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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2020
Or
         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to             .
 
Commission File Number 001-35726
 
Radius Health, Inc.
(Exact name of registrant as specified in its charter)
Delaware 80-0145732
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification Number)
 
950 Winter Street
Waltham, Massachusetts 02451
(Address of Principal Executive Offices and Zip Code)
 
(617) 551-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par value per shareRDUSThe Nasdaq Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer 
  
Non-accelerated filer Smaller reporting company 
Emerging growth company 


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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No

Number of shares of the registrant’s Common Stock, $0.0001 par value per share, outstanding as of August 3, 2020: 46,472,327 shares


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RADIUS HEALTH, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2020
TABLE OF CONTENTS
 
   
 
 
 
 7
 
   
   
   


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PART I— FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Radius Health, Inc.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except share and per share amounts)
June 30,
2020
December 31,
2019
 (unaudited) 
ASSETS  
Current assets:  
Cash and cash equivalents$56,239  $69,886  
Restricted cash567  567  
Marketable securities69,495  91,015  
Accounts receivable, net17,899  23,289  
Inventory5,906  5,323  
Prepaid expenses7,921  12,131  
Other current assets1,838  846  
Total current assets159,865  203,057  
Property and equipment, net1,747  2,293  
Intangible assets6,184  6,583  
Right of use assets - operating leases6,787  6,704  
Other assets514  514  
Total assets$175,097  $219,151  
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)  
Current liabilities:  
Accounts payable$11,718  $6,030  
Accrued expenses and other current liabilities51,756  53,030  
Operating lease liability, current2,180  2,198  
Total current liabilities65,654  61,258  
Convertible notes payable204,315  195,591  
Term loan9,940    
Operating lease liability, long term4,607  4,581  
Total liabilities284,516  261,430  
Commitments and contingencies
Stockholders’ equity (deficit):  
Common stock, 0.0001 par value; 200,000,000 shares authorized, 46,448,491 shares and 46,189,870 shares issued and outstanding at June 30, 2020 and December 31, 2019
5  5  
Additional paid-in-capital1,208,616  1,194,327  
Accumulated other comprehensive income108  3  
Accumulated deficit(1,318,148) (1,236,614) 
Total stockholders’ equity (deficit)(109,419) (42,279) 
Total liabilities and stockholders’ equity (deficit)$175,097  $219,151  
See accompanying notes to unaudited condensed consolidated financial statements.


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Radius Health, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited, in thousands, except share and per share amounts)
Three Months Ended
June 30,
Six Months Ended
June 30,
 2020201920202019
REVENUES:
Product revenue, net$50,113  $41,042  $98,037  $70,886  
OPERATING EXPENSES:  
Cost of sales - product4,070  3,808  7,931  6,838  
Cost of sales - intangible amortization200  200  399  399  
Research and development44,881  27,179  83,890  50,439  
Selling, general and administrative38,231  40,115  74,664  81,301  
Loss from operations(37,269) (30,260) (68,847) (68,091) 
OTHER INCOME (EXPENSE):    
Other income (expense)(68) (42) (59) (38) 
Interest expense(6,922) (6,165) (13,678) (12,202) 
Interest income379  993  1,050  2,097  
NET LOSS$(43,880) $(35,474) $(81,534) $(78,234) 
OTHER COMPREHENSIVE LOSS:    
Unrealized gain from available-for-sale debt securities774  236  105  710  
COMPREHENSIVE LOSS$(43,106) $(35,238) $(81,429) $(77,524) 
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS - BASIC AND DILUTED (Note 8)$(43,880) $(35,474) $(81,534) $(78,234) 
LOSS PER SHARE:    
Basic and diluted$(0.95) $(0.77) $(1.76) $(1.70) 
WEIGHTED AVERAGE SHARES:    
Basic and diluted46,420,046  46,109,193  46,345,585  45,891,557  
See accompanying notes to unaudited condensed consolidated financial statements.

5

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Radius Health, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Six Months Ended
June 30,
 20202019
CASH FLOWS USED IN OPERATING ACTIVITIES:  
Net loss(81,534) $(78,234) 
Adjustments to reconcile net loss to net cash used in operating activities:  
Depreciation and amortization945  1,219  
Amortization of discount on marketable securities, net132  (132) 
Amortization of debt discount and debt issuance costs8,725  7,628  
Impairment loss on operating lease right of use assets  339  
Stock-based compensation13,299  11,863  
(Gain)/Loss on property and equipment disposals  201  
Changes in operating assets and liabilities:  
Inventory(583) 1,053  
Accounts receivable, net5,390  (6,891) 
Prepaid expenses4,210  5,656  
Other current assets(992) 329  
Operating lease right of use assets1,027  1,010  
Other long-term assets  58  
Accounts payable5,688  1,815  
Accrued expenses and other current liabilities(1,274) 1,556  
Lease liability, operating leases(1,102) (1,140) 
Other non-current liabilities  (48) 
Net cash used in operating activities(46,069) (53,718) 
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:  
Purchases of marketable securities(39,907) (33,595) 
Sales and maturities of marketable securities61,400  90,000  
Net cash provided by investing activities21,493  56,405  
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:  
Proceeds from exercise of stock options and warrant exercises  3,869  
Proceeds from issuance of term loan, net9,939    
Proceeds from issuance of shares under employee stock purchase plan990  1,027  
Net cash provided by financing activities10,929  4,896  
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH(13,647) 7,583  
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF YEAR70,453  59,881  
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD$56,806  $67,464  
SUPPLEMENTAL DISCLOSURES:  
Cash paid for interest$4,818  $4,575  
Cash paid for amounts included in the measurement of operating lease liabilities$1,175  $685  
Right of use assets obtained in exchange for operating lease liability$1,110  $8,289  
See accompanying notes to unaudited condensed consolidated financial statements.

6

Table of Contents
Radius Health, Inc.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited, in thousands, except share and per share amounts)
 Stockholders’ Equity (Deficit)
 Common StockAdditional Paid-In Capital 
Accumulated OtherComprehensive Income(Loss)
 
AccumulatedDeficit
Total Stockholders’ Equity (Deficit)
 SharesAmountAmount Amount AmountAmount
Balance at March 31, 201945,967,080  $5  $1,174,661  $(281) $(1,146,381) $28,004  
Net loss$(35,474) (35,474) 
Unrealized gain from available-for-sale securities236  236  
Vesting of restricted shares2,218    
Exercise of options155,899  1,352  1,352  
Share-based compensation expense related to share-based awards for employee stock purchase plan255  255  
Share-based compensation expense5,493  5,493  
Balance at June 30, 201946,125,197  $5  $1,181,761  $(45) $(1,181,855) $(134) 
Balance at March 31, 202046,387,437  $5  $1,200,776  $(666) $(1,274,268) $(74,153) 
Net loss(43,880) (43,880) 
Unrealized gain from available-for-sale securities774  774  
Vesting of restricted shares61,054    
Share-based compensation expense7,840  7,840  
Balance at June 30, 202046,448,491  $5  $1,208,616  $108  $(1,318,148) $(109,419) 

See accompanying notes to unaudited condensed consolidated financial statements.































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Radius Health, Inc.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited, in thousands, except share and per share amounts)
Stockholders’ Equity (Deficit)
Common StockAdditional Paid-In CapitalAccumulated Other
Comprehensive Income
(Loss)Accumulated
DeficitTotal Stockholders’ Equity (Deficit)
SharesAmountAmountAmountAmountAmount
Balance at December 31, 201845,563,693  $5  $1,165,003  $(755) $(1,103,621) $60,632  
Net loss(78,234) (78,234) 
Unrealized gain from available-for-sale securities710  710  
Vesting of restricted shares75,331    
Exercise of options341,337  2,869  2,869  
Exercise of warrants81,104  1,000  1,000  
Issuance of common stock upon purchase by employee stock purchase plan63,732  1,027  1,027  
Share-based compensation expense11,862  11,862  
Balance at June 30, 201946,125,197  5  $1,181,761  $(45) $(1,181,855) $(134) 
Balance at December 31, 201946,189,870  $5  $1,194,327  $3  $(1,236,614) $(42,279) 
Net loss(81,534) (81,534) 
Unrealized gain from available-for-sale securities105105  
Vesting of restricted shares203,324    
Issuance of common stock upon purchase by employee stock purchase plan55,297  990990  
Share-based compensation expense13,299  13,299  
Balance at June 30, 202046,448,491  $5  $1,208,616  $108  $(1,318,148) $(109,419) 

See accompanying notes to unaudited condensed consolidated financial statements.
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Radius Health, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization
Radius Health, Inc. (“Radius” or the “Company”) is a science-driven fully integrated biopharmaceutical company that is committed to developing and commercializing innovative endocrine therapeutics. In April 2017, the Company’s first commercial product, TYMLOS® (abaloparatide) injection, was approved by the U.S. Food and Drug Administration (“FDA”) for the treatment of postmenopausal women with osteoporosis at high risk for fracture defined as history of osteoporotic fracture, multiple risk factors for fracture, or patients who have failed or are intolerant to other available osteoporosis therapy. In January 2019, the European Commission adopted a decision refusing approval of the Company’s European Marketing Authorisation Application (“MAA”) for abaloparatide-SC. In July 2017, the Company entered into a license and development agreement with Teijin Limited (“Teijin”) for abaloparatide for subcutaneous injection (“abaloparatide-SC”) in Japan, under which the Company received an upfront payment and is entitled to receive milestone payments upon the achievement of certain regulatory and sales milestones, and a fixed low double-digit royalty based on net sales of abaloparatide-SC in Japan during the royalty term. The Company is developing an abaloparatide transdermal patch, or abaloparatide-patch, for potential use in the treatment of postmenopausal women with osteoporosis. In connection with its strategic plans to focus on bone health and targeted endocrine diseases, the Company entered into a license agreement with Berlin-Chemie AG, a company of the Menarini Group (“Berlin-Chemie”) under which the Company granted Berlin-Chemie an exclusive license to develop and commercialize products containing elacestrant (RAD1901), a selective estrogen receptor degrader (“SERD”), worldwide. Elacestrant is being developed for potential use in the treatment of hormone receptor-positive breast cancer. The Company is exploring all strategic options for its other oncology program, RAD140, its internally discovered non-steroidal selective androgen receptor modulator (“SARM”) it was developing for potential use in the treatment of hormone receptor-positive breast cancer.
The Company is subject to the risks associated with biopharmaceutical companies with a limited operating history, including dependence on key individuals, a developing business model, the necessity of securing regulatory approvals to market its investigational product candidates, market acceptance of the Company’s investigational product candidates following receipt of regulatory approval, competition for its investigational product candidates following receipt of regulatory approval, and the continued ability to obtain adequate financing to fund the Company’s future operations, including as a result of the impacts from the coronavirus disease 2019 (“COVID-19”) pandemic. The Company has incurred losses and expects to continue to incur additional losses for the foreseeable future. As of June 30, 2020, the Company had an accumulated deficit of $1,318.1 million, and total cash, cash equivalents, marketable securities, and investments of $125.7 million. Pursuant to the terms of the license agreement with Berlin-Chemie, the Company received an initial license fee payment of $30.0 million from Berlin-Chemie in the third quarter of 2020.
The ongoing global COVID-19 pandemic has resulted in significant governmental measures being implemented to control the spread of the virus and while the Company cannot predict their scope and severity, these developments and measures have adversely affected its business, results of operations and financial condition and will likely continue to do so. The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business and is taking steps to minimize its impact on its business. However, the full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, new information that may emerge concerning the severity of COVID-19 pandemic or the effectiveness of actions taken to contain the pandemic or minimize its impact, among others. Furthermore, if the Company or any of the third parties with whom it engages were to experience additional or prolonged shutdowns or other business disruptions, the Company’s ability to conduct its business in the manner and on the timelines presently planned could be materially or negatively affected, which could have a material adverse impact on its business, results of operation and financial condition.
Based upon its cash, cash equivalents, marketable securities, and investments balance as of June 30, 2020, the Company believes that, prior to the consideration of revenue from the potential future sales of any of its investigational product candidates that may receive regulatory approval or proceeds from partnering and/or collaboration activities, it has sufficient capital as well as access to other capital discussed in Note 7, “Term Loan and Credit Facility to fund its development plans, U.S. commercial scale-up and other operational activities, for at least one year from the date of this filing. The Company expects to finance the future development costs of its clinical product portfolio with its existing cash and cash equivalents, marketable securities, and investments, or through strategic financing opportunities that could include, but are not limited to collaboration or partnership agreements, future offerings of its equity, or the incurrence of debt. However, there is no guarantee that any of these strategic or financing opportunities will be executed or executed on favorable terms, and some could be dilutive to existing stockholders. If
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the Company fails to obtain additional future capital, it may be unable to complete its clinical trials and obtain approval of certain investigational product candidates from the FDA or foreign regulatory authorities.
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation—The accompanying unaudited condensed consolidated financial statements and the related disclosures of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included.
When preparing financial statements in conformity with U.S. GAAP, the Company must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures at the date of the financial statements. Actual results could differ from those estimates. Additionally, operating results for the six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2020. Subsequent events have been evaluated up to the date of issuance of these financial statements. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes, which are contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (“2019 Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on February 27, 2020.
Significant Accounting Policies—The significant accounting policies identified in the Company’s 2019 Form 10-K that require the Company to make estimates and assumptions include: revenue recognition, inventory obsolescence, long-lived assets and intangible assets, accounting for stock-based compensation, contingencies, tax valuation reserves, fair value measures, and accrued expenses. There were no changes to significant accounting policies during the six months ended June 30, 2020, except for the adoption of the Accounting Standards Updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”) detailed below.
Accounting Standards Updates—Recently Adopted—In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ”). Certain amendments thereto were also issued by the FASB. ASU 2016-13 and the related amendments require that credit losses be reported using an expected losses model, representing the entity’s current estimate of credit losses expected to be incurred. The previous accounting guidance, as applied by the Company through December 31, 2019, was based on an incurred losses model. The standard replaces the incurred loss impairment methodology under current U.S. GAAP with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. For available-for-sale debt securities with unrealized losses, ASU 2016-13 and the related amendments now requires allowances to be recorded instead of reducing the amortized cost of the investment. These amendments under ASU 2016-13 are effective for interim and annual fiscal periods beginning after December 15, 2019. The Company adopted ASU 2016-13 as of January 1, 2020 and it did not have a material impact on the Company’s condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework - Changes to the Disclosure Requirement for Fair Value Measurement, or (“ASU 2018-13”). The amendments in ASU 2018-13 modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments under ASU 2018-13 are effective for interim and annual fiscal periods beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2018-13 on January 1, 2020 and it did not have a material impact on the Company’s condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangible-Goodwill and Other Internal-Use Software (Subtopic 350-40 (“ASU 2018-15”). ASU 2018-15 updates guidance regarding accounting for a cloud computing arrangement that is a service contract. The amendments under ASU 2018-15 are effective for interim and annual fiscal periods beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2018-15 on January 1, 2020 and it did not have a material impact on the Company’s condensed consolidated financial statements.
Other - In March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law and provides an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the economy. The business tax provisions of the CARES Act include temporary changes to income and non-income-based tax laws. Some of the key income tax provisions include eliminating the 80% of taxable income limitations by allowing corporate entities to fully utilize net operating loss (NOL) carryforwards to offset taxable income in 2018, 2019, or 2020 and reinstating it for tax years after 2020; allowing NOLs generated in 2018, 2019, or 2020 to be carried back five years; increasing the net interest expense deduction limit to 50% of adjusted taxable income from 30% for the 2019 and 2020 tax years; allowing taxpayers with alternative minimum tax credits to
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claim a refund for the entire amount of the credit instead of recovering the credit through refunds over a period of years, as required by the 2017 Tax Cut and Jobs Act; and allowing entities to deduct more of their charitable cash contributions made during calendar year 2020 by increasing the taxable income limitation to 25% from 10%. Companies are required to account for these provisions in the period that includes the March 2020 enactment date (i.e., the first quarter for calendar year-end entities). The Company has assessed the impact of these provisions and they are not material to the Company’s condensed consolidated financial statements or related disclosures. Measures of the CARES Act not related to income-based taxes include allowing an employer to pay its share of Social Security payroll taxes that would otherwise be due from the date of enactment through December 31, 2020 over the following two years and allowing eligible employers subject to closure due to the COVID-19 pandemic to receive a 50% credit on qualified wages against their employment taxes each quarter, with any excess credits eligible for refunds. These measures of the CARES Act are also not material to the Company’s condensed consolidated financial statements as the Company did not apply for any credit during the period.
Accounting Standards Updates, Recently Issued—In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interest period and the recognition of deferred tax liabilities for outside basis differences, and also clarifies and simplifies other aspects of the accounting for income taxes. The amendments under ASU 2010-12 are effective for interim and annual fiscal periods beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the effects the adoption of ASU 2019-12 will have on its consolidated financial statements and related disclosures.
3. Marketable Securities
Available-for-sale marketable securities and cash and cash equivalents as of June 30, 2020 and December 31, 2019 consist of the following (in thousands):
 June 30, 2020
 Amortized Cost ValueGross 
Unrealized 
Gains
Gross 
Unrealized 
Losses
Fair Value
Cash and cash equivalents:    
Cash$8,616  $—  $—  $8,616  
Money market funds47,623  —  —  47,623  
Total$56,239  $—  $—  $56,239  
Marketable securities:    
Domestic corporate debt securities$64,443  $203  $(29) $64,617  
Domestic corporate commercial paper4,944    (66) 4,878  
Total$69,387  $203  $(95) $69,495  
 
 December 31, 2019
 Amortized Cost ValueGross 
Unrealized 
Gains
Gross 
Unrealized 
Losses
Fair Value
Cash and cash equivalents:    
Cash$34,726  $—  $—  $34,726  
Money market funds35,160  —  —  35,160  
Total$69,886  $—  $—  $69,886  
Marketable securities:    
Domestic corporate debt securities$41,229  $3  $(3) $41,229  
Domestic corporate commercial paper24,900  5    24,905  
Agency bonds12,391  1  (3) 12,389  
US treasury bonds12,492      12,492  
Total$91,012  $9  $(6) $91,015  
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The Company reviews marketable securities whenever the fair value of an investment is less than the amortized cost and evidence indicates that an investment’s carrying amount is not recoverable within a reasonable period of time. We evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss on the condensed consolidated balance sheet, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that is not related to credit is recognized in other comprehensive income.
Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense on the condensed consolidated statement of operations. Losses are charged against the allowance when the Company believes the uncollectability of an available-for-sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. The unrealized losses at June 30, 2020 and December 31, 2019 are attributable to changes in interest rates and the Company does not believe any unrealized losses represent credit losses.
As of June 30, 2020 and December 31, 2019, the Company had 4 and 8 available-for-sale debt securities in an unrealized loss position, respectively, for which an allowance for credit losses has not been recorded. The following table summarizes such investments by major security type and length of time in a continuous unrealized loss position as of June 30, 2020 (in thousands).
Less than 12 Months12 months or longerTotal
Fair valueUnrealized lossesFair valueUnrealized lossesFair valueUnrealized losses
Available-for-sale debt securities
Corporate debt securities$10,600  $(29)     $10,600  $(29) 
Corporate commercial paper4,878  (66)     4,878  (66) 
Total available-for-sale debt securities$15,478  $(95)     $15,478  $(95) 
4. Fair Value Measurements
The Company determines the fair value of its financial instruments based upon the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Below are the three levels of inputs that may be used to measure fair value:
Level 1—Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Transfers into or out of any hierarchy level are recognized at the end of the reporting period in which the transfers occurred. There were no material transfers between any levels during the six months ended June 30, 2020. There were no material transfers between any levels during 2019.
The following table summarizes the financial instruments measured at fair value on a recurring basis in the Company’s accompanying condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019 (in thousands):
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 As of June 30, 2020
 Level 1Level 2Level 3Total
Assets    
Cash and cash equivalents:    
Cash$8,616  $  $  $8,616  
Money market funds (1)47,623      47,623  
Total$56,239  $  $  $56,239  
Marketable Securities    
Domestic corporate debt securities (2)$  $64,617  $  $64,617  
Domestic corporate commercial paper (2)  4,878    4,878  
Total$  $69,495  $  $69,495  
 
 As of December 31, 2019
 Level 1Level 2Level 3Total
Assets    
Cash and cash equivalents:    
Cash$34,726  $  $  $34,726  
Money market funds (1)35,160      35,160  
Total$69,886  $  $  $69,886  
Marketable Securities    
Domestic corporate debt securities (2)$  $41,229  $  $41,229  
Domestic corporate commercial paper (2)  24,905    24,905  
Agency bonds (2)  12,389    12,389  
US treasury bonds (2)$  $12,492  $  $12,492  
Total$  $91,015  $  $91,015  
(1)                           Fair value is based upon quoted market prices.
(2)                           Fair value is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Inputs are obtained from various sources, including market participants, dealers and brokers.
5. Inventory
Inventory consisted of the following as of June 30, 2020 and December 31, 2019 (in thousands):
June 30,
2020
December 31,
2019
Raw materials$3,456  $4,093  
Work in process649    
Finished goods1,801  1,230  
Total inventories$5,906  $5,323  
Finished goods manufactured by the Company have a 36-month shelf life from date of manufacture.
6. Convertible Notes Payable
On August 14, 2017, in a registered underwritten public offering, the Company issued $300 million aggregate principal amount of 3% Convertible Senior Notes due September 1, 2024 (the “Convertible Notes”). In addition, on September 12, 2017, the Company issued an additional $5.0 million principal amount of Convertible Notes pursuant to the exercise of an over-allotment option granted to the underwriters in the offering. In accordance with accounting guidance for debt with conversion and other options, the Company separately accounted for the liability component (“Liability Component”) and embedded conversion option (the “Equity Component”) of the Convertible Notes by allocating the proceeds between the Liability Component and the Equity Component, due to the Company’s ability to settle the Convertible Notes in cash, common stock or a combination of
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cash and common stock, at its option. In connection with the issuance of the Convertible Notes, the Company incurred approximately $9.4 million of debt issuance costs, which primarily consisted of underwriting, legal and other professional fees, and allocated these costs to the Liability and Equity Components based on the allocation of the proceeds. Of the total $9.4 million of debt issuance costs, $4.3 million was allocated to the Equity Component and recorded as a reduction to additional paid-in capital and $5.1 million was allocated to the liability component and is now recorded as a reduction of the Convertible Notes in the Company’s condensed consolidated balance sheet. The portion allocated to the liability component is amortized to interest expense using the effective interest method over seven years.
The Convertible Notes are senior unsecured obligations of the Company and bear interest at a rate of 3.00% per annum, payable semi-annually in arrears on March 1 and September 1, beginning on March 1, 2018. Upon conversion, the Convertible Notes will be convertible into 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. Prior to December 31, 2017, the Convertible Notes were not convertible except in connection with a make whole fundamental change, as defined in the respective indentures. The Convertible Notes will be subject to redemption at the Company’s option, under certain restrictions as noted below, on or after September 1, 2021, in whole or in part, if the conditions described below are satisfied. The redemption of the Convertible Notes may also be subject to certain restrictions included in Note 7, “Term Loan and Credit Facility”. The Convertible Notes will mature on September 1, 2024, unless earlier converted, redeemed or repurchased in accordance with their terms. Subject to satisfaction of certain conditions and during the periods described below, the Convertible Notes may be converted at an initial conversion rate of 20.4891 shares of common stock per $1,000 principal amount of the Convertible Notes (equivalent to an initial conversion price of approximately $48.81 per share of common stock).
Holders of the Convertible Notes may convert all or any portion of their notes, in multiples of $1,000 principal amount, at their option at any time prior to the close of business on the business day immediately preceding June 1, 2024 only under the following circumstances:
(1)during any calendar quarter commencing after the calendar quarter ending on December 31, 2017 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether consecutive or not) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
(2)during the five-business day period after any five-consecutive trading day period (the “measurement period”) in which the “trading price” per $1,000 principal amount of the Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;
(3)if the Company calls the Convertible Notes for redemption, until the close of business on the business day immediately preceding the redemption date; or
(4)upon the occurrence of specified corporate events.
As of June 30, 2020, none of the above circumstances had occurred and, as such, the Convertible Notes were not convertible.
Prior to September 1, 2021, the Company may not redeem the Convertible Notes. On or after September 1, 2021, the Company may redeem for cash all or part of the Convertible Notes if the last reported sale price of the Company’s common stock equals or exceeds 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 ending within five trading days prior to the date on which the Company provides notice of the redemption. The redemption price will be the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. In addition, calling any Convertible Note for redemption will constitute a make-whole fundamental change with respect to that Convertible Note, in which case the conversion rate applicable to the conversion of that Convertible Note, if it is converted in connection with the redemption, will be increased in certain circumstances.
The initial carrying amount of the Liability Component of $166.3 million was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The allocation was performed in a manner that reflected the Company’s non-convertible debt borrowing rate for similar debt. The Equity Component of the Convertible Notes of $138.7 million was recognized as a debt discount and represents the difference between the proceeds from the issuance of the Convertible Notes of $305.0 million and the fair value of the Liability of the Convertible Notes of approximately $166.3 million on their respective dates of issuance. The excess of the principal amount of the Liability Component over its carrying amount (the “Debt Discount”) is amortized to interest expense using the effective interest method over seven years. The Equity Component is not remeasured as long as it continues to meet the conditions for equity classification. In connection with issuance of the Convertible Notes, the Company also incurred certain offering costs directly attributable to the offering. Such
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costs are deferred and amortized over the term of the debt to interest expense using the effective interest method. A portion of the deferred financing costs incurred in connection with the Convertible Notes was deemed to relate to the Equity Component and was allocated to additional paid-in capital.
The outstanding balances of the Convertible Notes as of June 30, 2020 consisted of the following (in thousands):
2024 Convertible Notes
Liability component:
Principal$305,000  
Less: debt discount and issuance costs, net(100,685) 
Net carrying amount$204,315  
Equity component:$134,450  
The Company determined the expected life of the Convertible Notes was equal to its seven-year term. The effective interest rate on the Liability Components of the Convertible Notes for the period from the date of issuance through June 30, 2020 was 13.04%. As of June 30, 2020, the “if-converted value” did not exceed the remaining principal amount of the Convertible Notes. The fair values of the Convertible Notes are based on data from readily available pricing sources which utilize market observable inputs and other characteristics for similar types of instruments, and, therefore, the Convertible Notes are classified within Level 2 in the fair value hierarchy. The fair value of the Convertible Notes, which differs from their carrying value, is influenced by interest rates, the Company’s stock price and stock price volatility. The estimated fair value of the Convertible Notes as of June 30, 2020 was approximately $223.9 million.
The following table sets forth total interest expense recognized related to the Convertible Notes during the three and six months ended June 30, 2020 and 2019 (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Contractual interest expense$2,288  $