returns while preserving capital and liquidity. The Company’s investment policy limits interest-bearing security investments to certain types of instruments issued by institutions with primarily investment grade credit ratings and places restrictions on maturities and concentration by asset class and issuer. The Company reviews the available-for-sale debt securities for declines in fair value below the cost basis each quarter. For any security whose fair value is below its amortized cost basis, the Company first evaluates whether it intends to sell the impaired security, or will otherwise be more likely than not required to sell the security before recovery. If either are true, the amortized cost basis of the security is written down to its fair value at the reporting date. If neither circumstance holds true, the Company assesses whether any portion of the unrealized loss is a result of a credit loss. Any amount deemed to be attributable to credit loss is recognized in the income statement, with the amount of the loss limited to the difference between fair value and amortized cost and recorded as an allowance for credit losses. The portion of the unrealized loss related to factors other than credit losses is recognized in other comprehensive income (loss). The following is a summary of available-for-sale debt securities in an unrealized loss position with no credit losses reported as of June 30, 2020 ( in thousands ): Less Than 12 Months 12 Months or Greater Total Description of Securities Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Commercial paper $ — $ — $ — $ — $ — $ — Corporate debt securities 5,015 9 — — 5,015 9 Securities of government-sponsored entities — — — — — — Total $ 5,015 $ 9 $ — $ — $ 5,015 $ 9 10 Table of Contents The following is a summary of available-for-sale debt securities in an unrealized loss position with no credit losses reported as of December 31, 2019 ( in thousands ): Less Than 12 Months 12 Months or Greater Total Description of Securities Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Commercial paper $ — $ — $ — $ — $ — $ — Corporate debt securities 74,151 64 7,509 2 81,660 66 Securities of government-sponsored entities 5,000 1 — — 5,000 1 Total $ 79,151 $ 65 $ 7,509 $ 2 $ 86,660 $ 67 As of June 30, 2020 and December 31, 2019, the Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis. The Company does not believe the unrealized losses incurred during the period are due to credit-related factors. Liquidity issues that arose from economic circumstances surrounding the COVID-19 pandemic have begun to ease and unrealized losses observed in the first quarter 2020 have been substantially recovered. The credit ratings of the securities held remain of the highest quality, and while certain securities in the portfolio may be downgraded momentarily, the Federal Reserve has allowed institutions to continue to issue debt where there is need, with the government itself purchasing such securities. Moreover, the Company continues to receive payments of interest and principal as they become due, and our expectation is that those payments will continue to be received timely. Uncertainty surrounding the COVID-19 pandemic, as well as other factors unknown to us at this time, may cause actual results to differ and require adjustments to the Company’s estimates and assumptions in the future. NOTE 5. FUTURE ACQUISITION RIGHT AND JOINT DEVELOPMENT AGREEMENT Censa Pharmaceuticals Inc. In December 2017, the Company entered into a Future Acquisition Right and Joint Development Agreement (the “Option Agreement”) with Censa, which became effective in January 2018. The Company made an upfront payment of $ 10.0 million, agreed to fund certain development activities of Censa’s CNSA-001 program which were approximately $ 19.9 million through proof of concept, and paid $ 5.0 million related to a development milestone for the right, but not the obligation, to acquire Censa (the “Option”) on the terms and subject to the conditions set forth in a separate Agreement and Plan of Merger. The Company treated the upfront payment and milestone payment, both of which were consideration for the Option, as a cost-method investment with a carrying value of $ 15.0 million and expensed the development funding as incurred. In August 2019, following a strategic review of the CNSA-001 program in patients with phenylketonuria (PKU), the Company made the decision to decline to exercise its option to acquire Censa Pharmaceuticals and discontinue its joint development program for CNSA-001. The Company wrote off the $ 15.0 million long term investment. NOTE 6. LEASES As of June 30, 2020, the Company had two operating leases with Kilroy Realty, L.P. (the "Landlord") for office space located in San Diego, California. The Company currently occupies the office space subject to the first lease, originally signed in July 2016 and later amended in July 2017 and March 2019. In April 2019, the Company entered into a second office lease with the Landlord, which was subsequently amended in May 2020, for office space in an adjacent building located in San Diego, California. The Company plans to consolidate its corporate headquarters into the new lease space beginning in late 2020 and into early 2021. As a condition of the new lease, the Company has been granted an existing premises continuation option to continue leasing all or a portion of the currently occupied office space, in addition to the new lease space. On February 7, 2020, the Company elected to forgo this continuation option by notifying the Landlord of its intention to vacate the premises of its existing lease. The abandonment of this leased office space, which was originally scheduled to expire in July 2024, coincides with the Company’s expected occupancy of the new office lease space in the adjacent building per the office lease effective April 2019. The Company estimates that it will fully vacate the existing leases in the first quarter of 2021, through which time the Company is obligated to pay all base rent, operating expenses and other obligations due under the existing lease. Coinciding with the notice delivered to the Landlord, the Company recorded an adjustment to the ROU asset and lease liability in February 2020 to reflect the impending expiration of the existing lease. The remeasurement of the lease liability resulted in a $ 7.0 million adjustment to the lease liability and ROU asset. A revised timing estimate resulted in the Company recording an additional adjustment, resulting in a reduction of $ 0.5 million to the related lease liability and ROU asset in the current quarter. The remeasured straight-line expense will be amortized over the revised lease term along with acceleration of related lease incentives. The ROU asset and lease liability related to the new office lease will be established when the Company is granted access to the premises and has the ability to direct its use, which is expected to occur in phases over the remainder of 2020 as certain spaces become available, the timing of which may be impacted due to circumstances surrounding the COVID-19 pandemic. As such, the ROU asset for the new lease will be established prior to the extinguishment of the ROU asset and lease liability for the existing lease, resulting in an overlap of ROU assets during the interim period between inception of the new lease and 11 Table of Contents the expiration of the old lease. In June 2020, the Landlord delivered possession of a portion of the new lease space for the purpose of construction of leasehold improvements. Coinciding with our ability to direct the use of that space, and utilizing a discount rate equal to our borrowing rate of 6.7 %, the Company has established a ROU asset totaling $ 8.9 million and a lease liability totaling $ 8.8 million. The ROU asset and lease liability are offset by lease incentives associated with tenant improvement allowances totaling $ 2.0 million. Establishment of the ROU asset and lease liability for the remaining spaces under the new lease will occur upon delivery of the respective spaces. The initial term of the new lease is 7 years, 7 months , and the Landlord has granted the Company an option to extend the term of the lease by a period of 5 years. The measurement of the lease term occurs from the planned occupancy date of the primary spaces estimated to be delivered in the latter part of 2020. The aggregate base rent due over the initial term of the lease is approximately $ 49.5 million, which consists of $ 13.0 million for the space delivered in June 2020, and $ 36.5 million for the primary spaces yet to be delivered. Following is a schedule of the future minimum rental commitments for our operating lease, excluding commitments related to rental spaces not yet delivered, reconciled to the lease liability and ROU assets as of June 30, 2020 ( in thousands ): June 30, 2020 2020 $ 1,207 2021 960 2022 1,543 2023 1,590 2024 1,637 Thereafter 6,435 Total undiscounted future minimum payments 13,372 Lease incentives payable by lessor ( 1,983 ) Present value discount ( 3,121 ) Total lease liability 8,268 Unamortized lease incentives, less incentives payable by lessor ( 404 ) Cash payments in excess of straight-line lease expense ( 952 ) Total ROU asset $ 6,912 As of June 30, 2020, the ROU asset of $ 6.9 million was recorded to the Condensed Consolidated Balance Sheets as non-current Other Assets . As of June 30, 2020, the current and non-current portions of the lease liability were recorded to the Condensed Consolidated Balance Sheets as follows ( in thousands ): June 30, 2020 Other current liabilities $ 1,379 Other non-current liabilities 6,889 Total lease liabilities $ 8,268 For the three and six months ended June 30, 2020 and 2019, the Company recorded a $ 0.2 million credit to expense and zero , respectively, and $ 0.6 million and $ 1.3 million, respectively, in expense related to operating leases. NOTE 7. FAIR VALUE MEASUREMENTS Financial Instruments and Fair Value The Company accounts for financial instruments in accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below: Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2 – Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly; and Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. The valuation techniques used to measure the fair value of the Company’s debt securities and all other financial instruments, all of which have counter-parties with high credit ratings, were valued based on quoted market prices or model driven valuations using significant inputs derived from or corroborated by observable market data. Based on the fair value hierarchy, the Company classified debt securities within Level 2. 12 Table of Contents The Company acquired two businesses, related to the Cholbam and Chenodal products, whose purchase price included potential future payments that are contingent on the achievement of certain milestones and percentages of future net sales derived from the products acquired. The Company recorded contingent consideration liabilities at their fair value on the acquisition date and revalues them at the end of each reporting period. In estimating the fair value of the Company’s contingent consideration, the Company uses a Monte Carlo Simulation. The determination of the contingent consideration liabilities requires significant judgements including the appropriateness of the valuation model and reasonableness of estimates and assumptions included in the forecasts of future net sales and the discount rates applied to such forecasts. Changes in these estimates and assumptions could have a significant impact on the fair value of the contingent consideration liabilities. Based on the fair value hierarchy, the Company classified the fair value measurement of contingent consideration within Level 3 because valuation inputs are based on projected revenues discounted to a present value. Financial instruments with carrying values approximating fair value include cash and cash equivalents, accounts receivable, and accounts payable, due to their short-term nature. As of June 30, 2020, the fair value of the Company's 2.5 % Convertible Senior Notes due 2025 was $ 225.9 million, which was estimated utilizing market quotations, and are considered Level 2. The following table presents the Company’s assets and liabilities, measured and recognized at fair value on a recurring basis, classified under the appropriate level of the fair value hierarchy as of June 30, 2020 ( in thousands ): As of June 30, 2020 Total carrying and estimated fair value Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets: Cash and Cash Equivalents $ 237,170 $ 237,170 $ — $ — Debt securities, available-for-sale 220,206 — 220,206 — Total $ 457,376 $ 237,170 $ 220,206 $ — Liabilities: Business combination-related contingent consideration $ 68,600 $ — $ — $ 68,600 Total $ 68,600 $ — $ — $ 68,600 The following table presents the Company’s assets and liabilities, measured and recognized at fair value on a recurring basis, classified under the appropriate level of the fair value hierarchy as of December 31, 2019 ( in thousands ): As of December 31, 2019 Total carrying and estimated fair value Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets: Cash and Cash Equivalents $ 62,436 $ 62,436 $ — $ — Debt securities, available-for-sale 336,088 — 336,088 — Total $ 398,524 $ 62,436 $ 336,088 $ — Liabilities: Business combination-related contingent consideration 70,900 — — 70,900 Total $ 70,900 $ — $ — $ 70,900 The following table sets forth a summary of changes in the estimated fair value of the Company's business combination-related contingent consideration for the six months ended June 30, 2020 ( in thousands ): Fair Value Measurements of Acquisition-Related Contingent Consideration (Level 3) Balance at January 1, 2020 $ 70,900 Changes in the fair value of contingent consideration 2,363 Contractual payments $ ( 2,125 ) Contractual payments included in accrued liabilities at June 30, 2020 ( 2,424 ) Foreign currency impact ( 114 ) Balance at June 30, 2020 $ 68,600 The key assumptions included in the calculations for contingent consideration were the future number of patients in treatment, projected revenues, discount rate, and the timing of payments. The present value of the expected payments considers the time at which the obligations are expected to be settled and a discount rate that reflects the risk associated with the performance payments. For the three and six months ended June 30, 2020, the Company incurred charges of $ 4.3 million and $ 2.4 million, respectively, in operating expenses on the Condensed Consolidated Statements of Operations and Comprehensive Loss for the change in fair value of the contingent consideration liabilities. 13 Table of Contents For the three months ended June 30, 2020, the change in fair value of contingent consideration is due to the timing of future payments and changes in market driven discount rates. For the six months ended June 30, 2020, the change in fair value of contingent consideration is due to the timing of future payments and changes in market driven discount rates, offset by a change in revenue projections. For the three and six months ended June 30, 2019, the Company incurred charges of $ 3.4 million and $ 6.5 million, respectively, in operating expenses on the Condensed Consolidated Statements of Operations and Comprehensive Loss for the change in fair value of the contingent consideration liabilities. For the six months ended June 30, 2019, $ 6.5 million of the charges were related to the increase in contingent consideration liabilities for bile acid products. The value increased due to passage of time. During the first quarter of 2019, the Company made a portfolio decision not to pursue further development of its product candidate L-UDCA. The related contingent consideration of $ 18.0 million was accordingly fully written off. NOTE 8. INTANGIBLE ASSETS As of June 30, 2020, the net book value of amortizable intangible assets was approximately $ 155.4 million. The following table sets forth amortizable intangible assets as of June 30, 2020 and December 31, 2019 ( in thousands ): June 30, 2020 December 31, 2019 Finite-lived intangible assets $ 254,443 $ 245,802 Less: accumulated amortization ( 99,072 ) ( 88,602 ) Net carrying value $ 155,371 $ 157,200 The following table summarizes amortization expense for the three and six months ended June 30, 2020 and 2019 ( in thousands ): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Research and development $ 289 $ 289 $ 578 $ 574 Selling, general and administrative 4,996 4,567 9,881 9,013 Total amortization expense $ 5,285 $ 4,856 $ 10,459 $ 9,587 NOTE 9. CONVERTIBLE NOTES PAYABLE Convertible Senior Notes Due 2025 On September 10, 2018, the Company completed its registered underwritten public offering of $ 276.0 million aggregate principal amount of 2.50 % Convertible Senior Notes due 2025 ("2025 Notes"), and entered into a base indenture and supplemental indenture agreement ("2025 Indenture") with respect to the 2025 Notes. The 2025 Notes will mature on September 15, 2025 ("Maturity Date”), unless earlier repurchased, redeemed, or converted. The 2025 Notes are senior unsecured obligations of the Company and bear interest at an annual rate of 2.50 %, payable semi-annually in arrears on March 15 and September 15 of each year, commencing March 15, 2019. The composition of the Company’s 2025 Notes are as follows ( in thousands ): June 30, 2020 December 31, 2019 2.50% convertible senior notes due 2025 $ 276,000 $ 276,000 Unamortized debt discount ( 61,265 ) ( 65,963 ) Unamortized debt issuance costs ( 4,726 ) ( 5,176 ) Total 2025 Notes, net of unamortized debt discount and debt issuance costs $ 210,009 $ 204,861 The net proceeds from the issuance of the 2025 Notes were approximately $ 267.2 million, after deducting commissions and the offering expenses payable by the Company. A portion of the net proceeds from the 2025 Notes was used by the Company to repurchase $ 23.4 million aggregate principal amount of its then-outstanding 4.5 % senior convertible notes due 2019 in privately-negotiated transactions. Holders may convert their 2025 Notes at their option only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2018 (and only during such calendar quarter), if the last reported sale price per share of the Company’s common stock for each of at least 20 trading days, whether or not consecutive, during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter exceeds 130 % of the conversion price on the applicable trading day; (2) during the five consecutive business days immediately after any 10 consecutive trading day period (“measurement period”) if the trading price per $1,000 principal amount of 2025 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on the Company’s common 14 Table of Contents stock; (4) if the Company calls the 2025 Notes for redemption; and (5) at any time from, and including, May 15, 2025 until the close of business on the scheduled trading day immediately before the Maturity Date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at the Company’s election, based on the applicable conversion rate. The initial conversion rate for the 2025 Notes is 25.7739 shares of the Company’s common stock per $1,000 principal amount of 2025 Notes, which represents an initial conversion price of approximately $ 38.80 per share. If a “make-whole fundamental change” (as defined in the 2025 Indenture) occurs, then the Company will, in certain circumstances, increase the conversion rate for a specified period of time. The 2025 Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after September 15, 2022 and, in the case of any partial redemption, on or before the 40th scheduled trading day before the Maturity Date, at a cash redemption price equal to the principal amount of the 2025 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price on each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice. If a fundamental change (as defined in the 2025 Indenture) occurs, then, subject to certain exceptions, holders may require the Company to repurchase their 2025 Notes at a cash repurchase price equal to the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In the event of conversion, holders would forgo all future interest payments, any unpaid accrued interest and the possibility of further stock price appreciation. Upon the receipt of conversion requests, the settlement of the 2025 Notes will be paid pursuant to the terms of the 2025 Indenture. In the event that all of the 2025 Notes are converted, the Company would be required to repay the $ 276.0 million principal amount and any conversion premium in any combination of cash and shares of its common stock at the Company’s option. In addition, calling the 2025 Notes for redemption will constitute a “make whole fundamental change." The 2025 Notes are the Company’s general unsecured obligations that rank senior in right of payment to all of its indebtedness that is expressly subordinated in right of payment to the 2025 Notes, and equal in right of payment to the Company’s unsecured indebtedness. The 2025 Notes are classified on the Company’s Condensed Consolidated Balance Sheets at June 30, 2020 as long-term debt. Under ASC 470-20, Debt with Conversion and Other Options, an entity must separately account for the liability and equity components of convertible debt instruments (such as the 2025 Notes) that may be settled entirely or partially in cash upon conversion, in a manner that reflects the issuer’s economic interest cost. The liability component of the instrument is valued in a manner that reflects the market interest rate for a similar nonconvertible instrument at the date of issuance. The initial carrying value of the liability component was $ 198.6 million. The equity component of $ 77.4 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 2025 Notes and is recorded in additional paid-in capital on the consolidated balance sheet at the issuance date. That equity component is treated as a discount on the liability component of the 2025 Notes, which is amortized over the seven-year term of the 2025 Notes using the effective interest rate method. The equity component is not re-measured as long as it continues to meet the conditions for equity classification. The Company allocated the total transaction costs of approximately $ 8.8 million related to the issuance of the 2025 Notes to the liability and equity components of the 2025 Notes based on their relative values. Transaction costs attributable to the liability component are amortized to interest expense over the seven-year term of the 2025 Notes, and transaction costs attributable to the equity component are netted with the equity component in stockholders’ equity. The effective interest rate on the liability components of the 2025 Notes for the period from the date of issuance through June 30, 2020 was 7.7 %. The following table sets forth total interest expense recognized related to the 2025 Notes ( in thousands ): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Contractual interest expense $ 1,725 $ 1,725 $ 3,450 $ 3,450 Amortization of debt discount 2,371 2,197 4,698 4,352 Amortization of debt issuance costs 225 224 449 448 Total interest expense for the 2025 Notes $ 4,321 $ 4,146 $ 8,597 $ 8,250 The 2025 Notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, the issuance of other indebtedness or the issuance or repurchase of securities by the Company. The 2025 Indenture contains customary events of default with respect to the 2025 Notes, including failure to pay (for more than 30 days) interest when due and certain types of bankruptcy or insolvency involving the Company. Upon an event of default involving certain types of bankruptcy insolvency, 100 % of the outstanding principal and accrued and unpaid interest on the 2025 Notes will automatically become due and payable, and upon other events of default, the trustee under the 2025 Indenture or the holders of at least 25 % of the outstanding principal amount of the 2025 Notes may declare 100 % of the principal and accrued and unpaid interest on the 2025 Notes to be immediately due and payable. Senior Convertible Notes Due 2019 On May 29, 2014, the Company entered into a Note Purchase Agreement relating to a private placement by the Company of $ 46.0 million aggregate principal amount of 4.50 % senior convertible notes due 2019 (the “2019 Notes”) which were convertible into shares of the Company’s common stock at an initial conversion price of $ 17.41 per share. The conversion price was subject to customary anti-dilution protection. The 2019 Notes bore interest at a rate of 4.5 % per annum, payable semiannually in arrears on May 15 and November 15 of each year. The 2019 Notes had a maturity date of May 30, 2019 and there were no contractual payments due prior to that date. In September 2018, the Company used part of the net proceeds from the issuance of the 2025 Notes to repurchase $ 23.4 million aggregate principal amount of the 2019 Notes in privately-negotiated transactions for approximately $ 40.2 million in cash. The partial repurchase of the 2019 Notes resulted in a $ 17.0 million loss on early extinguishment of debt in September 2018. 15 Table of Contents In May 2019, the remaining $ 22.6 million outstanding principal amount of 2019 Notes was converted by the holders thereof into approximately 1.3 million shares of common stock. NOTE 10. ACCRUED EXPENSES Accrued expenses at June 30, 2020 and December 31, 2019 consisted of the following ( in thousands ): June 30, 2020 December 31, 2019 Government rebates payable $ 7,817 $ 6,584 Compensation related costs 10,011 14,045 Accrued royalties and contingent consideration 7,432 7,272 Research and development 8,369 16,067 Selling, general and administrative 7,321 3,552 Miscellaneous accrued 3,429 4,225 Total accrued expenses $ 44,379 $ 51,745 NOTE 11. NET LOSS PER COMMON SHARE Basic and diluted net loss per common share is calculated by dividing net loss applicable to common stockholders by the weighted-average number of common shares outstanding during the period. The Company’s potentially dilutive shares, which include outstanding stock options, restricted stock units, warrants, and shares issuable upon conversion of the 2025 Notes, are considered to be common stock equivalents and are not included in the calculation of diluted net loss per share because their effect is anti-dilutive. Basic and diluted net loss per share is calculated as follows (net loss amounts are stated in thousands) : Three Months Ended June 30, 2020 2019 Shares Net Loss Loss per common share Shares Net Loss Loss per common share Basic and diluted loss per share 44,763,843 $ ( 26,068 ) $ ( 0.58 ) 41,957,860 $ ( 38,701 ) $ ( 0.92 ) Six Months Ended June 30, 2020 2019 Shares Net Loss Loss per common share Shares Net Loss Loss per common share Basic and diluted loss per share 43,943,370 $ ( 25,260 ) $ ( 0.57 ) 41,685,599 $ ( 79,678 ) $ ( 1.91 ) The following common stock equivalents have been excluded because they were anti-dilutive: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Restricted stock units 1,517,338 672,859 1,437,383 611,446 Convertible debt 7,113,402 7,891,920 7,113,402 8,151,426 Options 8,479,710 7,947,569 8,327,753 7,801,606 Total anti-dilutive shares 17,110,450 16,512,348 16,878,538 16,564,478 NOTE 12. COMMITMENTS AND CONTINGENCIES Research Collaboration and Licensing Agreements As part of the Company's research and development efforts, the Company enters into research collaboration and licensing agreements with unrelated companies, scientific collaborators, universities, and consultants. These agreements contain varying terms and provisions which include fees and milestones to be paid by the Company, services to be provided, and ownership rights to certain proprietary technology developed under the agreements. Some of these agreements contain provisions which require the Company to pay royalties, in the event the Company sells or licenses any proprietary products developed under the respective agreements. 16 Table of Contents Legal Proceedings In August 2017, Martin Shkreli, the Company’s former Chief Executive Officer, was convicted on securities fraud charges. Mr. Shkreli's conviction was subsequently affirmed upon appeal. In connection with the trial and appeal proceedings, the Company advanced a portion of Mr. Shkreli’s legal fees, of which $ 3.8 million was reimbursed by its directors’ and officers’ insurance carriers. Pending the outcome of Mr. Shkreli's appeal, the insurance carriers reserved their rights to assert that certain of the advanced funds pertain to claims excluded from coverage under the relevant insurance policy and are therefore recoverable by the carriers, and therefore the final amount of the reimbursement from the insurance carriers is not currently estimable. In October 2018, Spring Pharmaceuticals, LLC (Spring) filed a lawsuit against the Company, Martin Shkreli, Mission Pharmacal Company and Alamo Pharma Services, Inc. in the United States District Court for the Eastern District of Pennsylvania alleging that the Company violated various federal and state antitrust and unfair competition laws by allegedly refusing to sell samples of the Thiola® brand drug so that Spring can conduct the bioequivalence testing needed to submit an ANDA to the FDA for approval to market a generic version of the product. The lawsuit sought injunctive relief and damages. In December 2019, the Court granted the Company's motion to dismiss the lawsuit, but granted Spring permission to amend its complaint. On February 10, 2020, Spring filed an amended complaint. Spring's amended complaint sought injunctive relief and damages. On April 1, 2020, the Company filed a motion to dismiss the amended complaint. On April 22, 2020, Spring filed a notice of voluntary dismissal, without prejudice. No amounts have been accrued related to this matter and the outcome cannot be determined. The Company is not aware of any other proceedings or claims that could have, individually or in the aggregate, a material adverse effect on its results of operations or financial condition. NOTE 13. SHARE-BASED COMPENSATION Restricted Shares Service Based Restricted Stock Units The following table summarizes the Company’s service based restricted stock unit activity during the six months ended June 30, 2020: Number of Restricted Stock Units Weighted Average Grant Date Fair Value Unvested December 31, 2019 763,728 $ 19.64 Granted 637,113 15.51 Vested ( 173,117 ) 21.25 Forfeited/canceled ( 68,414 ) 18.58 Unvested June 30, 2020 1,159,310 $ 17.19 At June 30, 2020, unamortized stock compensation for service based restricted stock units was $ 16.9 million, with a weighted-average recognition period of 2.6 years. Performance Based Restricted Stock Units The following table summarizes the Company’s performance based restricted stock unit activity during the six months ended June 30, 2020: Number of Restricted Stock Units Weighted Average Grant Date Fair Value Unvested December 31, 2019 233,500 $ 20.90 Granted 150,000 15.46 Vested ( 33,250 ) 25.75 Forfeited/canceled ( 31,125 ) 17.56 Unvested June 30, 2020 319,125 $ 18.16 At June 30, 2020, unamortized stock compensation for performance based restricted stock units was $ 1.9 million, with a weighted-average recognition period of 1.4 years. 17 Table of Contents Stock Options The following table summarizes stock option activity during the six months ended June 30, 2020: Shares Underlying Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2019 7,371,733 $ 19.52 6.63 $ 4,906 Granted 1,390,125 $ 15.48 Exercised ( 35,042 ) $ 12.31 Forfeited/canceled ( 377,953 ) $ 18.96 Outstanding at June 30, 2020 8,348,863 $ 18.90 6.79 $ 28,920 At June 30, 2020, unamortized stock compensation for stock options was $ 31.5 million, with a weighted-average recognition period of 2.8 years. At June 30, 2020, outstanding options to purchase 5.3 million shares of common stock were exercisable with a weighted-average exercise price per share of $ 19.20 . Share-Based Compensation The following table sets forth total share-based compensation for the three and six months ended June 30, 2020 and 2019 ( in thousands ): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Research and development $ 2,332 $ 1,896 $ 4,458 $ 3,566 Selling, general & administrative 3,622 3,852 7,406 8,702 Total $ 5,954 $ 5,748 $ 11,864 $ 12,268 NOTE 14. INCOME TAXES On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryforwards generated in taxable years beginning after December 31, 2017, to offset 100% of taxable income for taxable years beginning before January 1, 2021, and 80% of taxable income in taxable years beginning after December 31, 2020. In addition, the CARES Act allows net operating losses incurred in taxable years beginning after December 31, 2017, and before January 1, 2021, to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has recorded a discrete income tax benefit of $ 18.9 million related to this legislation during the six months ended June 30, 2020. NOTE 15. INVENTORY Inventory, net of reserves, consisted of the following at June 30, 2020 and December 31, 2019 ( in thousands ): June 30, 2020 December 31, 2019 Raw materials $ 3,037 $ 2,713 Finished goods 3,249 3,369 Total inventory $ 6,286 $ 6,082 The inventory reserve was $ 3.6 million and $ 3.1 million at June 30, 2020 and December 31, 2019, respectively. NOTE 16. ACCOUNTS RECEIVABLE Accounts receivable, net of reserves for prompt pay discounts and expected credit losses, was $ 14.1 million and $ 18.0 million at June 30, 2020 and December 31, 2019, respectively. The total reserves for both periods were immaterial. The Company's adoption of ASU No. 2016-13, Financial Instruments - Credit Losses, included an assessment of our aged trade receivables balances and their underlying credit risk characteristics. Our evaluation of past events, current conditions, and reasonable and supportable forecasts about the future resulted in an expectation of immaterial credit losses. 18 Table of Contents NOTE 17. DISPOSITIONS In June 2016, the Company acquired certain rights to its product candidate L-UDCA for $ 0.5 million cash. At the same time the Company established a related non-cash asset of $ 25.5 million for IPR&D and a liability of $ 25.0 million for contingent consideration related net sales royalties and milestones. As a result of our quarterly valuation update process during 2016 and 2017, the contingent liability was decreased by $ 2.3 million and $ 5.7 million, respectively, and increased by $ 1.0 million during 2018. The resulting balance of the L-UDCA contingent liability at December 31, 2018 was $ 18.0 million. During the first quarter of 2019, the Company elected to discontinue development of the L-UDCA program, resulting in the write off of the intangible asset of $ 25.5 million originally recorded in 2016, and the reversal of associated contingent consideration of $ 18.0 million. This resulted in a net $ 7.5 million non-cash charge to first quarter operations. 19 Table of Contents NOTE 18. EQUITY OFFERINGS Underwritten Public Offering of Common Stock In June 2020, the Company sold an aggregate of 7.5 million shares of its common stock in an underwritten public offering, at a price to the public of $ 15.50 per share. The net proceeds to the Company from the offering, after deducting the underwriting discounts and offering expenses, was $ 108.6 million. At-the-Market Equity Offering Program In February 2020, the Company entered into an Open Market Sale Agreement ("ATM Agreement") with Jefferies LLC, as agent (“Jefferies”), pursuant to which the Company may offer and sell, from time to time through Jefferies, shares of its common stock having an aggregate offering price of up to $ 100.0 million. Shares will be sold pursuant to the Company's effective registration statement on Form S-3 (Registration Statement No. 333-227182), as previously filed with the Securities and Exchange Commission. Through the period ended June 30, 2020, the Company has not sold any shares under the ATM Agreement.