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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 September 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: 001-38558
https://cdn.kscope.io/0106e3b1d0de066123c905cd1ecc5f63-tcda-20200930_g1.jpg
TRICIDA, INC.
(Exact name of registrant as specified in its charter)
Delaware46-3372526
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
7000 Shoreline Court, Suite 201, South San Francisco, CA 94080
(Address of principal executive offices, including zip code)
(415) 429-7800
(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 exchange on which registered
Common stock, par value $0.001 per shareTCDAThe Nasdaq Global Select 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, 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 filerSmaller 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
On October 30, 2020, the registrant had 50,184,500 shares of common stock, par value $0.001 per share, outstanding.



TABLE OF CONTENTS
Note Regarding Forward-Looking Statements
Part I. Financial Information
Item 1.Financial Statements (Unaudited):
Condensed Balance Sheets as of September 30, 2020 and December 31, 2019
Condensed Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2020 and 2019
Condensed Statements of Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019
Condensed Statements of Cash Flows for the nine months ended September 30, 2020 and 2019
Notes to Condensed Financial Statements
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
Signatures




NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. Forward-looking statements generally can be identified by words such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:
estimates of our expenses, capital requirements and our needs for additional financing;
the prospects of veverimer (also known as TRC101), our only investigational drug candidate, which is still in development;
our ability to obtain approval of our New Drug Application, or NDA, for veverimer from the U.S. Food and Drug Administration, or FDA, under either conventional approval or the Accelerated Approval Program, if at all;
our ability to resolve the issues identified by the FDA in a Complete Response Letter related to our NDA for veverimer;
our expectations regarding the timing of the completion of any nonclinical or clinical study;
the design of our ongoing VALOR-CKD trial (also known as TRCA-303), including the sample size, trial duration, endpoint definition, event rate assumptions and eligibility criteria;
our expectations regarding the timing of the enrollment, endpoint accrual, completion and reporting of our VALOR-CKD trial;
the outcome and results of our VALOR-CKD trial;
the market acceptance or commercial success of veverimer, if approved, and the degree of acceptance among physicians, patients, patient advocacy groups, health care payers and the medical community;
our expectations regarding competition, potential market size and the size of the patient population for veverimer, if approved for commercial use;
our expectations regarding our ability to draw under our credit facility with Hercules Capital, Inc. and Hercules Technology III, L.P.;
our expectations regarding the safety, efficacy and clinical benefit of veverimer;
our ability to achieve and maintain regulatory approval of veverimer, and any related requirements, restrictions, limitations and/or warnings in the label of veverimer;
our sales, marketing or distribution capabilities and our ability to commercialize veverimer, if we obtain regulatory approval;
our current and future agreements with third parties in connection with the manufacturing, commercialization, packaging and distribution of veverimer;
our expectations regarding the ability of our contract manufacturing partners to produce veverimer in the quantities and timeframe that we will require;
our expectations regarding our future costs of goods;
our ability to attract, retain and motivate key personnel;

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the scope of protection we are able to establish and maintain for intellectual property rights covering veverimer;
potential claims relating to our intellectual property and third-party intellectual property;
the duration of our intellectual property estate that will provide protection for veverimer;
our ability to establish collaborations in lieu of obtaining additional financing;
the potential impact of pandemics, including the recent 2019 novel coronavirus disease, or COVID-19, caused by the severe acute respiratory coronavirus 2, or SARS-CoV-2, on the financial markets in general and on our business in particular; and
our financial performance.
These forward-looking statements are based on management’s current expectations, estimates, forecasts, and projections about our business and the industry in which we operate and management’s beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed in Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Investors in our securities are urged to consider these factors carefully in evaluating the forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. Investors in our securities should, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission after the date of this Quarterly Report on Form 10-Q.

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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRICIDA, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share amounts)
September 30,
2020
December 31,
2019
 
Assets
Current assets:
Cash and cash equivalents$29,712 $18,574 
Short-term investments288,284 289,424 
Prepaid expenses and other current assets8,063 4,744 
Total current assets326,059 312,742 
Long-term investments57,629 46,980 
Property and equipment, net1,782 2,728 
Operating lease right-of-use assets14,204 9,376 
Total assets$399,674 $371,826 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$1,787 $5,911 
Current operating lease liabilities1,822 1,072 
Current Term Loan13,714  
Accrued expenses and other current liabilities29,260 32,780 
Total current liabilities46,583 39,763 
Non-current Term Loan, net61,957 58,374 
Convertible Senior Notes, net116,625  
Non-current operating lease liabilities13,458 8,783 
Other long-term liabilities278 1,023 
Total liabilities238,901 107,943 
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.001 par value; 40,000,000 shares authorized, no shares issued or outstanding as of September 30, 2020 and December 31, 2019.
  
Common stock, $0.001 par value; 400,000,000 shares authorized as of September 30, 2020 and December 31, 2019; 50,184,240 and 49,763,176 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively.
50 50 
Additional paid-in capital739,247 632,647 
Accumulated other comprehensive income (loss)432 193 
Accumulated deficit(578,956)(369,007)
Total stockholders’ equity160,773 263,883 
Total liabilities and stockholders’ equity$399,674 $371,826 
See accompanying notes to condensed financial statements (unaudited).

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TRICIDA, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(in thousands, except share and per share amounts)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Operating expenses:
Research and development$42,996 $31,976 $121,134 $92,375 
General and administrative29,273 13,120 81,217 28,333 
Total operating expenses72,269 45,096 202,351 120,708 
Loss from operations(72,269)(45,096)(202,351)(120,708)
Other income (expense), net907 2,387 4,395 6,256 
Interest expense(6,267)(1,410)(12,043)(4,190)
Loss before income taxes(77,629)(44,119)(209,999)(118,642)
Income tax benefit (expense)(36) 50  
Net loss(77,665)(44,119)(209,949)(118,642)
Other comprehensive income (loss):
Net unrealized gain (loss) on available-for-sale investments, net of tax(431)(143)239 639 
Total comprehensive loss$(78,096)$(44,262)$(209,710)$(118,003)
Net loss per share, basic and diluted$(1.55)$(0.89)$(4.20)$(2.53)
Weighted-average number of shares outstanding, basic and diluted50,120,086 49,418,025 49,974,388 46,813,876 
See accompanying notes to condensed financial statements (unaudited).

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TRICIDA, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
 Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders’ Equity
 SharesAmount
Balance at December 31, 2019
49,763,176 $50 $632,647 $193 $(369,007)$263,883 
Issuance of common stock under equity incentive plans150,056 — 550 — — 550 
Stock-based compensation— — 8,374 — — 8,374 
Net unrealized gain (loss) on available-for-sale investments, net of tax— — — (232)— (232)
Net loss— — — — (74,114)(74,114)
Balance at March 31, 202049,913,232 50 641,571 (39)(443,121)198,461 
Equity component of Convertible Senior Notes, net of underwriter discounts and issuance costs— — 79,498 — — 79,498 
Issuance of warrants in connection with Term Loan— — 112 — — 112 
Issuance of common stock under equity incentive plans126,355 — 1,098 — — 1,098 
Stock-based compensation— — 9,079 — — 9,079 
Net unrealized gain (loss) on available-for-sale investments, net of tax— — — 902 — 902 
Net loss— — — — (58,170)(58,170)
Balance at June 30, 202050,039,587 50 731,358 863 (501,291)230,980 
Issuance of common stock upon exercises of warrants in connection with Term Loan68,816 — — — —  
Issuance of common stock under equity incentive plans75,837 — 234 — — 234 
Stock-based compensation— — 7,655 — — 7,655 
Net unrealized gain (loss) on available-for-sale investments, net of tax— — — (431)— (431)
Net loss— — — — (77,665)(77,665)
Balance at September 30, 202050,184,240 $50 $739,247 $432 $(578,956)$160,773 


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 Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders’ Equity
 SharesAmount
Balance at December 31, 2018
42,148,247 $42 $386,830 $(153)$(192,194)$194,525 
Issuance of warrant in connection with Term Loan— — 284 — — 284 
Issuance of common stock under equity incentive plans527,859 1 736 — — 737 
Stock-based compensation— — 2,658 — — 2,658 
Net unrealized gain (loss) on available-for-sale investments— — — 302 — 302 
Net loss— — — — (37,897)(37,897)
Balance at March 31, 201942,676,106 43 390,508 149 (230,091)160,609 
Issuance of common stock in connection with public offering, net of underwriter discounts and issuance costs6,440,000 6 217,003 — — 217,009 
Issuance of common stock under equity incentive plans160,339 — 959 — — 959 
Stock-based compensation— — 4,413 — — 4,413 
Net unrealized gain (loss) on available-for-sale investments— — — 480 — 480 
Net loss— — — — (36,626)(36,626)
Balance at June 30, 201949,276,445 49 612,883 629 (266,717)346,844 
Issuance of common stock under equity incentive plans255,471 1 358 — — 359 
Stock-based compensation— — 8,682 — — 8,682 
Net unrealized gain (loss) on available-for-sale investments— — — (143)— (143)
Net loss— — — — (44,119)(44,119)
Balance at September 30, 201949,531,916 $50 $621,923 $486 $(310,836)$311,623 
See accompanying notes to condensed financial statements (unaudited).

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TRICIDA, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 Nine Months Ended
September 30,
 20202019
Operating activities:
Net loss$(209,949)$(118,642)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization716 524 
Non-cash operating lease costs597 646 
Accretion (amortization) of premiums and discounts on investments(264)(3,143)
Accretion of Term Loan and Convertible Senior Notes5,246 1,564 
Stock-based compensation25,108 15,753 
Changes in fair value of compound derivative liability
(699)259 
Other non-cash items(50) 
Changes in operating assets and liabilities:
Prepaid expenses and other assets(3,341)(1,562)
Accounts payable(4,113)(4,235)
Accrued expenses and other liabilities(2,069)9,544 
Operating lease liabilities (584)
Net cash used in operating activities(188,818)(99,876)
Investing activities:
Purchases of investments(276,958)(375,385)
Maturities of investments268,015 252,155 
Purchases of property and equipment(1,197)(1,117)
Net cash used in investing activities(10,140)(124,347)
Financing activities:
Proceeds from equity offerings, net 217,930 
Payments of equity offering costs (921)
Proceeds from issuance of common stock under equity incentive plans1,897 1,944 
Proceeds from Convertible Senior Notes, net193,285  
Repayment of leasehold improvement loan(57)(85)
Proceeds (payments) under Term Loan, net14,971 (1,449)
Net cash provided by financing activities210,096 217,419 
Net increase (decrease) in cash and cash equivalents11,138 (6,804)
Cash and cash equivalents at beginning of period18,574 37,172 
Cash and cash equivalents at end of period$29,712 $30,368 
Supplemental disclosures
Cash paid for interest$4,137 $2,504 
Supplemental disclosures of non-cash investing and financing activities
Right-of-use assets obtained in exchange for lease obligations$5,820 $8,084 
Issuance of warrants related to Term Loan$112 $284 
Purchases of property and equipment included in accounts payable and accrued expenses$644 $271 
See accompanying notes to condensed financial statements (unaudited).

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TRICIDA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Organization—Tricida, Inc., or the Company, was incorporated in the state of Delaware on May 22, 2013 and was granted its certification of qualification in the state of California on August 5, 2013, or inception. The Company is focused on the development and commercialization of its investigational drug candidate, veverimer (also known as TRC101), a non-absorbed, orally-administered polymer designed to treat metabolic acidosis in patients with chronic kidney disease.
The Company has sustained operating losses and expects such annual losses to continue over the next several years. The Company’s ultimate success depends on the outcome of its research and development and commercialization activities for veverimer, for which it expects to incur additional losses in the future. Through September 30, 2020, the Company has relied primarily on the proceeds from equity offerings and debt financing to finance its operations.
The Company recognizes that it may need to raise additional capital to fully implement its business plan, and if market conditions are favorable or if the Company identifies specific strategic opportunities or needs, intends to do so through the issuance of equity, borrowings, or strategic alliances with partner companies. However, if such financing is not available at adequate levels or on reasonable terms, the Company will need to reevaluate its operating plans and could be required to significantly reduce operating expenses and delay, reduce the scope of or eliminate some of its development programs or its future commercialization efforts, out-license intellectual property rights to its investigational drug candidates and sell unsecured assets, or a combination of the above, any of which may have a material adverse effect on its business, results of operations, financial condition and/or its ability to fund its scheduled obligations on a timely basis or at all.
Basis of Presentation—The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The condensed balance sheet as of September 30, 2020, the condensed statements of operations and comprehensive loss for the three and nine months ended September 30, 2020 and 2019, the condensed statements of stockholders' equity for the three and nine months ended September 30, 2020 and 2019 and the condensed statements of cash flows for the nine months ended September 30, 2020 and 2019 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The condensed balance sheet at December 31, 2019 has been derived from audited financial statements.
Although the Company believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and footnote information normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.
Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
With the exception of the change for the accounting of credit losses as a result of the adoption of Accounting Standards Update, or ASU, 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13, there have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, that are of significance, or potential significance, to the Company.
Credit Losses
The Company is exposed to credit losses primarily through its available-for-sale investments. The Company invests excess cash in marketable securities with high credit ratings that are classified in Level 1 and Level 2 of the

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fair value hierarchy. The Company's investment portfolio at any point in time contains investments in U.S. treasury and U.S. government agency securities, taxable and tax-exempt municipal notes, corporate notes and bonds, commercial paper, non-U.S. government agency securities and money market funds, and are classified as available-for-sale. The Company assesses whether its available-for sale investments are impaired at each reporting period. Unrealized losses or impairments resulting from the fair value of any available-for-sale debt security exceeding its amortized cost basis are evaluated for identification of credit losses and non-credit related losses. Any credit losses are charged to earnings against the allowance for credit losses of the debt security, limited to the difference between the fair value and the amortized cost basis of the debt security. Any difference between the fair value of the debt security and the amortized cost basis, less the allowance for expected credit losses, are reported in other comprehensive income (loss). Expected cash inflows due to improvements in credit are recognized through a reversal of the allowance for expected credit losses subject to the total allowance previously recognized. The Company’s expected loss allowance methodology for the debt securities was developed by reviewing the extent of the unrealized loss, the size, term, geographical location, and industry of the issuer, the issuers’ credit ratings and any changes in those ratings, as well as reviewing current and future economic market conditions and the issuers’ current status and financial condition. The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and determined that the allowance for expected credit losses was not significantly impacted. As of September 30, 2020, the Company has not recognized an allowance for expected credit losses related to available-for-sale investments as the Company has not identified any unrealized losses for these investments attributable to credit factors.
Recent Accounting Pronouncements
Adopted Standards
Effective January 1, 2020, the Company adopted ASU No. 2016-13, which changed the impairment model for most financial assets and certain other instruments. The Company adopted ASU 2016-13 on January 1, 2020, using a modified retrospective transition method, which requires a cumulative-effect adjustment, if any, to the opening balance of retained earnings to be recognized on the date of adoption with prior periods not restated. The adoption of ASU 2016-13 did not have a significant impact on the Company's condensed financial statements. See "Credit Losses" above for a description of the Company's credit losses accounting policy.
Standards Not Yet Effective
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, or ASU 2019-12, which simplifies the accounting for income taxes. ASU 2019-12 is effective for public business entities for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2020 on a prospective basis, and early adoption is permitted. The Company does not expect the adoption of ASU 2019-12 will have a significant impact on its financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), or ASU 2020-06. ASU 2020-06 simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in Accounting Standards Codification, or ASC, 470-20, Debt – Debt with Conversion and Other Options, or ASC 470-20, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. The guidance in ASC 470-20 applies to convertible instruments for which the embedded conversion features are not required to be bifurcated from the host contract and accounted for as derivatives. In addition, the amendments revise the scope exception from derivative accounting in ASC 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity, for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification. These amendments are expected to result in more freestanding financial instruments qualifying for equity classification (and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract. The amendments in ASU 2020-06 further revise the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share, or EPS, for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. ASU 2020-06 is effective for public business entities for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2021 on a prospective basis, and early adoption is permitted. The Company is currently evaluating the impact this guidance will have on its financial statements.

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NOTE 3. FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company’s financial assets and liabilities are determined in accordance with the fair value hierarchy established in the FASB's ASC Topic 820, Fair Value Measurements and Disclosures, or Topic 820. Topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy of Topic 820 requires an entity to maximize the use of observable inputs when measuring fair value and classifies those inputs into three levels:
Level 1—Observable inputs, such as quoted prices in active markets;
Level 2—Inputs, other than the quoted prices in active markets, which are observable either directly or indirectly 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 instrument’s anticipated life; and
Level 3—Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Our financial instruments consist primarily of cash and cash equivalents, short-term and long-term investments, accounts payable, the Loan and Security Agreement, or Term Loan, entered into with Hercules Capital Inc., or Hercules, and the Convertible Senior Notes.
Cash, cash equivalents and investments are reported at their respective fair values on the Company's condensed balance sheets. Where quoted prices are available in an active market, securities are classified as Level 1. The Company classifies money market funds and U.S. Treasury securities as Level 1. When quoted market prices are not available for the specific security, then the Company estimates fair value by using quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models incorporate expected future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third-party data providers, including but not limited to benchmark yields, reported trades and broker/dealer quotes. Where applicable the market approach utilizes prices and information from market transactions for similar or identical assets. The Company classifies U.S. government agency securities, commercial paper, corporate debt securities and asset-backed securities as Level 2. The Company's short-term and long-term investments are classified as available-for-sale.
The following tables set forth the value of the Company's financial assets remeasured on a recurring basis based on the three-tier fair value hierarchy by significant investment category as of September 30, 2020 and December 31, 2019.
September 30, 2020
Reported as:
(in thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair ValueCash and Cash EquivalentsShort-Term InvestmentsLong-Term Investments
Cash$1,984 $— $— $1,984 $1,984 $— $— 
Level 1:
Money market funds27,728 — — 27,728 27,728 — — 
U.S. Treasury securities35,988 13 (1)36,000  29,816 6,184 
Subtotal63,716 13 (1)63,728 27,728 29,816 6,184 
Level 2:
U.S. government agency securities 73,242 18 (3)73,257  21,812 51,445 
Commercial paper
120,791 159 (4)120,946  120,946  
Corporate debt securities
115,306 406 (2)115,710  115,710  
Subtotal309,339 583 (9)309,913  258,468 51,445 
Total assets measured at fair value
$375,039 $596 $(10)$375,625 $29,712 $288,284 $57,629 

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December 31, 2019
Reported as:
(in thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair ValueCash and Cash EquivalentsShort-Term InvestmentsLong-Term Investments
Cash$1,393 $— $— $1,393 $1,393 $— $— 
Level 1:
Money market funds
17,181 — — 17,181 17,181 — — 
Level 2:
U.S. government agency securities40,741 6 (14)40,733  19,990 20,743 
Commercial paper
108,248 107 (2)108,353  108,353  
Corporate debt securities
185,569 205 (20)185,754  159,517 26,237 
Asset-backed securities
1,561 3  1,564  1,564  
Subtotal336,119 321 (36)336,404  289,424 46,980 
Total assets measured at fair value
$354,693 $321 $(36)$354,978 $18,574 $289,424 $46,980 
Interest income related to the Company's cash, cash equivalents and available-for-sale investments included in other income (expense), net was approximately $0.9 million and $2.5 million for the three months ended September 30, 2020 and 2019, respectively, and $3.8 million and $6.7 million for the nine months ended September 30, 2020 and 2019, respectively. There were no gross realized gains and gross realized losses for the three and nine months ended September 30, 2020 and 2019.
The following table summarizes the Company's available-for-sale investments that were in a continuous unrealized loss position but not deemed due to credit losses and therefore not required to be charged to earnings against the allowance for expected credit losses, as of September 30, 2020 and December 31, 2019.
September 30, 2020December 31, 2019
(in thousands)Fair ValueUnrealized LossesFair ValueUnrealized Losses
U.S. Treasury securities$6,184 $(1)$ $ 
U.S. government agency securities29,473 (3)24,235 (14)
Commercial paper9,977 (4)5,426 (2)
Corporate debt securities4,711 (2)38,668 (20)
Total$50,345 $(10)$68,329 $(36)
The Company held a total of 8 and 18 positions which were in an unrealized loss position as of September 30, 2020 and December 31, 2019, respectively. All available-for-sale investments in an unrealized loss position were in a continuous loss position for less than 12 months. The Company determined that there was no allowance for expected credit losses related to our available-for-sale investments as of September 30, 2020 because the Company does not believe that it will be required to sell these securities before the recovery of their amortized cost basis.
The following table summarizes the maturities of the Company’s cash equivalents (excluding money market funds) and available-for-sale investments, as of September 30, 2020.
(in thousands)Amortized CostFair Value
Mature in less than one year$287,707 $288,284 
Mature in one to five years57,620 57,629 
Total$345,327 $345,913 

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The following table presents a reconciliation of financial liabilities related to the compound derivative liability associated with the Term Loan measured at fair value on a recurring basis using Level 3 unobservable inputs for the nine months ended September 30, 2020 and 2019.
Nine Months Ended September 30,
20202019
(in thousands)Compound Derivative LiabilityCompound Derivative Liability
Fair value at beginning of period$977 $161 
Change in fair value(699)259 
Fair value at end of period$278 $420 
The following table presents information about significant unobservable inputs related to the Company's Level 3 financial liabilities as of September 30, 2020.
September 30, 2020
(in thousands)Fair ValueValuation TechniqueSignificant Unobservable InputInput
Compound derivative liability$278 Discounted cash flowDiscount rate9.5 %
Probability of the occurrence of certain events
20.0 %
The estimated fair value of the Term Loan was $80.1 million as of September 30, 2020 and was classified as Level 3. The key valuation assumptions used consist of the discount rate of 9.5% and the probability of the occurrence of certain events of 20.0%. The estimated fair value of the Convertible Senior Notes was $117.7 million as of September 30, 2020 and they were classified as Level 3. The key valuation assumptions used consist of the discount rate of 15.3% and volatility of 62.0%.
NOTE 4. LEASES
The Company accounts for leases under ASU No. 2016-02, Leases (Topic 842), adopted as of January 1, 2019.
In July 2014, the Company entered into a five-year noncancelable operating lease for its offices and laboratory space in South San Francisco, California that was scheduled to expire in June 2019, with an option for the Company to extend the lease for an additional three years. In August 2017, the Company entered into an amendment which extended the existing operating lease to June 2021 and added 13,258 square feet of additional lease space resulting in a total of 26,987 square feet being leased in the aggregate under the amended lease. In November 2017, the Company entered into a second amendment which reduced the common areas resulting in a total of 26,897 square feet being leased in aggregate under the second amendment.
On August 14, 2019, the Company entered into a third amendment to the existing operating lease which extended the leased space by an additional 19,177 square feet, or Second Expansion Premises, which resulted in a total of 46,074 square feet being leased in aggregate. The operating lease for the Second Expansion Premises commenced on September 1, 2020, or the Second Expansion Premises Commencement Date. In conjunction with the third amendment, the Company also agreed to lease 5,569 square feet of temporary office space effective August 15, 2019 to the Second Expansion Premises Commencement Date. The third amendment extended the lease by 84 months from the Second Expansion Premises Commencement Date, with an option to extend the lease for an additional 36 months subject to certain conditions. The Company determined that the Second Expansion Premises shall be accounted for as a new lease at the Second Expansion Premises Commencement Date. Further, the Company determined that the amendment to the existing operating lease and temporary office space shall be accounted as a lease modification upon execution of the third amendment. The Company recognized an operating lease right-of-use, or ROU, asset of $8.1 million and operating lease liability of $8.1 million on its condensed balance sheet upon the execution of the third amendment on August 14, 2019, and measured and recorded an additional ROU asset of $5.8 million and operating lease liability of $5.8 million for the Second Expansion Premises upon the Second Expansion Premises Commencement Date of September 1, 2020.
Operating lease cost was $0.6 million and $0.4 million for the three months ended September 30, 2020 and 2019, respectively, and $1.5 million and $0.9 million for the nine months ended September 30, 2020 and 2019, respectively. Variable lease cost was $0.2 million for the three months ended September 30, 2020 and 2019 and

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$0.5 million for the nine months ended September 30, 2020 and 2019. Operating cash flows were $0.9 million and $0.8 million for the nine months ended September 30, 2020 and 2019, respectively. Expenses related to short-term leases were not significant for the three and nine months ended September 30, 2020 and 2019.
The following table presents the maturity analysis of the Company's operating lease liabilities showing the aggregate lease payments as of September 30, 2020.
(in thousands)September 30,
2020
2020 (remaining three months)432 
20212,171 
20222,847 
20232,933 
20243,020 
2025 and thereafter8,494 
Total lease payments19,897 
Less: imputed interest(4,617)
Total operating lease liabilities$15,280 
Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate. The weighted-average incremental borrowing rate used to determine the operating lease liabilities was 7.4% and 6.0% as of September 30, 2020 and December 31, 2019, respectively. The Company's weighted-average remaining lease term was 6.9 years and 7.7 years as of September 30, 2020 and December 31, 2019, respectively.
NOTE 5. OTHER BALANCE SHEET COMPONENTS
Property and Equipment, Net
The following table presents the components of property and equipment, net as of September 30, 2020 and December 31, 2019.
(in thousands)September 30,
2020
December 31,
2019
Furniture and fixtures$558 $265 
Computer and lab equipment3,252 3,867 
Leasehold improvements1,336 1,244 
5,146 5,376 
Less: accumulated depreciation and amortization(3,364)(2,648)
Total property and equipment, net$1,782 $2,728 
Depreciation and amortization expense was approximately $0.2 million for the three months ended September 30, 2020 and 2019, and $0.7 million and $0.5 million for the nine months ended September 30, 2020 and 2019, respectively.

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Accrued Expenses and Other Current Liabilities
The following table presents the components of accrued expenses and other current liabilities as of September 30, 2020 and December 31, 2019.
(in thousands)September 30,
2020
December 31,
2019
Accrued clinical and nonclinical study costs$6,872 $8,343 
Accrued contract manufacturing9,613 17,343 
Accrued compensation4,425 3,367 
Accrued interest3,030  
Accrued professional fees and other5,320 3,727 
Total accrued expenses and other current liabilities$29,260 $32,780 

NOTE 6. BORROWINGS
Term Loan
On February 28, 2018, the Company entered into the Term Loan with Hercules. The Term Loan provided for a loan in an aggregate principal amount of up to $100.0 million to be funded in five tranches subject to certain performance-based milestones. The first tranche, in the amount of $25.0 million, was funded on the closing date of the Term Loan.
On October 15, 2018, the Company and Hercules entered into the second amendment to the Term Loan, which amended certain terms of the Term Loan. After giving effect to the second amendment, the Term Loan continued to provide for a loan in an aggregate principal amount of up to $100.0 million to be funded in five tranches subject to certain performance-based milestones. The second tranche was reduced from $25.0 million to $15.0 million and was funded on December 28, 2018. The Company accounted for the second amendment as a modification to the existing Term Loan.
On March 27, 2019, the Company modified the Term Loan with Hercules by entering into the third amendment to the Term Loan. After giving effect to the third amendment, the amount available under the Term Loan was increased from up to $100.0 million to up to $200.0 million to be funded in tranches, subject to certain performance-based milestones, and the maturity of the Term Loan was extended. Under the terms of the Term Loan, as amended by the third amendment, the $40.0 million of principal outstanding under the Term Loan at the date of modification remained outstanding, and additional tranches of $20.0 million and $15.0 million were available for draw down prior to December 15, 2019 and December 15, 2020, respectively. An additional tranche of $75.0 million was to be available for draw down between January 1, 2020 and December 15, 2020, on the condition that the Company obtains final approval from the U.S. Food and Drug Administration, or FDA, of the New Drug Application, or NDA, for veverimer. A final tranche of $50.0 million will be available for draw down on or prior to December 15, 2021, upon request by the Company and the approval of Hercules' investment committee. The Company accounted for the third amendment as a modification to the existing Term Loan. On December 13, 2019, the third tranche of the Term Loan was funded in the amount of $20.0 million.
On March 31, 2020, the Company and Hercules entered into the fourth amendment to the Term Loan. After giving effect to the fourth amendment, the fourth tranche of amount $15.0 million previously under Hercules Capital, Inc. was split between two lenders, $5.0 million under Hercules Capital, Inc. and $10.0 million under Hercules Technology III, L.P. The Company accounted for the fourth amendment as a modification to the existing Term Loan.
On May 18, 2020, the Company and Hercules entered into the fifth amendment to the Term Loan. After giving effect to the fifth amendment, the additional tranche of $75.0 million was split into two separate tranches of $25.0 million and $50.0 million. The $25.0 million tranche will be available for draw down between January 1, 2020 and December 15, 2020, on the condition that the Company obtains final approval from the FDA of the NDA for veverimer on or before December 15, 2020. The $50.0 million tranche will be available for draw down between January 1, 2021 and June 30, 2021, on the condition that the $25.0 million tranche has been drawn and final approval has been received for the NDA for veverimer on or before December 15, 2020. A final tranche of $50.0 million will be available for draw down on or prior to December 15, 2021, upon request by the Company and

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the approval of Hercules' investment committee. The fifth amendment also permits the issuance by the Company of certain convertible notes and cash payments to redeem or settle such convertible notes in accordance with the terms thereof. Such cash settlement or redemption is subject to a requirement that the Company maintain unrestricted cash in an amount not less than 100% of the outstanding obligations under the Term Loan from and after any such cash settlement or redemption, and that there be no default or event of default under the Term Loan at the time of such cash settlement or redemption. The fifth amendment also provides for an extension of the maturity date of the Term Loan from April 1, 2023, to April 1, 2024 if the $25.0 million tranche is drawn down. The Company accounted for the fifth amendment as a modification to the existing Term Loan. On May 19, 2020, the fourth tranche of the Term Loan was funded in the amount of $15.0 million.
The Term Loan bears interest at a floating per annum interest rate equal to the greater of either (i) 8.35% or (ii) the lesser of (x) 8.35% plus the prime rate as reported in The Wall Street Journal minus 6.00% and (y) 9.85%. The maturity date is April 1, 2023 and may be extended to April 1, 2024 if the tranche of $25.0 million described above is drawn. The Company will initially be making interest-only payments until April 1, 2021. If the Company achieves certain performance milestones, including that the Company obtains final approval from the FDA of the NDA for veverimer on or before December 15, 2020, and financial covenants, the interest-only period could be extended for up to an additional 24 months. Upon expiration of the interest-only period, the Company will repay the Term Loan in equal monthly installments comprised of principal and interest, based on a 30-month amortization schedule, through maturity. The Company will pay an additional amount of (a) $2.6 million due on March 1, 2022 and (b) the product of 7.55% and the aggregate loans funded under the Term Loan due at maturity or on any earlier date on which the loans become due. If the Company prepays the Term Loan, the Company will be required to pay a prepayment charge equal to (i) 2.00% of the amount being prepaid at any time during the first 12 months following the effective date of the third amendment (ii) 1.50% of the amount being prepaid after 12 months but prior to 24 months following the effective date of the third amendment (iii) 1.00% of the amount being prepaid after 24 months but prior to 36 months following the effective date of the third amendment and (iv) zero if prepaid any time after 36 months following the effective date of the third amendment but prior to the maturity.
The Term Loan is secured by substantially all of the Company's assets, except its intellectual property, which is the subject of a negative pledge; however, the collateral does consist of rights to payments and proceeds from the sale, licensing or disposition of all or any part of, or rights in, its intellectual property. Under the Term Loan, the Company is subject to certain covenants, including but not limited to requirements to deliver financial reports at designated times of the year and maintain a minimum level of cash. These covenants also limit or restrict the Company's ability to incur additional indebtedness or liens, acquire, own or make any investments, pay cash dividends, repurchase stock or enter into certain corporate transactions, including mergers and changes of control.
Warrants
In conjunction with the Term Loan entered into on February 28, 2018, the Company issued a warrant to Hercules to purchase 53,458 shares of its common stock with an exercise price of $9.35 per share. The estimated fair value of the warrant at the date of issuance was approximately $0.2 million. The fair value of the common stock warrant liability was determined using the probability-weighted expected return method. It was recorded at its fair value at inception and was remeasured at each financial reporting period with any changes in fair value being recognized as a component of other income (expense), net in the accompanying condensed statements of operations and comprehensive loss.
On April 10, 2018, the Company entered into amendments with Hercules that resulted in the reclassification of the warrant liability to stockholders' equity as the amended terms of the warrants qualified for them to be accounted for as equity instruments and, as such, were no longer subject to remeasurement. The fair value of the common stock warrants of approximately $0.2 million was reclassified to stockholders' equity upon execution of the amendment.
In connection with the funding of the second tranche on December 28, 2018, the Company issued to Hercules a warrant to purchase 53,458 shares of its common stock at an exercise price of $9.35 per share. The common stock warrant was recorded in stockholders' equity at its fair value of approximately $0.9 million on December 28, 2018.
In conjunction with the third amendment, the Company issued warrants to Hercules to purchase 16,721 shares of its common stock with an exercise price of $23.92 per share. The common stock warrants were recorded in stockholders' equity at their fair value of approximately $0.3 million on March 27, 2019. The fair value of the common stock warrants was determined using an option-pricing model with the following assumptions: time to

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liquidity of 7.0 years, volatility of 75.0%, risk-free rate of 2.3% and stock price based on the March 27, 2019 closing price of the Company's common stock reported by The Nasdaq Global Select Market.
In connection with the funding of the third tranche on December 13, 2019, the Company issued to Hercules a warrant to purchase 8,361 shares of its common stock at an exercise price of $23.92 per share. The common stock warrant was recorded in stockholders' equity at its fair value of approximately $0.3 million on December 13, 2019. The fair value of the common stock warrants were determined using an option-pricing model with the following assumptions: time to liquidity of 7.0 years, volatility of 72.7%, risk-free rate of 1.8% and stock price based on the December 13, 2019 closing price of the Company's common stock reported by The Nasdaq Global Select Market.
In connection with the funding of the fourth tranche on May 19, 2020, the Company issued Hercules and Hercules Technology III, L.P. warrants to purchase a total of 6,270 shares of its common stock at an exercise price of $23.92 per share. The common stock warrant was recorded in stockholders' equity at its fair value of approximately $0.1 million on May 19, 2020. The fair value of the common stock warrants was determined using an option-pricing model with the following assumptions: time to liquidity of 7.0 years, volatility of 69.9%, risk-free rate of 0.5% and stock price based on the May 19, 2020 closing price of the Company's common stock reported by The Nasdaq Global Select Market.
In connection with each subsequent draw down under the tranches described above, the Company is obligated to issue additional warrants to purchase a number of shares of the Company's common stock determined by dividing (x) an amount equal to 1.0% of the principal amount of the applicable tranche by (y) $23.92 subject to adjustments following certain corporate events. On July 17, 2020, Hercules and Hercules Technology III, L.P. exercised warrants to purchase 85,533 and 21,383 shares, respectively, of the Company's common stock that the Company had issued on February 28, 2018 and December 28, 2018 at an exercise price of $9.35 per share. A total of 68,816 shares of the Company's common stock was issued to Hercules and Hercules Technology III, L.P. in a net settlement transaction.
Embedded Derivatives and Other Debt Issuance Costs
The Company determined that certain loan features were embedded derivatives requiring bifurcation and separate accounting. Those embedded derivatives were bundled together as a single, compound embedded derivative and then bifurcated and accounted for separately from the host contract. The Company initially recorded a compound derivative liability of $0.7 million, which is required to be marked to market in future periods.
As of September 30, 2020, the Company calculated the fair values of the compound derivative using the “with and without” method under the income approach by computing the difference between the fair value of the Term Loan with the compound derivative, and the fair value of the Term Loan without the compound derivative. The Company calculated the fair values using a probability-weighted discounted cash flow analysis. The key valuation assumptions used consist of the discount rate of 9.5% and the probability of the occurrence of certain events of 20.0%. The compound derivative liability is being remeasured at each financial reporting period with any changes in fair value being recognized as a component of other income (expense), net in the condensed statements of operations and comprehensive loss. The fair value of the compound derivative liability was approximately $0.3 million as of September 30, 2020 and was classified as other long-term liabilities on the condensed balance sheet.
The facility fee, fair value of warrants at issuance, fair value of embedded derivatives which were bifurcated, and other debt issuance costs have been treated as debt discounts on the Company’s condensed balance sheet and together with the additional payment are being amortized to interest expense throughout the life of the Term Loan using the effective interest rate method.
As of September 30, 2020 and December 31, 2019, there were unamortized issuance costs and debt discounts of $2.7 million and $3.6 million, respectively, which were recorded as a direct deduction from the Term Loan on the condensed balance sheets.

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The following table presents future payments of principal and interest on the Term Loan as of September 30, 2020.
(in thousands)September 30,
2020
2020 (remaining three months)$1,583 
202126,574 
202233,344 
202324,867 
86,368 
Less: amount representing interest(11,368)
Present value of Term Loan75,000 
Less: current portion(13,714)
Long-term portion of Term Loan$61,286 
Convertible Senior Notes
On May 22, 2020, the Company issued $200.0 million aggregate principal amount of 3.50% convertible senior notes due 2027, or Convertible Senior Notes, pursuant to an indenture, dated as of May 22, 2020, or the Indenture, between the Company and U.S. Bank National Association, as trustee, or the Trustee. The offering and sale of the Convertible Senior Notes were made by the Company to the initial purchasers in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, or the Securities Act, for resale by the initial purchasers to qualified institutional buyers (as defined in the Securities Act) pursuant to the exemption from registration provided by Rule 144A under the Securities Act. The issuance includes the exercise in full by the initial purchasers of their option to purchase an additional $25.0 million aggregate principal amount of Convertible Senior Notes. Net proceeds from the offering were $193.3 million after deducting underwriting discounts and commissions and other offering costs of approximately $6.7 million.
The Convertible Senior Notes are senior unsecured obligations of the Company, and interest is payable semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2020. The Convertible Senior Notes mature on May 15, 2027, unless earlier repurchased, redeemed or converted and are not redeemable prior to May 20, 2024. The Company may redeem for cash all or any portion of the Convertible Senior Notes, at the Company’s option, on or after May 20, 2024 and on or before the 40th scheduled trading day immediately prior to the maturity date, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Convertible Senior Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. The Company has not provided a sinking fund for the Convertible Senior Notes, nor is one required to be provided.
The Convertible Senior Notes are 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 at an initial conversion rate of 30.0978 shares of the Company’s common stock per $1,000 principal amount of the Convertible Senior Notes, which is equivalent to an initial conversion price of approximately $33.23 per share of the Company’s common stock. The conversion rate is subject to customary adjustments for certain events as described in the Indenture. It is the Company’s current intent to settle conversions through combination settlement, which involves repayment of the principal portion in cash and any excess of the conversion value over the principal amount in shares of its common stock. As of September 30, 2020, the “if-converted value” did not exceed the remaining principal amount of the Convertible Senior Notes.
Holders may convert their Convertible Senior Notes, at their option, prior to the close of business on the business day immediately preceding February 15, 2027, only under the following circumstances:
during any fiscal quarter commencing after the calendar quarter ending on September 30, 2020, if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of

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the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
during the five consecutive business day period immediately following any ten consecutive trading day period, or the Measurement Period, in which the trading price per $1,000 principal amount of the Convertible Senior Notes, as determined following a request by a holder of notes in accordance with certain procedures described in the Indenture, for each trading day of the Measurement Period was less than 98% of the product of the last reported sales price of the Company’s common stock and the conversion rate on each such trading day;
upon the occurrence of certain corporate events or distributions of the Company’s common stock, as described in the Indenture;
after the Company’s issuance of a notice of redemption; or
at any time from, and including, February 15, 2027 until the close of business on the trading day immediately before the maturity date.
If the Company undergoes a fundamental change, as described in the Indenture, subject to certain conditions, holders may require the Company to repurchase for cash all or any portion of their Convertible Senior Notes. The fundamental change repurchase price is equal to 100% of the principal amount of the Convertible Senior Notes to be repurchased, plus accrued and unpaid interest up to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events that occur prior to the maturity date or if the Company delivers a notice of redemption, the Company will increase, in certain circumstances, the conversion rate for a holder who elects to convert its Convertible Senior Notes in connection with such a corporate event or notice of redemption, as the case may be.
The Convertible Senior Notes are the Company’s senior unsecured obligations and rank senior in right of payment to any of the Company's indebtedness that is expressly subordinated in right of payment to the Convertible Senior Notes; equal in right of payment to any of the Company's unsecured indebtedness that is not so subordinated; effectively subordinated in right of payment to any of the Company’s secured indebtedness, including secured indebtedness under the Term Loan, to the extent of the value of the assets securing such indebtedness; and structurally subordinated to all indebtedness and other liabilities (including trade payables) of the Company’s future subsidiaries, if any.
The Indenture contains customary events of default with respect to the Convertible Senior Notes and provides that upon certain events of default occurring and continuing, the trustee may, and the trustee at the request of holders of at least 25% in principal amount of the Convertible Senior Notes shall declare all principal and accrued and unpaid interest, if any, of the Convertible Senior Notes to be due and payable. In case of certain events of bankruptcy, insolvency or reorganization, involving the Company or a significant subsidiary, all of the principal of and accrued and unpaid interest on the Convertible Senior Notes will automatically become due and payable.
At issuance, the Convertible Senior Notes were bifurcated into liability and equity components and accounted for separately. The carrying amount of the liability component was calculated to be $117.7 million by measuring the fair value of similar debt instruments that do not have an associated convertible feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the Convertible Senior Notes. The carrying amount of the equity component was calculated to be $82.3 million and was recorded in additional paid-in capital. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The allocation of proceeds into the equity component resulted in a debt discount for the Convertible Senior Notes that is amortized to interest expense at an effective interest rate of 13.5% over the effective life of the Convertible Senior Notes of 7.0 years, using the effective interest method.
Underwriter discounts and issuance costs of $6.7 million were allocated to the liability and equity components based on the proportion of proceeds allocated to the debt and equity components. Underwriter discounts and issuance costs allocated to the liability component were $4.0 million and are amortized to interest expense over the term of the Convertible Senior Notes using the effective interest method. Underwriter discounts and issuance costs attributable to the equity component were $2.7 million and are netted against the equity component in additional paid-in capital.

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The following table presents the carrying amount of the liability and equity components of the Convertible Senior Notes as of September 30, 2020.
(in thousands)September 30,
2020
Liability component:
Principal $200,000 
Unamortized discount - equity component(79,493)
Unamortized underwriter discounts and issuance costs(3,882)
Net carrying amount$116,625 
Equity component, net of underwriter discounts and issuance costs$79,498 
The remaining unamortized debt discount will be amortized over approximately 6.6 years which is also the remaining life of the Senior Convertible Notes.
The following table presents the interest expense related to the Convertible Senior Notes for the three and nine months ended September 30, 2020.
(in thousands)Three Months Ended September 30, 2020Nine Months Ended September 30, 2020
Contractual interest expense$1,750 $2,508 
Amortization of debt discount1,930 2,767 
Amortization of underwriter discounts and issuance costs50 72