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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: 001-36257
 RETROPHIN, INC.
(Exact name of registrant as specified in its charter)
Delaware27-4842691
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
3721 Valley Centre Drive, Suite 200
San Diego, CA 92130
(Address of Principal Executive Offices)
(888) 969-7879
(Registrant's Telephone number including area code)
N/A
Former name, former address and former fiscal year, if changed since last report

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001 per shareRTRXThe 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 of outstanding common stock, par value $0.0001 per share, of the Registrant as of November 3, 2020 was 51,051,820.


Table of Contents
RETROPHIN, INC.
Form 10-Q
For the Fiscal Quarter Ended September 30, 2020

TABLE OF CONTENTS
  Page No.
 
 
 
 
 
1

Table of Contents
FORWARD-LOOKING STATEMENTS 
This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.
Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the "2019 10-K"), and in this Quarterly Report on Form 10-Q. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. 
In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned to not unduly rely upon these statements.
We file reports with the Securities and Exchange Commission ("SEC"). The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.
We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
2

Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RETROPHIN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share amounts)
 September 30, 2020December 31, 2019
Assets(unaudited) 
Current assets:  
Cash and cash equivalents$200,481 $62,436 
Available-for-sale debt securities, at fair value (amortized cost $254,655, allowance for credit losses of $0 as of September 30, 2020; amortized cost $335,206, allowance for credit losses of $0 as of December 31, 2019)
255,786 336,088 
Accounts receivable, net15,025 18,048 
Inventory, net7,259 6,082 
Prepaid expenses and other current assets5,516 5,015 
Tax receivable13,615 1,395 
Total current assets497,682 429,064 
Property and equipment, net5,696 2,891 
Other non-current assets33,689 14,709 
Intangible assets, net154,217 157,200 
Goodwill936 936 
Total assets$692,220 $604,800 
Liabilities and Stockholders' Equity   
Current liabilities:  
Accounts payable$9,431 $26,614 
Accrued expenses50,320 51,745 
Other current liabilities6,775 8,590 
Business combination-related contingent consideration, current portion8,900 8,500 
Total current liabilities75,426 95,449 
Convertible debt212,651 204,861 
Other non-current liabilities40,330 20,894 
Business combination-related contingent consideration, less current portion62,400 62,400 
Total liabilities390,807 383,604 
Stockholders' Equity:  
Preferred stock $0.0001 par value; 20,000,000 shares authorized; 0 issued and outstanding as of September 30, 2020 and December 31, 2019
  
Common stock $0.0001 par value; 100,000,000 shares authorized; 51,023,187 and 43,088,921 issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
5 4 
Additional paid-in capital765,307 636,910 
Accumulated deficit(464,253)(416,444)
Accumulated other comprehensive income 354 726 
Total stockholders' equity 301,413 221,196 
Total liabilities and stockholders' equity $692,220 $604,800 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3

Table of Contents
RETROPHIN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share amounts)
(unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
Net product sales$51,139 $44,373 $147,338 $128,651 
Operating expenses:  
Cost of goods sold1,189 1,513 4,054 3,509 
Research and development32,349 33,220 93,387 104,597 
Selling, general and administrative31,951 29,779 100,061 101,418 
Change in fair value of contingent consideration5,085 (702)7,448 5,820 
Write off of L-UDCA IPR&D intangible asset   25,500 
Write off of L-UDCA contingent consideration   (18,000)
Impairment of long-term investment 15,000  15,000 
Total operating expenses70,574 78,810 204,950 237,844 
Operating loss(19,435)(34,437)(57,612)(109,193)
Other income (expenses), net:  
Other income (expense), net553 (496)788 (673)
Interest income1,123 2,467 4,414 7,875 
Interest expense(4,767)(4,547)(14,287)(14,230)
Total other expense, net(3,091)(2,576)(9,085)(7,028)
Loss before income taxes(22,526)(37,013)(66,697)(116,221)
Income tax (expense) benefit(23)523 18,888 53 
Net loss$(22,549)$(36,490)$(47,809)$(116,168)
Basic and diluted net loss per common share$(0.44)$(0.85)$(1.03)$(2.76)
Basic and diluted weighted average common shares outstanding50,929,575 42,943,828 46,289,103 42,109,618 
Comprehensive loss:  
Net loss$(22,549)$(36,490)$(47,809)$(116,168)
Foreign currency translation(564)315 (620)342 
Unrealized gain (loss) on debt securities(480)75 250 2,359 
Comprehensive loss$(23,593)$(36,100)$(48,179)$(113,467)
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

Table of Contents
RETROPHIN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 For the Nine Months Ended September 30,
 20202019
Cash Flows From Operating Activities:
Net loss$(47,809)$(116,168)
Adjustments to reconcile net loss to net cash used in operating activities:  
Depreciation and amortization17,946 15,118 
Non-cash interest expense1,285 1,134 
Amortization (accretion) of discounts/premiums on investments, net530 (779)
Amortization of debt discount and issuance costs7,789 7,397 
Provision for Inventory1,317 972 
Share-based compensation16,612 16,101 
ESPP expense650 507 
Change in fair value of contingent consideration7,448 (12,180)
Payments related to change in fair value of contingent consideration(10,268)(4,329)
Write off of IPR&D intangible assets 25,500 
Impairment of long-term investment 15,000 
Unrealized foreign currency transaction gain (loss)117 539 
Other446 15 
Changes in operating assets and liabilities:  
Accounts receivable3,195 (3,989)
Inventory(3,813)(671)
Tax receivable (12,220) 
Other current and non-current operating assets(20,181)(9,629)
Accounts payable and accrued expenses(10,213)4,962 
Other current and non-current operating liabilities18,296 6,778 
Net cash used in operating activities(28,873)(53,722)
Cash Flows From Investing Activities:  
Purchase of fixed assets(2,926)(286)
Cash paid for intangible assets(13,039)(11,299)
Proceeds from the sale/maturity of debt securities223,152 180,818 
Purchase of debt securities(143,003)(150,950)
Net cash provided by investing activities64,184 18,283 
Cash Flows From Financing Activities:  
Payment of acquisition-related contingent consideration(6,886)(2,562)
Payment of guaranteed minimum royalty(1,575)(1,559)
Proceeds from exercise of stock options1,345 944 
Proceeds from issuance of common stock, net of issuance costs108,692  
Proceeds from issuances under employee stock purchase plan1,098 1,005 
Net cash provided by (used in) financing activities102,674 (2,172)
Effect of exchange rate changes on cash60 (74)
Net change in cash and cash equivalents138,045 (37,685)
Cash and cash equivalents, beginning of year62,436 102,873 
Cash and cash equivalents, end of period$200,481 $65,188 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

Table of Contents
RETROPHIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited, in thousands, except share amounts)
Three Months Ended September 30, 2020Three Months Ended September 30, 2019
 Common StockAdditional Paid in CapitalAccumulated Other Comprehensive IncomeAccumulated
Deficit
Total
Stockholders'
Equity
Common StockAdditional Paid in CapitalAccumulated Other Comprehensive IncomeAccumulated
Deficit
Total
Stockholders'
Equity
 SharesAmountSharesAmount
Balance - June 3050,902,874 $5 $758,945 $1,399 $(441,704)$318,645 42,899,318 $4 $625,999 $781 $(349,695)$277,089 
Share based compensation5,139 5,139 4,178 4,178 
Issuance of common stock under the equity incentive plan and proceeds from exercise120,313 914 914 59,083 627 627 
Equity offering48 48 — 
Unrealized gain (loss) on debt securities(479)(479)76 76 
Foreign currency translation adjustments(566)(566)315 315 
ESPP stock purchase and expense261 261 162 162 
Net loss(22,549)(22,549)(36,490)(36,490)
Balance - September 3051,023,187 $5 $765,307 $354 $(464,253)$301,413 42,958,401 $4 $630,966 $1,172 $(386,185)$245,957 
Nine Months Ended September 30, 2020Nine Months Ended September 30, 2019
Common StockAdditional Paid in CapitalAccumulated Other Comprehensive IncomeAccumulated
Deficit
Total
Stockholders'
Equity
Common StockAdditional Paid in CapitalAccumulated Other Comprehensive IncomeAccumulated
Deficit
Total
Stockholders'
Equity
SharesAmountSharesAmount
Balance - December 3143,088,921 $4 $636,910 $726 $(416,444)$221,196 41,389,524 $4 $589,795 $(1,529)$(270,017)$318,253 
Share based compensation16,613 16,613 16,125 16,125 
Issuance of common stock under the equity incentive plan and proceeds from exercise361,722 1,345 1,345 207,730 944 944 
Equity offering7,475,000 1108,691 108,692 — 
Unrealized gain on debt securities250 250 2,359 2,359 
Foreign currency translation adjustments(622)(622)342 342 
Issuance of common stock from maturity of the 2019 Convertible debt outstanding1,297,343 22,590 22,590 
ESPP stock purchase and expense97,544 1,748 1,748 63,804 1,512 1,512 
Net loss(47,809)(47,809)(116,168)(116,168)
Balance - September 3051,023,187 $5 $765,307 $354 $(464,253)$301,413 42,958,401 $4 $630,966 $1,172 $(386,185)$245,957 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6

Table of Contents
RETROPHIN, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.  DESCRIPTION OF BUSINESS
Organization and Description of Business
Retrophin, Inc. (“we”, “our”, “us”, “Retrophin” and the “Company”) refers to Retrophin, Inc., a Delaware corporation, as well as our direct and indirect subsidiaries. Retrophin is a fully integrated biopharmaceutical company headquartered in San Diego, California, focused on identifying, developing and delivering life-changing therapies to people living with rare diseases. We regularly evaluate and, where appropriate, act on opportunities to expand our product pipeline through licenses and acquisitions of products in areas that will serve patients with serious or rare diseases and that we believe offer attractive growth characteristics.
The ongoing novel coronavirus (COVID-19) pandemic has resulted in travel restrictions, quarantines, “stay-at-home” and “shelter-in-place” orders and extended shutdown of certain businesses around the world. While the impact of the COVID-19 pandemic did not have a material adverse effect on our financial position or results of operations for the three and nine months ended September 30, 2020, these governmental actions and the widespread economic disruption arising from the pandemic have the potential to materially impact our business and influence our business decisions. The extent and duration of the pandemic is unknown, and the future effects on our business are uncertain and difficult to predict. The Company is continuing to monitor the events and circumstances surrounding the COVID-19 pandemic, which may require adjustments to the Company’s estimates and assumptions in the future.
Clinical Programs:
Sparsentan, also known as RE-021, is an investigational product candidate with a dual mechanism of action, selective endothelin receptor antagonist (“ERA”), with in vitro selectivity toward endothelin receptor type A, and a potent angiotensin receptor blocker (“ARB”). Sparsentan is currently being evaluated in two pivotal Phase 3 clinical studies in the following indications:
Focal segmental glomerulosclerosis ("FSGS") is a rare kidney disease characterized by proteinuria where the glomeruli become progressively scarred. FSGS is a leading cause of end-stage renal disease.
Immunoglobulin A nephropathy ("IgAN") is an immune-complex-mediated glomerulonephritis characterized by hematuria, proteinuria, and variable rates of progressive renal failure. IgAN is the most common primary glomerular disease.

Chenodal® has been recognized as the standard of care for cerebrotendinous xanthomatosis (“CTX”) patients for more than three decades but is not currently labeled for this indication. In January 2020, we randomized the first patients in a Phase 3 clinical trial to evaluate the effects of Chenodal in adult and pediatric patients with CTX. The pivotal study, known as the RESTORE study, is intended to support a new drug application (“NDA”) submission for marketing authorization of Chenodal for CTX in the United States.
Cooperative Research and Development Agreements ("CRADAs"):
The Company is a participant in two CRADAs, which form a multi-stakeholder approach to pool resources with leading experts, and incorporates the patient perspective early in the identification and development process. Retrophin has partnered with the National Institutes of Health’s National Center for Advancing Translational Sciences ("NCATS") and leading patient advocacy organizations, NGLY1.org and Alagille Syndrome Alliance ("ALGSA"), aimed at the identification of potential small molecule therapeutics for NGLY1 deficiency and Alagille syndrome, respectively. There are no treatment options currently approved for these diseases.
Approved products:
Chenodal (chenodiol tablets) is approved in the United States for the treatment of patients suffering from gallstones in whom surgery poses an unacceptable health risk due to disease or advanced age. Chenodal has been the standard of care for CTX patients for more than three decades.
Cholbam® (cholic acid capsules) is approved in the United States for the treatment of bile acid synthesis disorders due to single enzyme defects and is further indicated for adjunctive treatment of patients with peroxisomal disorders.
Thiola® and Thiola EC® (tiopronin tablets) are approved in the United States for the prevention of cystine (kidney) stone formation in patients with severe homozygous cystinuria.

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NOTE 2.  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the 2019 10-K filed with the SEC on February 24, 2020. The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions for Form 10-Q and the rules and regulations of the SEC. Accordingly, since they are interim statements, the accompanying condensed consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements, but reflect all adjustments consisting of normal, recurring adjustments, that are necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of the results that may be expected for any future periods. The December 31, 2019 balance sheet information was derived from the audited financial statements as of that date. Certain reclassifications have been made to the prior period consolidated financial statements to conform to the current period presentation.
A summary of the significant accounting policies applied in the preparation of the accompanying condensed consolidated financial statements follows:
Principles of Consolidation
The unaudited condensed consolidated financial statements represent the consolidation of the accounts of the Company and its subsidiaries in conformity with GAAP. All intercompany accounts and transactions have been eliminated in consolidation.
Revenue Recognition
The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect substantially all the consideration it is entitled to in exchange for the goods or services it transfers to the customer. See Note 3 for further discussion.
Research and Development Expenses
Research and development expenses are comprised of salaries and bonuses, benefits, non-cash share-based compensation, license fees, costs paid to third-party contractors to perform research, conduct clinical trials and pre/non-clinical trials, develop drug materials, and associated overhead expenses and facilities. We also incur indirect costs that are not allocated to specific programs because such costs benefit multiple development programs and allow us to increase our pharmaceutical development capabilities. These consist of internal shared resources related to the development and maintenance of systems and processes applicable to all of our programs.
Clinical Trial Expenses
Our clinical trials are conducted pursuant to contracts with contract research organizations ("CROs") that support conducting and managing clinical trials. The financial terms and activities of these agreements vary from contract to contract and may result in uneven expense levels. Generally, these agreements set forth activities that drive the recording of expenses such as start-up, initiation activities, enrollment, treatment of patients, or the completion of other clinical trial activities.
Expenses related to clinical trials are accrued based on our estimates and/or representations from service providers regarding work performed, including actual level of patient enrollment, completion of patient studies and progress of the clinical trials. Other incidental costs related to patient enrollment or treatment are accrued when reasonably certain. If the amounts we are obligated to pay under our clinical trial agreements are modified (for instance, as a result of changes in the clinical trial protocol or scope of work to be performed), we adjust our accruals accordingly on a prospective basis. Revisions to our contractual payment obligations are charged to expense in the period in which the facts that give rise to the revision become reasonably certain.
We currently have three Phase 3 clinical trials in process that are in varying stages of activity, with ongoing non-clinical support trials. As such, clinical trial expenses will vary depending on all the factors set forth above and may fluctuate significantly from quarter to quarter.
Intangible Assets with Cost Accumulation Model
In 2014, the Company entered into a license agreement with Mission Pharmacal in which the Company obtained the exclusive right to license the trademark of Thiola. The acquisition of the Thiola license qualified as an asset acquisition under the principles of ASC 805 in effect at the time of acquisition. The license agreement requires the Company to make royalty payments based on net sales of Thiola. The liability for royalties in excess of the annual contractual minimum is recognized in the period in which the royalties become probable and estimable, which is typically in the period corresponding with the respective sales. The Company records an offsetting increase to the cost basis of the asset under the cost accumulation model. The additional cost basis is subsequently amortized over the remaining life of the license agreement.
Consistent with all prior periods since Thiola was acquired, the Company has not accrued any liability for royalties in excess of the annual contractual minimum at September 30, 2020, as such royalties are not yet probable and estimable.
Adoption of New Accounting Standards
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the
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financial assets to present the net amount expected to be collected. For available-for-sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. This ASU update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company's adoption of this standard has had an immaterial impact on our condensed consolidated financial statements, and there was no recorded impact to our opening accumulated deficit balance for the cumulative-effect adjustment. As of September 30, 2020, the Company held $15.0 million in trade receivables and $255.8 million in available-for-sale debt securities. Expected credit losses on our trade receivables are estimated to be immaterial and the Company has zero recorded allowances for expected credit losses on the available-for-sale debt securities held as of September 30, 2020. See Note 16 and Note 4 for further discussion.
Recently Issued Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. The ASU includes amendments to the guidance on convertible instruments and the derivative scope exception for contracts in an entity's own equity and simplifies the accounting for convertible instruments which include beneficial conversion features or cash conversion features by removing certain separation models in Subtopic 470-20. Additionally, the ASU will require entities to use the "if-converted" method when calculating diluted earnings per share for convertible instruments. The ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Management has not yet completed its assessment of the impact of the new standard on the Company's financial statements.

NOTE 3. REVENUE RECOGNITION
Product Revenue, Net
Product sales consist of Bile Acid products (Chenodal and Cholbam) and Tiopronin products (Thiola and Thiola EC). The Company sells its products through direct-to-patient distributors worldwide, with more than 95% of the revenue generated in North America.
Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs upon delivery to the customer. The Company receives payments from its product sales based on terms that generally are within 30 days of delivery of product to the patient.
Deductions from Revenue
Revenues from product sales are recorded at the net sales price, which includes provisions resulting from discounts, rebates and co-pay assistance that are offered to customers, health care providers, payors and other indirect customers relating to the Company’s sales of its products. These provisions are based on the amounts earned or to be claimed on the related sales and are classified as a reduction of accounts receivable (if the amount is payable to a customer) or as a current liability (if the amount is payable to a party other than a customer). Where appropriate, these reserves take into consideration the Company’s historical experience, current contractual and statutory requirements and specific known market events and trends. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. If actual results in the future vary from the Company’s provisions, the Company will adjust the provision, which would affect net product revenue and earnings in the period such variances become known. Our historical experience is that such adjustments have been immaterial.
Government Rebates: We calculate the rebates that we will be obligated to provide to government programs and deduct these estimated amounts from our gross product sales at the time the revenues are recognized. Allowances for government rebates and discounts are established based on actual payer information, which is reasonably estimated at the time of delivery, and the government-mandated discounts applicable to government-funded programs. Rebate discounts are included in other current liabilities in the accompanying consolidated balance sheets.
Commercial Rebates: We calculate the rebates that we incur due to contracts with certain commercial payors and deduct these amounts from our gross product sales at the time the revenues are recognized. Allowances for commercial rebates are established based on actual payer information, which is reasonably estimated at the time of delivery. Rebate discounts are included in other current liabilities in the accompanying consolidated balance sheets.
Prompt Pay Discounts: We offer discounts to certain customers for prompt payments. We accrue for the calculated prompt pay discount based on the gross amount of each invoice for those customers at the time of sale.
Product Returns: Consistent with industry practice, we offer our customers a limited right to return product purchased directly from the Company, which is principally based upon the product’s expiration date. Generally, shipments are only made upon a patient prescription thus returns are minimal.
Co-pay Assistance: We offer a co-pay assistance program, which is intended to provide financial assistance to qualified commercially insured patients with prescription drug co-payments required by payors. The calculation of the accrual for co-pay assistance is based on an identification of claims and the cost per claim associated with product that has been recognized as revenue.
The following table summarizes net product revenues for the three and nine months ended September 30, 2020 and 2019 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Bile acid products$22,912 $19,938 $66,766 $59,258 
Tiopronin products28,227 24,435 80,572 69,393 
Total net product revenue$51,139 $44,373 $147,338 $128,651 
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NOTE 4. DEBT SECURITIES
The Company's debt securities as of September 30, 2020 and December 31, 2019 were comprised of available-for-sale corporate and government debt securities. These securities are carried at fair value, with the unrealized gains and losses reported in accumulated other comprehensive income, unless an impairment is determined to be the result of credit-related factors or the Company intends to sell the security or it is more likely than not that the Company will be required to sell the security before recovery. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion is included in interest income. Realized gains and losses and declines in value that are determined to be the result of credit losses, if any, on available-for-sale securities are included in other income or expense. Unrealized losses that are determined to be credit-related are also recorded as an allowance against the amortized cost basis. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income. All available-for-sale securities are classified as current assets, even if the maturity when acquired by the Company is greater than one year due to the ability to liquidate within the next 12 months.
During the nine months ended September 30, 2020, investment activity for the Company included $223.3 million in maturities and $143.0 million in purchases, all relating to debt based marketable securities.
Debt securities consisted of the following (in thousands):
September 30, 2020December 31, 2019
Commercial paper$63,163 $17,152 
Corporate debt securities139,548 306,436 
Securities of government sponsored entities53,075 12,500 
Total debt securities$255,786 $336,088 

The following is a summary of short-term debt securities classified as available-for-sale as of September 30, 2020 (in thousands):
Remaining Contractual Maturity
(in years)
Amortized CostUnrealized GainsUnrealized LossesAggregate Estimated Fair Value
Commercial paperLess than 1$63,167 $2 $(6)$63,163 
Corporate debt securitiesLess than 191,922 619  92,541 
Securities of government-sponsored entitiesLess than 143,081   43,081 
Total maturity less than 1 year198,170 621 (6)198,785 
Corporate debt securities1 to 246,485 522  47,007 
Securities of government-sponsored entities1 to 210,000 1 (7)9,994 
Total maturity 1 to 2 years56,485 523 (7)57,001 
Total available-for-sale securities$254,655 $1,144 $(13)$255,786 

The following is a summary of short-term debt securities classified as available-for-sale as of December 31, 2019 (in thousands):
Remaining Contractual Maturity
(in years)
Amortized CostUnrealized GainsUnrealized LossesAggregate Estimated Fair Value
Commercial paperLess than 1$17,136 $16 $ $17,152 
Corporate debt securitiesLess than 1191,770 582 (10)192,342 
Total maturity less than 1 year208,906 598 (10)209,494 
Corporate debt securities1 to 2113,799 351 (56)114,094 
Securities of government-sponsored entities1 to 212,501  (1)12,500 
Total maturity 1 to 2 years126,300 351 (57)126,594 
Total available-for-sale securities$335,206 $949 $(67)$336,088 

The primary objective of the Company’s investment portfolio is to enhance overall returns while preserving capital and liquidity. The Company’s investment policy limits interest-bearing security investments to certain types of instruments issued by institutions with primarily investment grade credit ratings and places restrictions on maturities and concentration by asset class and issuer.
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The Company reviews the available-for-sale debt securities for declines in fair value below the cost basis each quarter. For any security whose fair value is below its amortized cost basis, the Company first evaluates whether it intends to sell the impaired security, or will otherwise be more likely than not required to sell the security before recovery. If either are true, the amortized cost basis of the security is written down to its fair value at the reporting date. If neither circumstance holds true, the Company assesses whether any portion of the unrealized loss is a result of a credit loss. Any amount deemed to be attributable to credit loss is recognized in the income statement, with the amount of the loss limited to the difference between fair value and amortized cost and recorded as an allowance for credit losses. The portion of the unrealized loss related to factors other than credit losses is recognized in other comprehensive income (loss).
The following is a summary of available-for-sale debt securities in an unrealized loss position with no credit losses reported as of September 30, 2020 (in thousands):
Less Than 12 Months12 Months or GreaterTotal
Description of SecuritiesFair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
Commercial paper$58,166 $6 $ $ $58,166 $6 
Corporate debt securities      
Securities of government-sponsored entities43,074 7   43,074 7 
   Total$101,240 $13 $ $ $101,240 $13 

The following is a summary of available-for-sale debt securities in an unrealized loss position with no credit losses reported as of December 31, 2019 (in thousands):
Less Than 12 Months12 Months or GreaterTotal
Description of SecuritiesFair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
Commercial paper$ $ $ $ $ $ 
Corporate debt securities74,151 64 7,509 2 81,660 66 
Securities of government-sponsored entities5,000 1   5,000 1 
   Total$79,151 $65 $7,509 $2 $86,660 $67 

As of September 30, 2020 and December 31, 2019, the Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis. The Company does not believe the unrealized losses incurred during the period are due to credit-related factors. Liquidity issues that arose from economic circumstances surrounding the COVID-19 pandemic have continued to ease and unrealized losses observed in early 2020 have been substantially recovered. The credit ratings of the securities held remain of the highest quality, and while certain securities in the portfolio may be downgraded momentarily, the Federal Reserve has allowed institutions to continue to issue debt where there is need, with the government itself purchasing such securities. Moreover, the Company continues to receive payments of interest and principal as they become due, and our expectation is that those payments will continue to be received timely. Uncertainty surrounding the COVID-19 pandemic, as well as other factors unknown to us at this time, may cause actual results to differ and require adjustments to the Company’s estimates and assumptions in the future.

NOTE 5. FUTURE ACQUISITION RIGHT AND JOINT DEVELOPMENT AGREEMENT
Censa Pharmaceuticals Inc.
In December 2017, the Company entered into a Future Acquisition Right and Joint Development Agreement (the “Option Agreement”) with Censa, which became effective in January 2018. The Company made an upfront payment of $10.0 million, agreed to fund certain development activities of Censa’s CNSA-001 program which were approximately $19.9 million through proof of concept, and paid $5.0 million related to a development milestone for the right, but not the obligation, to acquire Censa (the “Option”) on the terms and subject to the conditions set forth in a separate Agreement and Plan of Merger. The Company treated the upfront payment and milestone payment, both of which were consideration for the Option, as a cost-method investment with a carrying value of $15.0 million and expensed the development funding as incurred.
In August 2019, following a strategic review of the CNSA-001 program in patients with phenylketonuria (PKU), the Company made the decision to decline to exercise its option to acquire Censa Pharmaceuticals and discontinue its joint development program for CNSA-001. The Company wrote off the $15.0 million long term investment.

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NOTE 6.  LEASES
As of September 30, 2020, the Company had two operating leases with Kilroy Realty, L.P. (the "Landlord") for office space located in San Diego, California. The Company currently occupies the office space subject to the first lease, originally signed in July 2016 and later amended in July 2017 and March 2019. In April 2019, the Company entered into a second office lease with the Landlord, which was subsequently amended in May 2020, for office space in an adjacent building located in San Diego, California. The Company plans to consolidate its corporate headquarters into the new lease space beginning in late 2020 and into early 2021.
As a condition of the new lease, the Company has been granted an existing premises continuation option to continue leasing all or a portion of the currently occupied office space, in addition to the new lease space. On February 7, 2020, the Company elected to forgo this continuation option by notifying the Landlord of its intention to vacate the premises of its existing lease. The abandonment of this leased office space, which was originally scheduled to expire in July 2024, coincides with the Company’s expected occupancy of the new office lease space in the adjacent building per the office lease effective April 2019. The Company estimates that it will fully vacate the existing leases in the first quarter of 2021, through which time the Company is obligated to pay all base rent, operating expenses and other obligations due under the existing lease.
Coinciding with the notice delivered to the Landlord, the Company recorded an adjustment to the ROU ("Right-of-use") asset and lease liability in the first half of 2020 to reflect the impending expiration of the existing lease. The remeasurement of the lease liability resulted in a $7.5 million adjustment to the lease liability and ROU asset. The remeasured straight-line expense will be amortized over the revised lease term along with acceleration of related lease incentives.
The ROU asset and lease liability related to the new office lease is established when the Company is granted access to the premises and has the ability to direct its use, which has occurred in phases over 2020 as leased spaces became available. As such, the ROU asset for the new lease has been established prior to the extinguishment of the ROU asset and lease liability for the existing lease, resulting in an overlap of ROU assets during the interim period between inception of the new lease and the expiration of the old lease. In June 2020, the Landlord delivered possession of a portion of the new lease space for the purpose of construction of leasehold improvements. Coinciding with our ability to direct the use of that space, and utilizing a discount rate equal to our borrowing rate, the Company has established a ROU asset totaling $8.9 million and a lease liability totaling $8.8 million. The ROU asset and lease liability are offset by lease incentives associated with tenant improvement allowances totaling $2.0 million. In September 2020, the Landlord delivered possession of the remainder of the new lease space. Coinciding with our ability to direct the use of that additional space, and utilizing a discount rate equal to our borrowing rate, the Company established another ROU asset and lease liability, each of which totaled $25.7 million. Both the ROU asset and lease liability are offset by lease incentives associated with tenant improvement allowances totaling $5.9 million.
The initial term of the new lease is 7 years, 7 months, through August 2028, and the Landlord has granted the Company an option to extend the term of the lease by a period of 5 years. At this time, it is not reasonably certain that we will extend the term of the lease and therefore the renewal period has been excluded from the aforementioned ROU asset and lease liability measurements. The measurement of the lease term occurs from the February 2021 planned occupancy date of the primary spaces delivered in September 2020. The aggregate base rent due over the initial term of the lease is approximately $49.5 million, which consists of $13.0 million for the space delivered in June 2020, and $36.5 million for the space delivered in September 2020.

Following is a schedule of the future minimum rental commitments for our operating leases reconciled to the lease liability and ROU asset as of September 30, 2020 (in thousands):
September 30, 2020
2020$603 
20212,412 
20226,020 
20236,200 
20246,386 
Thereafter25,113 
Total undiscounted future minimum payments46,734 
Lease incentives payable by lessor(6,884)
Present value discount(11,130)
Total lease liability28,720 
Unamortized lease incentives, less incentives payable by lessor(1,147)
Cash payments in excess of straight-line lease expense(1,266)
Total ROU asset$26,307 

As of September 30, 2020, the ROU asset of $26.3 million was recorded to the Condensed Consolidated Balance Sheets as non-current Other Assets.

As of September 30, 2020, the current and non-current portions of the lease liability were recorded to the Condensed Consolidated Balance Sheets as follows (in thousands):
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September 30, 2020
Other current liabilities$798 
Other non-current liabilities27,922 
Total lease liabilities$28,720 

For the three and nine months ended September 30, 2020 and 2019, the Company recorded $0.7 million and $0.7 million, respectively, and $0.5 million and $1.8 million, respectively, in expense related to operating leases, including amortized tenant improvement allowances.

NOTE 7.  FAIR VALUE MEASUREMENTS
Financial Instruments and Fair Value
The Company accounts for financial instruments in accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy under ASC 820 are described below:
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 – Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly; and
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
The valuation techniques used to measure the fair value of the Company’s debt securities and all other financial instruments, all of which have counter-parties with high credit ratings, were valued based on quoted market prices or model driven valuations using significant inputs derived from or corroborated by observable market data. Based on the fair value hierarchy, the Company classified debt securities within Level 2.
The Company acquired two businesses, related to the Cholbam and Chenodal products, whose purchase price included potential future payments that are contingent on the achievement of certain milestones and percentages of future net sales derived from the products acquired. The Company recorded contingent consideration liabilities at their fair value on the acquisition date and revalues them at the end of each reporting period. In estimating the fair value of the Company’s contingent consideration, the Company uses a Monte Carlo Simulation. The determination of the contingent consideration liabilities requires significant judgements including the appropriateness of the valuation model and reasonableness of estimates and assumptions included in the forecasts of future net sales and the discount rates applied to such forecasts. Changes in these estimates and assumptions could have a significant impact on the fair value of the contingent consideration liabilities. Based on the fair value hierarchy, the Company classified the fair value measurement of contingent consideration within Level 3 because valuation inputs are based on projected revenues discounted to a present value.
Financial instruments with carrying values approximating fair value include cash and cash equivalents, accounts receivable, and accounts payable, due to their short-term nature. As of September 30, 2020, the fair value of the Company's 2.5% Convertible Senior Notes due 2025 was $230.9 million, which was estimated utilizing market quotations, and are considered Level 2.
The following table presents the Company’s assets and liabilities, measured and recognized at fair value on a recurring basis, classified under the appropriate level of the fair value hierarchy as of September 30, 2020 (in thousands):
As of September 30, 2020
Total carrying and estimated fair valueQuoted prices in active markets
(Level 1)
Significant other observable inputs (Level 2)Significant unobservable inputs (Level 3)
Assets:
Cash and Cash Equivalents$200,481 $190,483 $9,998 $ 
Debt securities, available-for-sale255,786  255,786  
Total$456,267 $190,483 $265,784 $ 
Liabilities:
Business combination-related contingent consideration$71,300 $ $ $71,300 
Total$71,300 $ $ $71,300 
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The following table presents the Company’s assets and liabilities, measured and recognized at fair value on a recurring basis, classified under the appropriate level of the fair value hierarchy as of December 31, 2019 (in thousands):
As of December 31, 2019
Total carrying and estimated fair valueQuoted prices in active markets
(Level 1)
Significant other observable inputs (Level 2)Significant unobservable inputs (Level 3)
Assets:
Cash and Cash Equivalents$62,436 $62,436 $ $ 
Debt securities, available-for-sale336,088  336,088  
Total$398,524 $62,436 $336,088 $ 
Liabilities:
Business combination-related contingent consideration70,900   70,900 
Total$70,900 $ $ $70,900 

The following table sets forth a summary of changes in the estimated fair value of the Company's business combination-related contingent consideration for the nine months ended September 30, 2020 (in thousands):
Fair Value Measurements of Acquisition-Related Contingent Consideration
(Level 3)
Balance at January 1, 2020$70,900 
Changes in the fair value of contingent consideration7,448 
Contractual payments$(4,549)
Contractual payments included in accrued liabilities at September 30, 2020(2,454)
Foreign currency impact(45)
Balance at September 30, 2020$71,300 

For the three and nine months ended September 30, 2020, the Company incurred charges of $5.1 million and $7.4 million, respectively, in operating expenses on the Condensed Consolidated Statements of Operations and Comprehensive Loss for the change in fair value of the contingent consideration liabilities.
For the three months ended September 30, 2020, the change in fair value of contingent consideration is due to the timing of future payments and changes in market driven discount rates.
For the nine months ended September 30, 2020, the change in fair value of contingent consideration is due to the timing of future payments and changes in market driven discount rates, offset by a change in revenue projections.
For the three and nine months ended September 30, 2019, the Company incurred income of $0.7 million and charges of $5.8 million, respectively, in operating expenses on the Condensed Consolidated Statements of Operations and Comprehensive Loss for the change in fair value of the contingent consideration liabilities.
For the nine months ended September 30, 2019, $5.8 million of the charges were related to the increase in contingent consideration liabilities for bile acid products. The value increased due to passage of time. During the first quarter of 2019, the Company made a portfolio decision not to pursue further development of its product candidate L-UDCA. The related contingent consideration of $18.0 million was accordingly fully written off.

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NOTE 8. INTANGIBLE ASSETS
As of September 30, 2020, the net book value of amortizable intangible assets was approximately $154.2 million.
The following table sets forth amortizable intangible assets as of September 30, 2020 and December 31, 2019 (in thousands):
September 30, 2020December 31, 2019
Finite-lived intangible assets$259,537 $245,802 
Less: accumulated amortization(105,320)(88,602)
Net carrying value$154,217 $157,200 

The following table summarizes amortization expense for the three and nine months ended September 30, 2020 and 2019 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Research and development$292 $292 $870 $866 
Selling, general and administrative5,731 4,715 15,612 13,728 
Total amortization expense$6,023 $5,007 $16,482 $14,594 

NOTE 9.  CONVERTIBLE NOTES PAYABLE
Convertible Senior Notes Due 2025
On September 10, 2018, the Company completed its registered underwritten public offering of $276.0 million aggregate principal amount of 2.50% Convertible Senior Notes due 2025 ("2025 Notes"), and entered into a base indenture and supplemental indenture agreement ("2025 Indenture") with respect to the 2025 Notes. The 2025 Notes will mature on September 15, 2025 ("Maturity Date”), unless earlier repurchased, redeemed, or converted. The 2025 Notes are senior unsecured obligations of the Company and bear interest at an annual rate of 2.50%, payable semi-annually in arrears on March 15 and September 15 of each year, commencing March 15, 2019.
The composition of the Company’s 2025 Notes are as follows (in thousands):
 September 30, 2020 December 31, 2019
2.50% convertible senior notes due 2025
$276,000 $276,000 
Unamortized debt discount(58,848)(65,963)
Unamortized debt issuance costs(4,501)(5,176)
Total 2025 Notes, net of unamortized debt discount and debt issuance costs$212,651 $204,861 

The net proceeds from the issuance of the 2025 Notes were approximately $267.2 million, after deducting commissions and the offering expenses payable by the Company. A portion of the net proceeds from the 2025 Notes was used by the Company to repurchase $23.4 million aggregate principal amount of its then-outstanding 4.5% senior convertible notes due 2019 in privately-negotiated transactions.
Holders may convert their 2025 Notes at their option only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2018 (and only during such calendar quarter), if the last reported sale price per share of the Company’s common stock for each of at least 20 trading days, whether or not consecutive, during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter exceeds 130% of the conversion price on the applicable trading day; (2) during the five consecutive business days immediately after any 10 consecutive trading day period (“measurement period”) if the trading price per $1,000 principal amount of 2025 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on the Company’s common stock; (4) if the Company calls the 2025 Notes for redemption; and (5) at any time from, and including, May 15, 2025 until the close of business on the scheduled trading day immediately before the Maturity Date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at the Company’s election, based on the applicable conversion rate.
The initial conversion rate for the 2025 Notes is 25.7739 shares of the Company’s common stock per $1,000 principal amount of 2025 Notes, which represents an initial conversion price of approximately $38.80 per share. If a “make-whole fundamental change” (as defined in the 2025 Indenture) occurs, then the Company will, in certain circumstances, increase the conversion rate for a specified period of time.
The 2025 Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after September 15, 2022 and, in the case of any partial redemption, on or before the 40th scheduled trading day before the Maturity Date, at a cash redemption price equal to the principal amount of the 2025 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price on each of at least 20 trading days during the 30 consecutive trading
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days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice. If a fundamental change (as defined in the 2025 Indenture) occurs, then, subject to certain exceptions, holders may require the Company to repurchase their 2025 Notes at a cash repurchase price equal to the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.
In the event of conversion, holders would forgo all future interest payments, any unpaid accrued interest and the possibility of further stock price appreciation. Upon the receipt of conversion requests, the settlement of the 2025 Notes will be paid pursuant to the terms of the 2025 Indenture. In the event that all of the 2025 Notes are converted, the Company would be required to repay the $276.0 million principal amount and any conversion premium in any combination of cash and shares of its common stock at the Company’s option. In addition, calling the 2025 Notes for redemption will constitute a “make whole fundamental change."
The 2025 Notes are the Company’s general unsecured obligations that rank senior in right of payment to all of its indebtedness that is expressly subordinated in right of payment to the 2025 Notes, and equal in right of payment to the Company’s unsecured indebtedness.
The 2025 Notes are classified on the Company’s Condensed Consolidated Balance Sheets at September 30, 2020 as long-term debt.
Under ASC 470-20, Debt with Conversion and Other Options, an entity must separately account for the liability and equity components of convertible debt instruments (such as the 2025 Notes) that may be settled entirely or partially in cash upon conversion, in a manner that reflects the issuer’s economic interest cost. The liability component of the instrument is valued in a manner that reflects the market interest rate for a similar nonconvertible instrument at the date of issuance. The initial carrying value of the liability component was $198.6 million. The equity component of $77.4 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 2025 Notes and is recorded in additional paid-in capital on the consolidated balance sheet at the issuance date. That equity component is treated as a discount on the liability component of the 2025 Notes, which is amortized over the seven-year term of the 2025 Notes using the effective interest rate method. The equity component is not re-measured as long as it continues to meet the conditions for equity classification. The Company allocated the total transaction costs of approximately $8.8 million related to the issuance of the 2025 Notes to the liability and equity components of the 2025 Notes based on their relative values. Transaction costs attributable to the liability component are amortized to interest expense over the seven-year term of the 2025 Notes, and transaction costs attributable to the equity component are netted with the equity component in stockholders’ equity.
The effective interest rate on the liability components of the 2025 Notes for the period from the date of issuance through September 30, 2020 was 7.7%. The following table sets forth total interest expense recognized related to the 2025 Notes (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Contractual interest expense$1,725 $1,725 $5,175 $