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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
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 001-33497
Amicus Therapeutics, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
71-0869350
(State or Other Jurisdiction of
 
(I.R.S. Employer
Incorporation or Organization)
 
Identification Number)
 
 
 
1 Cedar Brook Drive,
Cranbury,
NJ
 
08512
(Address of Principal Executive Offices)
 
(Zip Code)
 
 
 
(609)
662-2000
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
FOLD
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 (§232.405 of this chapter) 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 filer
 
Accelerated filer
 
Non-accelerated filer
 
Smaller reporting company
 
 
Emerging growth company
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
The number of shares outstanding of the registrant's common stock, $0.01 par value per share, as of July 30, 2019 was 254,626,063 shares.
 




AMICUS THERAPEUTICS, INC.
 
Form 10-Q for the Quarterly Period Ended June 30, 2019
 
 
Page
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
Item 5.
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 
We have filed applications to register certain trademarks in the United States and abroad, including AMICUS THERAPEUTICS and design, AMICUS ASSIST and design, CHART and design, AT THE FOREFRONT OF THERAPIES FOR RARE AND ORPHAN DISEASES, HEALING BEYOND DISEASE, OUR GOOD STUFF, and Galafold® and design. FABRAZYME, MYOZYME, LUMIZYME, and REPLAGAL are the property of their respective owners.


i



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks, uncertainties, and assumptions.  Forward-looking statements are all statements, other than statements of historical facts, that discuss our current expectations and projections relating to our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans, and objectives of management. These statements may be preceded by, followed by, or include the words "aim," "anticipate," "believe," "can," "could," "estimate," "expect," "forecast," "intend," "likely," "may," "outlook," "plan," "potential," "predict," "project," "seek," "should," "will," "would," the negatives or plurals thereof, and other words and terms of similar meaning, although not all forward-looking statements contain these identifying words.
 
We have based these forward-looking statements on our current expectations and projections about future events. Although we believe that our assumptions made in connection with the forward-looking statements are reasonable, we cannot assure you that the assumptions and expectations will prove to be correct. You should understand that the following important factors could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements:
 
the progress and results of our preclinical and clinical trials of our drug candidates;
the cost of manufacturing drug supply for our clinical and preclinical studies, including the cost of manufacturing Pompe Enzyme Replacement Therapy ("ERT") and gene therapies;
the scope, progress, results, and costs of preclinical development, laboratory testing, and clinical trials for our product candidates including those testing the use of pharmacological chaperones co-formulated and co-administered with ERT and for the treatment of lysosomal storage disorders and gene therapies for the treatment of rare genetic metabolic diseases;
the future results of on-going preclinical research and subsequent clinical trials for cyclin-dependent kinase-like 5 ("CDKL5") deficiency, including our ability to obtain regulatory approvals and commercialize CDKL5 therapies and obtain market acceptance for such therapies;
the costs, timing, and outcome of regulatory review of our product candidates;
the number and development requirements of other product candidates that we pursue;
the costs of commercialization activities, including product marketing, sales, and distribution;
the emergence of competing technologies and other adverse market developments;
our ability to successfully commercialize Galafold® ("migalastat HCl");
our ability to manufacture or supply sufficient clinical or commercial products;
our ability to obtain reimbursement for Galafold®;
our ability to satisfy post-marketing commitments or requirements for continued regulatory approval of Galafold®;
our ability to obtain market acceptance of Galafold®;
the costs of preparing, filing, and prosecuting patent applications and maintaining, enforcing, and defending intellectual property-related claims;
the extent to which we acquire or invest in businesses, products, and technologies;
our ability to successfully integrate our acquired products and technologies into our business, including the possibility that the expected benefits of the transactions will not be fully realized by us or may take longer to realize than expected;
our ability to establish collaborations and obtain milestone, royalty, or other payments from any such collaborators;
our ability to adjust to changes in European and United Kingdom markets as the United Kingdom leaves the European Union;
fluctuations in foreign currency exchange rates; and
changes in accounting standards. 

1



In light of these risks and uncertainties, we may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in Part I Item 1A — Risk Factors of the Annual Report on Form 10-K for the fiscal year ended December 31, 2018, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Those factors and the other risk factors described therein are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, collaborations, or investments we may make. Consequently, there can be no assurance that actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Given these uncertainties, investors are cautioned not to place undue reliance on such forward-looking statements.
 
You should read this Quarterly Report on Form 10-Q in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 completely and with the understanding that our actual future results may be materially different from what we expect. These forward-looking statements speak only as of the date of this report. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, even if experience or future developments make it clear that projected results expressed or implied in such statements will not be realized, except as may be required by law. 

2



PART I.    FINANCIAL INFORMATION
 
ITEM 1.    CONSOLIDATED FINANCIAL STATEMENTS AND NOTES (UNAUDITED)

Amicus Therapeutics, Inc.
Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share amounts)

 
June 30,
2019
 
December 31,
2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
220,578

 
$
79,749

Investments in marketable securities
355,078

 
424,403

Accounts receivable
28,709

 
21,962

Inventories
10,395

 
8,390

Prepaid expenses and other current assets
20,116

 
16,592

Total current assets
634,876

 
551,096

Operating lease right-of-use assets, less accumulated amortization of $2,641 and $0 at June 30, 2019 and December 31, 2018, respectively
35,052

 

Property and equipment, less accumulated depreciation of $16,890 and $15,671 at June 30, 2019 and December 31, 2018, respectively
15,273

 
11,375

In-process research & development
23,000

 
23,000

Goodwill
197,797

 
197,797

Other non-current assets
12,035

 
6,683

Total Assets
$
918,033

 
$
789,951

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable, accrued expenses, and other current liabilities
$
84,119

 
$
80,625

Deferred reimbursements
2,750

 
5,500

Operating lease liabilities
2,678

 

Total current liabilities
89,547

 
86,125

Deferred reimbursements
11,406

 
10,156

Convertible notes
2,070

 
175,006

Senior secured term loan
146,994

 
146,734

Contingent consideration payable
21,247

 
19,700

Deferred income taxes
6,465

 
6,465

Operating lease liabilities
36,259

 

Other non-current liabilities
3,987

 
2,853

Total liabilities
317,975

 
447,039

Commitments and contingencies


 


Stockholders’ equity:
 
 
 
Common stock, $0.01 par value, 500,000,000 shares authorized, 254,513,522 and 189,383,924 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively
2,589

 
1,942

Additional paid-in capital
2,201,447

 
1,740,061

Accumulated other comprehensive loss:
 
 
 
Foreign currency translation adjustment
352

 
495

Unrealized gain (loss) on available-for-sale securities
355

 
(427
)
Warrants
12,387

 
13,063

Accumulated deficit
(1,617,072
)
 
(1,412,222
)
Total stockholders’ equity
600,058

 
342,912

Total Liabilities and Stockholders’ Equity
$
918,033

 
$
789,951


See accompanying notes to consolidated financial statements

3



Amicus Therapeutics, Inc.
Consolidated Statements of Operations
(Unaudited)
(in thousands, except share and per share amounts)
  
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenue:
 
 
 
 
 
 
 
Net product sales
$
44,130

 
$
21,309

 
$
78,176

 
$
38,005

Cost of goods sold
5,367

 
3,135

 
9,422

 
5,750

Gross profit
38,763

 
18,174

 
68,754

 
32,255

Operating expenses:
 
 
 
 
 
 
 
Research and development
70,981

 
34,660

 
135,574

 
75,458

Selling, general, and administrative
42,578

 
29,172

 
86,881

 
56,568

Changes in fair value of contingent consideration payable
480

 
300

 
1,863

 
1,400

Depreciation and amortization
1,154

 
973

 
2,145

 
1,942

Total operating expenses
115,193

 
65,105

 
226,463

 
135,368

Loss from operations
(76,430
)
 
(46,931
)
 
(157,709
)
 
(103,113
)
Other income (expense):
 
 
 
 
 
 
 
Interest income
2,599

 
2,913

 
5,238

 
4,650

Interest expense
(4,625
)
 
(4,560
)
 
(11,079
)
 
(9,048
)
Loss on exchange of convertible notes
(4,501
)
 

 
(40,624
)
 

Change in fair value of derivatives

 
(7,600
)
 

 
(2,739
)
Other income (expense)
(877
)
 
(5,316
)
 
209

 
(2,554
)
Loss before income tax
(83,834
)
 
(61,494
)
 
(203,965
)
 
(112,804
)
Income tax (expense) benefit
(717
)
 
(339
)
 
(885
)
 
1,053

Net loss attributable to common stockholders
$
(84,551
)
 
$
(61,833
)
 
$
(204,850
)
 
$
(111,751
)
Net loss attributable to common stockholders per common share — basic and diluted
$
(0.36
)
 
$
(0.33
)
 
$
(0.91
)
 
$
(0.61
)
Weighted-average common shares outstanding — basic and diluted
238,089,824

 
188,621,423
 
225,848,013
 
182,303,128

See accompanying notes to consolidated financial statements


4



Amicus Therapeutics, Inc.
Consolidated Statements of Comprehensive Loss
(Unaudited)
(in thousands)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Net loss
$
(84,551
)
 
$
(61,833
)
 
$
(204,850
)
 
$
(111,751
)
Other comprehensive (loss) gain:
 
 
 
 
 
 
 
Foreign currency translation adjustment gain (loss), net of tax impact of $(30), $(109), $(30) and $(109), respectively
1,881

 
2,308

 
77

 
503

Unrealized (loss) gain on available-for-sale securities, net of tax impact of $(220), $0, $(220) and $0, respectively
(22
)
 
422

 
562

 
(19
)
Other comprehensive income (loss)
$
1,859

 
$
2,730

 
$
639

 
$
484

Comprehensive loss
$
(82,692
)
 
$
(59,103
)
 
$
(204,211
)
 
$
(111,267
)
 
See accompanying notes to consolidated financial statements


5



Amicus Therapeutics, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
(in thousands, except share amounts)

Six Months Ended June 30, 2019
 
Common Stock
 
Additional
Paid-In
Capital
 
Warrants
 
Other
Comprehensive
Gain (Loss)
 
Accumulated
Deficit
 
Total
Stockholders'
Equity
 
Shares
 
Amount
Balance at December 31, 2018
189,383,924

 
$
1,942

 
$
1,740,061

 
$
13,063

 
$
68

 
$
(1,412,222
)
 
$
342,912

Stock issued from exercise of stock options, net
578,451

 
6

 
3,947

 

 

 

 
3,953

Restricted stock tax vesting
301,058

 

 
(1,940
)
 

 

 

 
(1,940
)
Stock issued for contingent consideration
771,804

 
8

 
9,308

 

 

 

 
9,316

Stock-based compensation

 

 
12,744

 

 

 

 
12,744

Warrants exercised
101,787

 
1

 
1,487

 
(676
)
 

 

 
812

Equity component of the convertible notes
39,043,690

 
390

 
190,368

 

 

 

 
190,758

Termination of capped call confirmations

 

 
14,632

 

 

 

 
14,632

Unrealized holding gain on available-for-sale securities

 

 

 

 
584

 

 
584

Foreign currency translation adjustment

 

 

 

 
(1,804
)
 

 
(1,804
)
Net loss

 

 

 

 

 
(120,299
)
 
(120,299
)
Balance at March 31, 2019
230,180,714

 
$
2,347

 
$
1,970,607

 
$
12,387

 
$
(1,152
)
 
$
(1,532,521
)
 
$
451,668

Stock issued from exercise of stock options, net
561,177

 
5

 
2,802

 

 

 

 
2,807

Stock issued from equity financing
18,720,930

 
187

 
188,807

 

 

 

 
188,994

Restricted stock tax vesting
99,252

 

 
(615
)
 

 

 

 
(615
)
Stock-based compensation

 

 
9,935

 

 

 

 
9,935

Equity component of the convertible notes
4,951,449

 
50

 
24,668

 

 

 

 
24,718

Termination of capped call confirmations

 

 
5,243

 

 

 

 
5,243

Unrealized holding loss on available-for-sale securities

 

 

 

 
(22
)
 

 
(22
)
Foreign currency translation adjustment

 

 

 

 
1,881

 

 
1,881

Net loss

 

 

 

 

 
(84,551
)
 
(84,551
)
Balance at June 30, 2019
254,513,522

 
$
2,589

 
$
2,201,447

 
$
12,387

 
$
707

 
$
(1,617,072
)
 
$
600,058

See accompanying notes to consolidated financial statements

6



Amicus Therapeutics, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
(in thousands, except share amounts)

Six Months Ended June 30, 2018
 
Common Stock
 
Additional
Paid-In
Capital
 
Warrants
 
Other
Comprehensive
Gain (Loss)
 
Accumulated
Deficit
 
Total
Stockholders'
Equity
 
Shares
 
Amount
Balance at December 31, 2017
166,989,790

 
$
1,721

 
$
1,400,758

 
$
16,076

 
$
(2,095
)
 
$
(1,063,610
)
 
$
352,850

Stock issued from exercise of stock options, net
560,721

 
6

 
3,972

 

 

 

 
3,978

Stock issued from equity financing
20,239,839

 
202

 
294,382

 

 

 

 
294,584

Restricted stock tax vesting
181,868

 

 
(1,912
)
 

 

 

 
(1,912
)
Stock-based compensation

 

 
7,478

 

 

 

 
7,478

Reclassification upon ASU 2018-02 adoption

 

 

 

 
(383
)
 
383

 

Change in fair value of derivatives

 

 
(83,199
)
 

 

 

 
(83,199
)
Unrealized holding loss on available-for-sale securities

 

 

 

 
(441
)
 

 
(441
)
Foreign currency translation adjustment

 

 

 

 
(1,805
)
 

 
(1,805
)
Net loss

 

 

 

 

 
(49,916
)
 
(49,916
)
Balance at March 31, 2018
187,972,218

 
$
1,929

 
$
1,621,479

 
$
16,076

 
$
(4,724
)
 
$
(1,113,143
)
 
$
521,617

Stock issued from exercise of stock options, net
542,056

 
5

 
3,597

 

 

 

 
3,602

Restricted stock tax vesting
85,726

 

 
(115
)
 

 

 

 
(115
)
Stock-based compensation

 

 
6,341

 

 

 

 
6,341

Warrants exercised
453,214

 
5

 
6,625

 
(3,013
)
 

 

 
3,617

Change in fair value of derivatives

 

 
85,938

 

 

 

 
85,938

Unrealized holding gain on available-for-sale securities

 

 

 

 
422

 

 
422

Foreign currency translation adjustment

 

 

 

 
2,308

 

 
2,308

Net loss

 

 

 

 

 
(61,833
)
 
(61,833
)
Balance at June 30, 2018
189,053,214

 
$
1,939

 
$
1,723,865

 
$
13,063

 
$
(1,994
)
 
$
(1,174,978
)
 
$
561,895

See accompanying notes to consolidated financial statements


7



Amicus Therapeutics, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)

 
Six Months Ended June 30,
 
2019
 
2018
Operating activities
 
 
 
Net loss
$
(204,850
)
 
$
(111,751
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Amortization of debt discount and deferred financing
2,104

 
5,273

Depreciation and amortization
2,145

 
1,942

Stock-based compensation
22,679

 
13,819

Loss on exchange of convertible debt
40,624

 

Change in fair value of derivatives

 
2,739

Non-cash changes in the fair value of contingent consideration payable
1,863

 
1,400

Foreign currency remeasurement loss
530

 
2,107

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(6,829
)
 
(6,043
)
Inventories
(1,908
)
 
(3,449
)
Prepaid expenses and other current assets
(3,523
)
 
4,584

Accounts payable and accrued expenses
12,453

 
(11,801
)
Other non-current assets and liabilities
(819
)
 
(336
)
Deferred reimbursements
(1,500
)
 
(5,000
)
Net cash used in operating activities
$
(137,031
)
 
$
(106,516
)
Investing activities
 
 
 
Sale and redemption of marketable securities
261,425

 
210,239

Purchases of marketable securities
(191,318
)
 
(380,234
)
Capital expenditures
(5,110
)
 
(1,881
)
Net cash provided by (used in) investing activities
$
64,997

 
$
(171,876
)
Financing activities
 
 
 
Proceeds from issuance of common stock, net of issuance costs
188,994

 
294,584

Payment of finance leases
(98
)
 
(142
)
Purchase of vested restricted stock units
(2,555
)
 
(2,027
)
Proceeds from termination of capped call confirmations
19,875

 

Proceeds from exercise of stock options
6,760

 
7,580

Proceeds of exercise of warrants
812

 
3,617

Net cash provided by financing activities
$
213,788

 
$
303,612

Effect of exchange rate changes on cash, cash equivalents, and restricted cash
$
(941
)
 
$
(1,016
)
Net increase in cash, cash equivalents, and restricted cash
140,813

 
24,204

Cash, cash equivalents, and restricted cash at beginning of period
$
82,375

 
$
51,237

Cash, cash equivalents, and restricted cash at end of period
$
223,188

 
$
75,441

Supplemental disclosures of cash flow information
 
 
 
Cash paid during the period for interest
$
9,302

 
$
3,774

Capital expenditures, unpaid
$
837

 
$

Capital expenditures funded by capital lease
$

 
$
81

Payment of contingent consideration in shares
$
9,316

 
$

 
See accompanying notes to consolidated financial statements

8


Amicus Therapeutics, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)

Note 1. Business
 
Amicus Therapeutics, Inc. (the "Company") is a global patient-dedicated biotechnology company engaged in the discovery, development, and commercialization of a diverse set of novel treatments for patients living with rare metabolic diseases. With one medicine for Fabry disease that has achieved widespread global approval, a differentiated biologic for Pompe disease in the clinic, and an industry leading rare disease gene therapy portfolio.
The cornerstone of the Company's portfolio is Galafold® (also referred to as "migalastat"), the first and only approved oral precision medicine for people living with Fabry disease who have amenable genetic variants. Migalastat is currently approved under the trade name Galafold® in the United States ("U.S."), European Union ("E.U."), and Japan, with additional approvals granted and applications pending in several other geographies. During the third quarter of 2018, the Company initiated the commercial launch of Galafold® in the U.S. for the treatment of adult patients with a confirmed diagnosis of Fabry disease and an amenable genetic variant.
The lead biologics program of the Company's pipeline is Amicus Therapeutics GAA ("AT-GAA", also known as ATB200/AT2221), a novel, clinical-stage, potential best-in-class treatment paradigm for Pompe disease. In February 2019, the U.S. Food and Drug Administration ("FDA") granted Breakthrough Therapy Designation to AT-GAA for the treatment of late onset Pompe disease.
The Company has established an industry leading gene therapy portfolio of potential therapies for people living with rare metabolic diseases, through a license with Nationwide Children's Hospital ("NCH") and a recently expanded collaboration with the University of Pennsylvania ("Penn"). The Company's pipeline includes gene therapy programs in rare, neurologic lysosomal disorders ("LDs") with programs in CLN6, CLN3, and CLN8 Batten disease, Pompe disease, Fabry disease, CDKL5 deficiency disorder ("CDD"), Niemann-Pick Type C (“NPC”), Mucopolysaccharidosis Type IIIB ("MPSIIIB"), as well as a next generation program in Mucopolysaccharidosis Type IIIA ("MPSIIIA"). This expanded collaboration with Penn also provides the Company with exclusive disease-specific access and option rights to develop potentially disruptive new gene therapy platform technologies and programs for most LDs and a broader portfolio of rare diseases, including Rett Syndrome, Angelman Syndrome, Myotonic Dystophy, and select other muscular dystrophies.
During the second quarter of 2019, the Company completed an underwritten equity offering and issued 18.7 million shares of its common stock at $10.75 per share, inclusive of the fully exercised option to purchase additional shares from the initial offering. This transaction resulted in net proceeds of $189.0 million, after deducting underwriting discounts and commissions and offering expenses.
During the six months ended June 30, 2019, the Company entered into separate, privately negotiated exchange agreements (the "Exchange Agreements") with a limited number of holders (the "Holders") of the unsecured Convertible Senior Notes due in 2023 ("Convertible Notes"). Under the terms of the Exchange Agreements, the Holders agreed to exchange an aggregate principal amount of $247.2 million of Convertible Notes held by them in exchange for an aggregate of approximately 44.0 million shares of the Company common stock, par value $0.01 per share.
The Company had an accumulated deficit of $1.6 billion as of June 30, 2019 and anticipates incurring losses through the fiscal year ending December 31, 2019 and beyond. The Company has historically funded its operations through stock offerings, debt issuances, Galafold® revenues, collaborations, and other financing arrangements.
The current cash position, including expected Galafold® revenues, is sufficient to fund ongoing Fabry, Pompe, and gene therapy program operations into 2021. Potential future business development collaborations, pipeline expansion, and investment in manufacturing capabilities could impact the Company's future capital requirements.


9



Note 2. Summary of Significant Accounting Policies
 
Basis of Presentation
 
The Company has prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's interim financial information.

The accompanying unaudited consolidated financial statements and related notes should be read in conjunction with the Company's financial statements and related notes as contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018. For a complete description of the Company's accounting policies, please refer to the Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
 
Consolidation
 
The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
 
Foreign Currency Transactions
 
The functional currency for most of the Company's foreign subsidiaries is their local currency. For non-U.S. subsidiaries that transact in a functional currency other than the U.S. dollar, assets and liabilities are translated at current rates of exchange at the balance sheet date. Income and expense items are translated at the average foreign exchange rates for the period. Adjustments resulting from the translation of the financial statements of the Company's foreign operations into U.S. dollars are excluded from the determination of net income and are recorded in accumulated other comprehensive income, a separate component of stockholders' equity.
 
Use of Estimates
 
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
 
Reclassification

Certain prior year amounts have been reclassified for comparative purposes. The reclassifications did not affect results of operations, net assets, or cash flows.

Cash, Cash Equivalents, Marketable Securities, and Restricted Cash

The Company considers all highly liquid investments purchased with a maturity of three months or less at the date of acquisition to be cash equivalents. Marketable securities consist of fixed income investments with a maturity of greater than three months and other highly liquid investments that can be readily purchased or sold using established markets. These investments are classified as available-for-sale and are reported at fair value on the Consolidated Balance Sheets. Unrealized holding gains and losses are reported within comprehensive income (loss) in the Consolidated Statements of Comprehensive Loss. Fair value is based on available market information including quoted market prices, broker or dealer quotations, or other observable inputs.

Restricted cash consists primarily of funds held to satisfy the requirements of certain agreements that are restricted in their use and is included in non-current assets on the Consolidated Balance Sheets.


10



Concentration of Credit Risk
 
The Company's financial instruments that are exposed to concentration of credit risk consist primarily of cash, cash equivalents, and marketable securities. The Company maintains its cash and cash equivalents in bank accounts, which, at times, exceed federally insured limits. The Company invests its marketable securities in high-quality commercial financial instruments. The Company has not recognized any losses from credit risks on such accounts during any of the periods presented. The Company believes it is not exposed to significant credit risk on cash and cash equivalents or its marketable securities.
 
The Company is subject to credit risk from its accounts receivable related to its product sales of Galafold®. The Company's accounts receivable at June 30, 2019 have arisen from product sales primarily in the E.U. and U.S. The Company will periodically assess the financial strength of its customers to establish allowances for anticipated losses, if any. For accounts receivable that have arisen from named patient sales, the payment terms are predetermined and the Company evaluates the creditworthiness of each customer on a regular basis. As of June 30, 2019, the Company recorded an allowance for doubtful accounts of $0.2 million.
  
Revenue Recognition
 
The Company's net product sales consist of sales of Galafold® for the treatment of Fabry disease. The Company has recorded revenue on sales where Galafold® is available either on a commercial basis or through a reimbursed early access program ("EAP"). Orders for Galafold® are generally received from distributors and pharmacies with the ultimate payor often a government authority.
 
The Company recognizes revenue when its performance obligations to its customers have been satisfied, which occurs at a point in time when the pharmacies or distributors obtain control of Galafold®. The transaction price is determined based on fixed consideration in the Company's customer contracts and is recorded net of estimates for variable consideration, which are third party discounts and rebates. The identified variable consideration is recorded as a reduction of revenue at the time revenue from the sale of Galafold® is recognized. The Company recognizes revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period. These estimates may differ from actual consideration received. The Company evaluates these estimates each reporting period to reflect known changes.

The following table summarizes the Company's net product sales from Galafold® disaggregated by geographic area:

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
 
2019
 
2018
 
2019
 
2018
U.S.
 
$
12,181

 
$

 
$
21,249

 
$

Ex-U.S.
 
31,949

 
21,309

 
56,927

 
38,005

Total net product sales
 
$
44,130

 
$
21,309

 
$
78,176

 
$
38,005



Inventories and Cost of Goods Sold
Inventories are stated at the lower of cost and net realizable value, determined by the first-in, first-out method. Inventories are reviewed periodically to identify slow-moving or obsolete inventory based on projected sales activity as well as product shelf-life. In evaluating the recoverability of inventories produced, the probability that revenue will be obtained from the future sale of the related inventory is considered and inventory value is written down for inventory quantities in excess of expected requirements. Expired inventory is disposed of and the related costs are recognized as cost of goods sold in the Consolidated Statements of Operations.
Cost of goods sold includes the cost of inventory sold, manufacturing and supply chain costs, product shipping and handling costs, provisions for excess and obsolete inventory, as well as royalties payable. A portion of the inventory available-for-sale was expensed as research and development costs prior to regulatory approval and as such the cost of goods sold and related gross margins are not necessarily indicative of future cost of goods sold and gross margin.
Leases
The Company primarily enters into lease agreements for office space, equipment, and vehicles. The leases have varying terms, some of which could include options to renew, extend, and early terminate. The Company determines if an arrangement is a lease at contract inception. Operating leases are included in right-of-use ("ROU") assets and lease liabilities on the Consolidated Balance Sheets.

11



ROU assets represent the Company's right to control the use of an explicitly or implicitly identified fixed asset for a period of time and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
Lease payments included in the measurement of the lease liability are comprised of fixed payments. Variable lease payments are excluded from the ROU asset and lease liability and are recognized in the period in which the obligation for those payments is incurred. Variable lease payments are presented in the Consolidated Statements of Operations in the same line item as expenses arising from fixed lease payments for operating leases. The Company has lease agreements that include lease and non-lease components, which the Company accounts for as a single lease component for all underlying asset categories.
The lease term for all of the Company's leases include the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor.
Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company applies this policy to all underlying asset categories.
The information presented for the periods prior to January 1, 2019 has not been restated and is reported under the accounting standard in effect for those periods. For additional information, see " —Note 9. Leases" and "—Note 2. Summary of Significant Accounting Policies, Recent Accounting Developments - Guidance Adopted in 2019." 
Recent Accounting Developments - Guidance Adopted in 2019
ASU 2016-02 - In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 requires the recognition of lease assets and lease liabilities on the balance sheet for all lease obligations and disclosing key information about leasing arrangements. ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous generally accepted accounting principles. In August 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, ("ASU 2018-11"). ASU 2018-11 provided entities with an additional transition method for adoption, whereby, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Effective January 1, 2019 the Company adopted ASU 2016-02, along with the amendments issued in 2017 and 2018, and elected the transition method in ASU 2018-11. The Company elected the package of transition provisions available for expired or existing contracts, which allowed the Company to carry forward its historical assessments of (i) whether contracts are or contain leases, (ii) lease classification and (iii) initial direct costs. In addition, the Company applied the short-term lease recognition exemption for leases with terms at inception not greater than 12 months and will apply the practical expedient not to separate lease and non-lease components for new and modified leases commencing after adoption. The information presented for the periods prior to January 1, 2019 has not been restated and is reported under the accounting standard in effect for those periods. Upon adoption, the Company recorded a lease liability with a corresponding right-of-use asset of $17.6 million. The adoption did not have a material impact on the Consolidated Statements of Operations and the Consolidated Statements of Cash Flows.
In August 2018, the Securities Exchange Commission ("SEC") issued Final Rule 33-10532, Disclosure Update and Simplification, which amends certain disclosure requirements that were redundant, duplicative, overlapping, or superseded by other SEC disclosure requirements. The amendments generally eliminated or otherwise reduced certain disclosure requirements of various SEC rules and regulations. However, in some cases, the amendments require additional information to be disclosed, including changes in stockholders' equity in interim periods. The rule was effective 30 days after its publication in the Federal Register. The rule was posted on October 4, 2018. On September 25, 2018, the SEC released guidance advising it will not object to a registrant adopting the requirement to include changes in stockholders' equity in the Form 10-Q for the first quarter beginning after the effective date of the rule. The Company adopted the guidance for the period ended March 31, 2019.

12



Recent Accounting Developments - Guidance Not Yet Adopted
ASU 2018-13— In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"). The amendments modify the disclosure requirements in Topic 820. ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes (i) in unrealized gains and losses, (ii) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and (iii) the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date. The Company is currently assessing the impact that this standard will have on its consolidated financial statements upon adoption.
ASU 2017-04 — In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 simplifies the recognition and measurement of a goodwill impairment loss by eliminating Step 2 of the quantitative goodwill impairment test. The guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, if any. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019 and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently assessing the impact that this standard will have on its consolidated financial statements upon adoption. 
ASU 2016-13 — 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"). ASU 2016-13 requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected and amends guidance on the impairment of financial instruments. ASU 2016-13 is effective for public companies who are SEC filers for fiscal years beginning after December 15, 2019, including interim periods within those years. The Company is currently assessing the impact that this standard will have on its consolidated financial statements upon adoption.

Note 3. Cash, Cash Equivalents, Marketable Securities, and Restricted Cash
 
As of June 30, 2019, the Company held $220.6 million in cash and cash equivalents and $355.1 million of available-for-sale debt securities which are reported at fair value on the Company's Consolidated Balance Sheets. Unrealized holding gains and losses are reported within accumulated other comprehensive loss in the Statements of Comprehensive Loss. If a decline in the fair value of a marketable security below the Company's cost basis is determined to be other-than-temporary, such marketable security is written down to its estimated fair value as a new cost basis and the amount of the write-down is included in earnings as an impairment charge.
 
The Company regularly invests excess operating cash in deposits with major financial institutions, money market funds, notes issued by the U.S. government, as well as fixed income investments and U.S. bond funds, both of which can be readily purchased and sold using established markets. The Company believes that the market risk arising from its holdings of these financial instruments is mitigated as many of these securities are either government backed or of the highest credit rating. Investments that have original maturities greater than three months but less than one year are classified as current, while investments that have maturities greater than one year are classified as long-term.
  

13



Cash, cash equivalents and marketable securities are classified as current unless mentioned otherwise below and consisted of the following:
 
 
 
As of June 30, 2019
(in thousands)
 
Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Fair
Value
Cash and cash equivalents
 
$
220,578

 
$

 
$

 
$
220,578

Corporate debt securities
 
169,425

 
148

 
(15
)
 
169,558

Commercial paper
 
111,872

 
156

 
(2
)
 
112,026

Asset-backed securities
 
73,025

 
68

 

 
73,093

Money market
 
350

 

 

 
350

Certificates of deposit
 
51

 

 

 
51

 
 
$
575,301

 
$
372

 
$
(17
)
 
$
575,656

Included in cash and cash equivalents
 
$
220,578

 
$

 
$

 
$
220,578

Included in marketable securities
 
354,723

 
372

 
(17
)
 
355,078

Total cash, cash equivalents, and marketable securities
 
$
575,301

 
$
372

 
$
(17
)
 
$
575,656

 
 
 
As of December 31, 2018
(in thousands)
 
Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Fair
Value
Cash and cash equivalents
 
$
79,749

 
$

 
$

 
$
79,749

Corporate debt securities
 
240,969

 
7

 
(250
)
 
240,726

Commercial paper
 
115,245

 

 
(104
)
 
115,141

Asset-backed securities
 
68,215

 
4

 
(84
)
 
68,135

Money market
 
350

 

 

 
350

Certificates of deposit
 
51

 

 

 
51

 
 
$
504,579

 
$
11

 
$
(438
)
 
$
504,152

Included in cash and cash equivalents
 
$
79,749

 
$

 
$

 
$
79,749

Included in marketable securities
 
424,830

 
11

 
(438
)
 
424,403

Total cash, cash equivalents, and marketable securities
 
$
504,579

 
$
11

 
$
(438
)
 
$
504,152


 
For the six months ended June 30, 2019 there were no realized gains. For the fiscal year ended December 31, 2018, there were nominal realized gains. The cost of securities sold is based on the specific identification method.
 
Unrealized loss positions in the available-for-sale debt securities as of June 30, 2019 and December 31, 2018 reflect temporary impairments that have been in a loss position for less than twelve months and as such are recognized in other comprehensive gain (loss). The fair value of these available-for-sale debt securities in unrealized loss positions was $38.5 million and $403.1 million as of June 30, 2019 and December 31, 2018, respectively.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows.

(in thousands)
 
June 30, 2019
 
December 31, 2018
 
June 30, 2018
 
December 31, 2017
Cash and cash equivalents
 
$
220,578

 
$
79,749

 
$
73,311

 
$
49,060

Restricted cash
 
2,610

 
2,626

 
2,130

 
2,177

Cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows
 
$
223,188

 
$
82,375

 
$
75,441

 
$
51,237




14



Note 4. Inventories
 
Inventories consist of raw materials, work-in-process, and finished goods related to the manufacture of Galafold®. The following table summarizes the components of inventories:
 
(in thousands)
 
June 30, 2019
 
December 31, 2018
Raw materials
 
$
4,018

 
$
1,291

Work-in-process
 
3,320

 
3,485

Finished goods
 
3,057

 
3,614

Total inventories
 
$
10,395

 
$
8,390


 
The Company recorded a reserve for inventory of $0.2 million as of June 30, 2019 and December 31, 2018. 

Note 5. Debt
 
Senior Secured Term Loan due 2023
 
In September 2018, the Company entered into a loan agreement with BioPharma Credit PLC as the lender. The loan agreement provides for a $150 million senior secured term loan ("Senior Secured Term Loan") with an interest rate equal to the 3-month LIBOR plus 7.50% per annum and matures 5 years from the maturity date. The Senior Secured Term Loan will be repaid in four quarterly payments equal to 12.50% thereof starting on the forty-eight month anniversary of the date of the first credit extension with the balance due on the Maturity Date. Interest is payable quarterly in arrears. The Senior Secured Term Loan contains certain customary representations and warranties, affirmative and negative covenants, and events of default applicable to the Company and certain of its subsidiaries, but does not include any financial covenants relating to the achievement or maintenance of revenue or cash flow. If an event of default occurs and is continuing, the lender may declare all amounts outstanding under the Senior Secured Term Loan to be immediately due and payable. The Company received net proceeds of $146.6 million in September 2018, after deducting fees and estimated expenses payable by the Company.
Convertible Notes due 2023
 
In December 2016, the Company issued at par value $250 million aggregate principal amount of Convertible Notes, which included the exercise in full of the $25 million over-allotment option granted to the initial purchasers of the Convertible Notes in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act (the "Note Offering"). Interest is payable semiannually on June 15 and December 15 of each year, beginning on June 15, 2017. The Convertible Notes will mature on December 15, 2023, unless earlier repurchased, redeemed, or converted in accordance with their terms. The Convertible Notes are convertible at the option of the Holders, under certain circumstances and during certain periods, into cash, shares of the Company's common stock or a combination thereof. The net proceeds from the Note Offering were $243.0 million, after deducting fees and estimated expenses payable by the Company. In addition, the Company used $13.5 million of the net proceeds from the issuance of the Convertible Notes to pay the cost of the capped call transactions ("Capped Call Confirmations") that the Company entered into in connection with the issuance of the Convertible Notes. In accounting for the issuance of the Convertible Notes, the Company separated the Convertible Notes into liability and equity components based on their relative values. The Convertible Notes were initially convertible into 40.8 million shares of the Company's common stock under certain circumstances prior to maturity at a conversion rate of 163.3987 shares per $1,000 principal amount of Convertible Notes, which represents a conversion price of $6.12 per share of the Company's common stock, subject to adjustment under certain conditions.

On February 15, 2018, the Company entered into an underwriting agreement relating to an underwritten public offering of 19.4 million shares of the Company's common stock. Under the terms of the underwriting agreement, the Company granted the underwriters an option, exercisable for 30 days after February 16, 2018, to purchase up to an additional 2.9 million shares of the Company's common stock, which was exercised with respect to 885,000 shares of the Company's common stock.


15



Subsequent to the underwritten public offering on February 15, 2018, the Company did not have sufficient unissued authorized shares to cover a conversion of the Convertible Notes. As a result, the Company accounted for the portion of the bifurcated conversion feature and of the Capped Call Confirmations that would not be able to be net share settled as a current derivative liability and as a derivative asset, respectively. The fair value of the derivative liability for the conversion feature and derivative asset for the Capped Call Confirmations at February 15, 2018 was determined to be $507.4 million and $13.6 million, respectively, of which the portion that was determined to not be able to be net share settled was recorded with a corresponding impact to additional-paid-in-capital. Subsequent changes to fair value of the derivatives were recorded through earnings on the Consolidated Statements of Operations resulting in a change in fair value of derivatives for the three and six months ended June 30, 2018 of $(7.6) million and $(2.7) million, respectively.

Following the approval by the stockholders of the Company on June 7, 2018, to increase the authorized shares of common stock to 500,000,000, the Company has sufficient unissued authorized shares to cover a conversion of the Convertible Notes. As a result, the derivative liability and derivative asset were reclassified into additional-paid-in-capital. The fair value of the derivative liability for the conversion feature and derivative asset for the Capped Call Confirmations at June 7, 2018 was determined to be $88.3 million and $2.4 million, respectively.

During the six months ended June 30, 2019, the Company entered into separate, privately negotiated Exchange Agreements with the Holders of the Convertible Notes. Under the terms of the Exchange Agreements , the Holders agreed to exchange an aggregate principal amount of $247.2 million of Convertible Notes held by them in exchange for an aggregate of approximately 44.0 million shares of Company common stock, par value $0.01 per share. In addition, pursuant to the Exchange Agreements, the Company made aggregate cash payments of $1.3 million during the six months ended June 30, 2019, to the Holders to satisfy accrued and unpaid interest to the closing date of the transaction, along with cash in lieu of fractional shares. The transaction resulted in $215.0 million in additional paid-in-capital and common stock of $0.4 million in the Consolidated Balance Sheets as of June 30, 2019. Additionally, the Company recognized a net loss on the exchange of debt of $36.1 million and $4.5 million in the Consolidated Statements of Operations for the quarters ended March 31, 2019 and June 30, 2019, respectively.
The last reported sale price of the Company's common stock was equal to or more than 130% of the conversion price of the Convertible Notes for at least 20 trading days of the 30 consecutive trading days ending on the last day of the second quarter. As a result, the remaining Convertible Notes are currently convertible into the Company's common stock.
During the six months ended June 30, 2019, the Company also terminated the Capped Call Confirmations related to the exchange of the Convertible Notes for proceeds of $19.9 million.
The Convertible Notes and Senior Secured Term Loan consist of the following:

Liability component (in thousands)
 
June 30, 2019
 
December 31, 2018
Principal
 
$
152,825

 
$
400,000

Less: debt discount
(1) 
 
(3,373
)
 
(74,145
)
Less: deferred financing
(1) 
 
(388
)
 
(4,115
)
Net carrying value of the debt
 
$
149,064

 
$
321,740

 
______________________________________
(1) Included in the Consolidated Balance Sheets within Convertible Notes and Senior Secured Term Loan and amortized to interest expense over the remaining life of the Convertible Notes and Senior Secured Term Loan using the effective interest rate method.
 
The following table sets forth total interest expense recognized related to the Convertible Notes and Senior Secured Term Loan for the three and six months ended June 30, 2019 and 2018, respectively:
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Interest component (in thousands)
 
2019
 
2018
 
2019
 
2018
Contractual interest expense
 
$
4,146

 
$
1,888

 
$
8,959

 
$
3,775

Amortization of debt discount
 
423

 
2,539

 
1,982

 
5,011

Amortization of deferred financing
 
39

 
133

 
122

 
262

Total
 
$
4,608

 
$
4,560

 
$
11,063

 
$
9,048




16



Note 6. Stockholders' Equity

During the six months ended June 30, 2019, 101,787 warrants were exercised at $7.98 per share of common stock resulting in gross cash proceeds of $0.8 million.

As discussed in "— Note 1. Business" during the second quarter of 2019, the Company completed an underwritten equity offering and issued 18.7 million shares of its common stock at $10.75 per share, inclusive of the fully exercised option to purchase additional shares from the initial offering. This transaction resulted in net proceeds of $189.0 million, after deducting underwriting discounts and commissions and offering expenses.

As discussed in ''— Note 5. Debt'' during the six months ended June 30, 2019, the Company entered into separate, privately negotiated Exchange Agreements with the Holders of the Convertible Notes. Under the terms of the Exchange Agreements, the Holders agreed to exchange an aggregate principal amount of $247.2 million of Convertible Notes held by them in exchange for an aggregate of approximately 44.0 million shares of Company common stock, par value $0.01 per share.

As discussed in "— Note 8. Assets and Liabilities Measured at Fair Value", the Company reached a clinical milestone, which was the dosing of the first patient in a Phase 3 study, related to the contingent consideration from the acquisition of Callidus. The milestone for this event was $9.0 million, which was paid in Company common stock in the first quarter of 2019, and resulted in a $9.3 million impact on stockholder's equity.

 

Note 7. Share-Based Compensation
 
The Company's Equity Incentive Plans consist of the Amended and Restated 2007 Equity Incentive Plan (the "Plan") and the 2007 Director Option Plan (the "2007 Director Plan"). The Plan provides for the granting of restricted stock units and options to purchase common stock in the Company to employees, directors, advisors, and consultants at a price to be determined by the Company's Board of Directors. The Plan is intended to encourage ownership of stock by employees and consultants of the Company and to provide additional incentives for them to promote the success of the Company's business. The 2007 Director Plan is intended to promote the recruiting and retention of highly qualified eligible directors and strengthen the commonality of interest between directors and stockholders by encouraging ownership of common stock of the Company. The Board of Directors, or its committee, is responsible for determining the individuals to be granted options, the number of options each individual will receive, the option price per share, and the exercise period of each option.

Stock Option Grants

The fair value of the stock options granted is estimated on the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Expected stock price volatility
74.2
%
 
81.1
%
 
74.2
%
 
81.2
%
Risk free interest rate
2.0
%
 
2.8
%
 
2.4
%
 
2.4
%
Expected life of options (years)
(1) 
5.68

 
5.62

 
5.68

 
5.62

Expected annual dividend per share
$

 
$

 
$

 
$

 
______________________________________
(1) The average expected life is determined using actual historical data.
 

17



A summary of the Company's stock options for the six months ended June 30, 2019 were as follows:

 
Number of
Shares
 
Weighted
Average
Exercise Price
 
Weighted
Average
Remaining
Contractual Life
 
Aggregate
Intrinsic
Value
 
(in thousands)
 
 
 
 
 
(in millions)
Options outstanding, December 31, 2018
15,810

 
$
8.63