Medicines Company
Business
Medicines Company (MDCO) is a biopharmaceutical company driven by its purpose to solve major medical, societal and economic challenges in healthcare. Medicines Company has a singular and relentless focus on one of the greatest global healthcare challenge and burden - that presented by atherosclerotic cardiovascular disease, or ASCVD, which remains the number one cause of death in the United States and worldwide. The company take on that challenge by developing inclisiran, the investigational RNA interference therapeutic, that specifically inhibits production of PCSK9, a key protein that controls LDL-cholesterol, or LDL-C, levels. The company believe inclisiran is uniquely suited to make a significant difference reducing risk in ASCVD. Medicines Company has the right to develop, manufacture and commercialize inclisiran under its collaboration agreement with Alnylam Pharmaceuticals, Inc., or Alnylam. In addition, the company market Angiomax® (bivalirudin) in the United States primarily through a supply and distribution agreement with Sandoz Inc., or Sandoz, under which the company granted Sandoz the exclusive right to sell in the United States an authorized generic of Angiomax.1
On November 3, 2015, the company announced that the company were in the process of evaluating its operations with a goal of unlocking and maximizing stockholder value. In particular, the company stated its intention was to explore strategies for optimizing its capital structure and liquidity position and to narrow its operational focus by strategically separating non-core businesses and products in order to generate non-dilutive cash and reduce associated cash burn and capital requirements.
As a result of its decision to narrow its operational focus, Medicines Company has completed the following transactions:
- On February 1, 2016, the company completed the sale of its hemostasis portfolio, consisting of PreveLeak, Raplixa and Recothrom, to wholly owned subsidiaries of Mallinckrodt plc, or Mallinckrodt. At the completion of the sale, the company received approximately $174.1 million in cash, and may receive up to an additional $235.0 million in the aggregate following the achievement of certain specified calendar year net sales milestones with respect to net sales of PreveLeak and Raplixa.
- On June 21, 2016, the company completed the sale of Cleviprex, Kengreal and rights to Argatroban for Injection, which the company refer to collectively as Non-Core ACC Assets, to Chiesi USA, Inc., or Chiesi USA, and its parent company Chiesi Farmaceutici S.p.A., or Chiesi. At the completion of the sale, the company received approximately $263.8 million in cash, which included the value of product inventory, and may receive up to an additional $480.0 million in the aggregate following the achievement of certain specified calendar year net sales milestones with respect to net sales of each of Cleviprex and Kengreal.
- On January 5, 2018, the company completed the sale of its infectious disease portfolio, consisting of the products Vabomere, Orbactiv and Minocin IV and line extensions thereof, and substantially all of the assets related thereto, other than certain pre-clinical assets, to Melinta Therapeutics, Inc., or Melinta. At the completion of the sale, the company received approximately $166.4 million and 3,313,702 shares of Melinta common stock having a market value, based on Melinta's closing share price on January 5, 2018, of approximately $54.5 million. In addition, Medicines Company is entitled to receive
a cash payment payable 12 months following the closing of the transaction equal to $25 million; (ii) a cash payment payable 18 months following the closing of the transaction equal to $25 million; and (iii) tiered royalty payments of 5% to 25% on worldwide net sales of (a) Vabomere and (b) Orbactiv and Minocin IV, collectively.
Consistent with its intentions announced in November 2015, in January 2017 the company announced that the company were seeking opportunities to partner or divest Ionsys (fentanyl iontophoretic transdermal system). Although the company continue to seek a partnership or divestiture transaction for Ionsys, in June 2017 the company commenced a voluntary discontinuation and withdrawal of Ionsys from the market and ceased related commercialization activities, with the regulatory authorizations for Ionsys remaining open. Concurrent with this market withdrawal, the company commenced implementation of a workforce reduction, which resulted in the reduction of 57 employees, representing approximately 15% of its workforce. The company's workforce reductions are described in more detail below. In addition, in
August 2017, the company announced that Medicines Company is discontinuing the clinical development program for MDCO-700, an investigational anesthetic agent.
As a result of these transactions, Medicines Company is now focused on the development of inclisiran as a transformative treatment for ASCVD.
The company's revenues to date have been generated primarily from sales of Angiomax in the United States. In the three and six months ended June 30, 2018, the company had net revenues of approximately $1.7 million and $9.4 million, respectively, primarily related to the authorized generic sales of Angiomax (bivalirudin) to Sandoz. During this period, net revenues from Angiomax decreased by $9.0 million and $18.6 million from three and six months ended June 30, 2017, respectively. Due to competition from generic versions of Angiomax following the loss of market exclusivity in the United States in July 2015 and in Europe in August 2015, Angiomax is no longer a significant portion of its business. Based on its current business, the company expect to incur net losses for the foreseeable future.
Cost of revenues represents expenses in connection with contract manufacture of its products sold and logistics, product costs, royalty expenses and amortization of the costs of license agreements, amortization and impairments of product rights and other identifiable intangible assets from product and business acquisitions and expenses related to excess inventory. Research and development expenses represent costs incurred for licenses of rights to products, clinical trials, nonclinical and preclinical studies, regulatory filings and manufacturing development efforts. The company outsource much of its clinical trials, nonclinical and preclinical studies and all of its manufacturing development activities to third parties to maximize efficiency and minimize its internal overhead. The company expense its research and development costs as they are incurred. Selling, general and administrative expenses consist primarily of salaries and related expenses, costs associated with general corporate activities, changes in fair value of contingent purchase price obligations related to its acquisitions, and costs associated with marketing and promotional activities. Research and development expense, selling, general and administrative expense and cost of revenue also include share-based compensation expense, which the company allocate based on the responsibilities of the recipients of the share-based compensation.
Board of Directors Developments
Following the recent board of directors reconstitution at its annual shareholder meeting, Alexander J. Denner, Ph.D. was appointed chairman of the board of directors. In addition, its board has added Geno J. Germano and Paris Panayiotopoulos to a newly created committee that will work closely with management in advancing the strategy for inclisiran.
Business Development Activity
Sale of Infectious Disease Products. On January 5, 2018, the company completed the sale of its infectious disease portfolio, consisting of the products Vabomere, Orbactiv and Minocin IV and line extensions thereof, and substantially all of the assets related thereto, other than certain pre-clinical assets, to Melinta. At the completion of the sale, the company received approximately $166.4 million and 3,313,702 shares of Melinta common stock having a market value, based on Melinta's closing share price on January 5, 2018, of approximately $54.5 million. In addition, Medicines Company is entitled to receive a cash payment payable 12 months following the closing of the transaction equal to $25 million; (ii) a cash payment payable 18 months following the closing of the transaction equal to $25 million; and (iii) tiered royalty payments of 5% to 25% on worldwide net sales of (a) Vabomere and (b) Orbactiv and Minocin IV, collectively.
Sale of Non-Core Cardiovascular Products. On June 21, 2016, the company completed the sale of its Non-Core ACC Assets to Chiesi USA and Chiesi. Under the terms of the purchase and sale agreement, Chiesi and Chiesi USA acquired Cleviprex, Kengreal and rights to Argatroban for Injection and related assets, and assumed substantially all of the liabilities arising out of the operation of the businesses and the acquired assets after closing, including any obligations with respect to future milestones relating to Cleviprex, Kengreal and rights to Argatroban for Injection. At the completion of the sale, the company received approximately $263.8 million in cash, which included the value of product inventory, and may receive up to an additional $480.0 million in the aggregate following the achievement of certain specified calendar year net sales milestones with respect to net sales of each of Cleviprex and Kengreal. As part of the transaction to sell Non-Core ACC Assets, the company sublicensed to Chiesi all of its rights to Cleviprex and Kengreal under its license from AstraZeneca. Subsequent to the completion of the sale, these sublicenses from it to Chiesi were terminated, Chiesi purchased from AstraZeneca all or substantially all of AstraZeneca’s assets relating to Cleviprex and Kengreal, the parties released certain claims against one another, and the company paid Chiesi $7.5 million.
Sale of Hemostasis Business. On February 1, 2016, the company completed the sale of its hemostasis business, consisting of PreveLeak, Raplixa and Recothrom products to wholly-owned subsidiaries of Mallinckrodt plc, or Mallinckrodt. Under the terms of the purchase and sale agreement, Mallinckrodt acquired all of the outstanding equity of Tenaxis Medical, Inc. and ProFibrix B.V. and assets exclusively related to the Recothrom product. Mallinckrodt assumed all liabilities arising out of Mallinckrodt's operation of the businesses and the acquired assets after closing, including all obligations with respect to milestones relating to the PreveLeak and Raplixa products. At the completion of the sale, the company received approximately $174.1 million in cash from Mallinckrodt, and may receive up to an additional $235.0 million in the aggregate following the achievement of certain specified calendar year net sales milestones with respect to net sales of PreveLeak and Raplixa. The amount paid at closing was subject to a post-closing purchase price adjustment process with respect to the Recothrom inventory and the net working capital of the hemostasis business as of the date of the closing.
Alnylam License Agreement. In February 2013, the company entered into a license and collaboration agreement with Alnylam to develop, manufacture and commercialize therapeutic products targeting the human proprotein convertase subtilisin/kexin type 9, or PCSK9, gene based on certain of Alnylam’s RNA interference technology. Under the terms of the agreement, the company obtained the exclusive, worldwide right under Alnylam’s technology to develop, manufacture and commercialize PCSK9 products for the treatment, palliation and/or prevention of all human diseases. The company paid Alnylam $25.0 million in an initial license payment and agreed to pay up to $180.0 million in success-based development, regulatory and commercialization milestones. In December 2014, the company paid a development milestone payment of $10.0 million based upon the initiation of a Phase 1 clinical trial for inclisiran and in January 2018 the company paid a development milestone payment of $20.0 million based upon the initiation of its phase 3 study for inclisiran. In addition, Alnylam will be eligible to receive scaled double-digit royalties based on annual worldwide net sales of PCSK-9 products by it or its affiliates and sublicensees. Royalties to Alnylam are payable on a product-by-product and country-by-country basis until the last to occur of the expiration of patent rights in the applicable country that cover the applicable product, the expiration of non-patent regulatory exclusivities for such product in such country, and the twelfth anniversary of the first commercial sale of the product in such country. The royalties are subject to reduction in specified circumstances. Medicines Company is also responsible for paying royalties, and in some cases milestone payments, owed by Alnylam to its licensors with respect to intellectual property covering these products. Alnylam was responsible for developing the lead product through the end of the first Phase 1 clinical trial and to supply the lead product for the first Phase 1 clinical trial and the first phase 2 clinical trial. Alnylam will bear the costs for these activities, subject to certain caps on its costs. If Alnylam's development and supply costs exceed the applicable cap, Alnylam need not bear any additional development and supply costs except for costs directly caused by Alnylam's gross negligence and the company shall have the option to assume such excess costs. The company will direct and pay for all other development, manufacturing and commercialization activities under the agreement.
Workforce Restructuring
In 2017 and 2018, the company conducted a series of workforce reductions, as described below. The company's intention is to reduce its personnel to less than 60 employees as the company announced in October 2017. Upon signing release agreements, affected employees have received, or are eligible to receive, a severance package, including reduction payments and fully paid health care coverage and outplacement services for six months to a year.
In June 2017, in connection with its voluntary discontinuation and withdrawal of Ionsys from the market in the United States, the company commenced a workforce reduction, which resulted in the reduction of 57 employees, representing approximately 15% of its workforce.
Commencing in December 2017 and continuing through 2018, Medicines Company is implementing a series of workforce reductions to focus on inclisiran, improve efficiencies and better align costs and structure. All employees who will be impacted by these reductions have been informed as to their respective timing of departure. Through August 1, 2018, 121 employees have been terminated and 137 employees were transferred as part of the sale of the infectious disease business unit to Melinta. An additional 10 employees will be terminated through the remainder of the year. These workforce reductions are expected to reduce headcount costs included in operating expenses by approximately $74.0 million on an annualized basis.
Agreements with Biomedical Advanced Research and Development Authority (BARDA)
2016 BARDA OTA Agreement. In September 2016, the company entered into an agreement with the Biomedical Advanced Research and Development Authority, or BARDA, of the U.S. Department of Health and Human Services, or HHS. This agreement, which the company refer to as the BARDA OTA agreement, was established under HHS’s Other Transaction Authority, known as OTA. Under the BARDA OTA agreement, Medicines Company has the potential to receive up to $132.0 million in funding to support the development of early and late stage antibacterial candidates. The BARDA OTA agreement is a cost-sharing arrangement that consists of an initial base period and four option periods that BARDA may exercise in its sole discretion pursuant to the agreement. The BARDA OTA agreement provides for an initial commitment by BARDA of $32.0 million for the base period, and up to an additional $100.0 million if the remaining four options are exercised by BARDA. As of June 30, 2018, BARDA has committed $32.0 million for the base period and no additional options have been exercised. As of June 30, 2018, approximately $29.1 million of funds obligated during the exercised option periods remain available for reimbursement under the BARDA OTA agreement. Under this cost-sharing arrangement, the company will be responsible for a portion of the costs associated with each period of work. If all option periods are exercised by BARDA, the estimated period of performance is expected to end in 2021, unless extended by the parties. Either party is entitled to terminate the agreement for convenience, in whole or in part upon 90 days written notice, and BARDA’s future period obligations are subject to Congressionally approved annual appropriations. The company expect to use the total award under the BARDA OTA agreement to support non-clinical development activities, non-clinical toxicology, clinical studies, manufacturing, program management, and associated regulatory activities designed to advance a portfolio of potential new antibiotic drug candidates targeting drug resistant bacteria. Under its purchase and sale agreement with Melinta, Medicines Company is reasonably cooperating with Melinta to attempt to provide it access to potential BARDA funding under the BARDA OTA agreement with respect to the provisions of the BARDA OTA that are related to Vabomere.
Convertible Senior Note Offerings
2023 Notes
On June 10, 2016, the company completed its private offering of $402.5 million aggregate principal amount of its 2.75% convertible senior notes due 2023, or the 2023 notes, and entered into an indenture with Wells Fargo Bank, National Association, a national banking association, as trustee, governing the 2023 notes. The net proceeds from the offering were $390.8 million, after deducting the initial purchasers’ discounts and commissions and its offering expenses.
The 2023 notes bear cash interest at a rate of 2.75% per year, payable semi-annually on January 15 and July 15 of each year, beginning on January 15, 2017. The 2023 notes will mature on July 15, 2023. The 2023 notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, incurrence of other indebtedness, or issuance or repurchase of securities by it.
Holders may convert their 2023 notes at their option at any time prior to the close of business on the business day immediately preceding April 15, 2023 only under the following circumstances: (1) during any calendar quarter commencing on or after September 30, 2016 (and only during such calendar quarter), if the last reported sale price of its common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period, or measurement period, in which the trading price, as defined in the indenture governing the 2023 notes, per $1,000 principal amount of 2023 notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of its common stock and the conversion rate on each such trading day; (3) during any period after Medicines Company has issued notice of redemption until the close of business on the scheduled trading day immediately preceding the relevant redemption date; or (4) upon the occurrence of specified corporate events. On or after April 15, 2023, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2023 notes at any time, regardless of the foregoing circumstances. Upon conversion, the company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election based upon a daily conversion value calculated on a proportionate basis for each trading day in a 50 trading day observation period (as more fully described in the 2023 notes indenture).
The conversion rate for the 2023 notes was initially, and remains, 20.4198 shares of its common stock per $1,000 principal amount of the 2023 notes, which is equivalent to an initial conversion price of approximately $48.97 per share of its common stock. The conversion rate and the conversion price are subject to customary adjustments for certain events, including, but not limited to, the issuance of certain stock dividends on its common stock, the issuance of certain rights or warrants, subdivisions, combinations, distributions of capital stock, indebtedness, or assets, cash dividends and certain issuer tender or exchange offers, as described in the indenture governing the 2023 notes.
The company may not redeem the 2023 notes prior to July 15, 2020. The company may redeem for cash all or any portion of the 2023 notes, at its option, on or after July 15, 2020 if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect on the last trading day of, and for at least 19 other trading days (whether or not consecutive) during, any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the company provide notice of redemption, at a redemption price equal to 100% of the principal amount of the 2023 notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. However, no redemption date may be designated that falls on or after the 52nd scheduled trading date prior to maturity. No sinking fund is provided for the 2023 notes, which means that Medicines Company is not required to redeem or retire the 2023 notes periodically.
If the company undergo a fundamental change, as defined in the indenture governing the 2023 notes, subject to certain conditions, holders of the 2023 notes may require it to repurchase for cash all or part of their 2023 notes at a repurchase price equal to 100% of the principal amount of the 2023 notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. Following certain corporate transactions that constitute a change of control, the company would increase the conversion rate for a holder who elects to convert the 2023 notes in connection with such change of control in certain circumstances.
The 2023 notes are its senior unsecured obligations and will rank senior in right of payment to its future indebtedness that is expressly subordinated in right of payment to the 2023 notes; equal in right of payment to its existing and future unsecured indebtedness that is not so subordinated (including the 2022 notes); effectively junior in right of payment to any of its secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness and other liabilities (including trade payables) incurred by its subsidiaries.
The indenture governing the 2023 notes contains customary events of default with respect to the 2023 notes, including that upon certain events of default (including its failure to make any payment of principal on the 2023 notes when due and payable or its failure to make any interest payment on the 2023 notes when due and payable and such failure continues for a period of thirty days) occurring and continuing, the trustee for the 2023 notes by notice to it, or the holders of at least 25% in principal amount of the outstanding 2023 notes by notice to it and the trustee for the 2023 notes, may, and the trustee at the request of such holders (subject to the provisions of the indenture governing the 2023 notes) shall, declare 100% of the principal of and accrued and unpaid interest, if any, on all the 2023 notes to be due and payable. In case of certain events of bankruptcy, insolvency or reorganization, involving it or a significant subsidiary, 100% of the principal of and accrued and unpaid interest on the 2023 notes will automatically become due and payable. Upon such a declaration of acceleration, such principal and accrued and unpaid interest, if any, will be due and payable immediately.
Capped Call Transactions
To minimize the impact of potential dilution upon conversion of the 2023 notes, the company entered into capped call transactions separate from the issuance of the 2023 notes with certain counterparties. The capped calls have a strike price of $48.97 per share and a cap price of $64.68 per share and are exercisable when and if the 2023 notes are converted. If upon conversion of the 2023 notes, the price of its common stock is above the strike price of the capped calls, the counterparties will deliver shares of its common stock and/or cash with an aggregate value equal to the difference between the price of its common stock at the conversion date and the strike price, multiplied by the number of shares of its common stock related to the capped calls being exercised. The company paid $33.9 million for these capped call transactions.
For any conversions of the 2023 notes prior to the close of business on the 52nd scheduled trading day immediately preceding the stated maturity date of the 2023 notes, including without limitation upon an acquisition of it or similar business combination, a corresponding portion of the capped calls will be terminated. Upon such termination, the portion of the capped calls being terminated will be settled at fair value (subject to certain limitations), as determined by the counterparties to the capped calls and no payments will be due from it to such counterparties. The capped calls expire on the earlier of the last day on which any “Convertible Securities remain outstanding and (ii) the second “Scheduled Trading Day” (as defined in the indenture) immediately preceding the “Maturity Date” (as defined in the indenture).
2022 Notes
On January 13, 2015, the company completed its private offering of $400.0 million aggregate principal amount of its 2.50% convertible senior notes due 2022, or the 2022 notes, and entered into an indenture with Wells Fargo Bank, National Association, a national banking association, as trustee, governing the 2022 notes. The aggregate principal amount of 2022 notes sold reflects the exercise in full by the initial purchasers of the 2022 notes of their option to purchase up to an additional $50.0 million in aggregate principal amount of the 2022 notes. The net proceeds from the offering were $387.2 million, after deducting the initial purchasers’ discounts and commissions and its offering expenses.
The 2022 notes bear cash interest at a rate of 2.50% per year, payable semi-annually on January 15 and July 15 of each year, beginning on July 15, 2015. The 2022 notes will mature on January 15, 2022. The 2022 notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, incurrence of other indebtedness, or issuance or repurchase of securities by it.
Holders may convert their 2022 notes at their option at any time prior to the close of business on the business day immediately preceding October 15, 2021 only under the following circumstances: (1) during any calendar quarter commencing on or after March 31, 2015 (and only during such calendar quarter), if the last reported sale price of its common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period, or measurement period, in which the trading price, as defined in the indenture governing the 2022 notes, per $1,000 principal amount of 2022 notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of its common stock and the conversion rate on each such trading day; (3) during any period after Medicines Company has issued notice of redemption until the close of business on the scheduled trading day immediately preceding the relevant redemption date; or (4) upon the occurrence of specified corporate events.
On or after October 15, 2021, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2022 notes at any time, regardless of the foregoing circumstances. Upon conversion, the company will pay cash up to the aggregate principal amount of the 2022 notes to be converted and deliver shares of its common stock in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of 2022 notes being converted, subject to a daily share cap, as described in the indenture governing the 2022 notes. Holders of 2022 notes will not receive any additional cash payment or additional shares representing accrued and unpaid interest, if any, upon conversion of a note, except in limited circumstances. Instead, accrued but unpaid interest will be deemed to be paid by the cash and shares, if any, of its common stock, together with any cash payment for any fractional share, paid or delivered, as the case may be, upon conversion of a 2022 note.
The conversion rate for the 2022 notes was initially, and remains, 29.8806 shares of its common stock per $1,000 principal amount of the 2022 notes, which is equivalent to an initial conversion price of approximately $33.47 per share of its common stock. The conversion rate and the conversion price are subject to customary adjustments for certain events, including, but not limited to, the issuance of certain stock dividends on its common stock, the issuance of certain rights or warrants, subdivisions, combinations, distributions of capital stock, indebtedness, or assets, cash dividends and certain issuer tender or exchange offers, as described in the indenture governing the 2022 notes.
The company may not redeem the 2022 notes prior to January 15, 2019. The company may redeem for cash all or any portion of the 2022 notes, at its option, on or after January 15, 2019 if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect on the last trading day of, and for at least 19 other trading days (whether or not consecutive) during, any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the company provide notice of redemption, at a redemption price equal to 100% of the principal amount of the 2022 notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the 2022 notes, which means that Medicines Company is not required to redeem or retire the 2022 notes periodically.
If the company undergo a fundamental change, as defined in the indenture governing the 2022 notes, subject to certain conditions, holders of the 2022 notes may require it to repurchase for cash all or part of their 2022 notes at a repurchase price equal to 100% of the principal amount of the 2022 notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. Following certain corporate transactions that constitute a change of control, the company would increase the conversion rate for a holder who elects to convert the 2022 notes in connection with such change of control in certain circumstances.
The 2022 notes are its senior unsecured obligations and will rank senior in right of payment to its future indebtedness that is expressly subordinated in right of payment to the 2022 notes; equal in right of payment to its existing and future unsecured indebtedness that is not so subordinated (including the 2023 notes); effectively junior in right of payment to any of its secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness and other liabilities (including trade payables) incurred by its subsidiaries.
The indenture governing the 2022 notes contains customary events of default with respect to the 2022 notes, including that upon certain events of default (including its failure to make any payment of principal or interest on the 2022 notes when due and payable) occurring and continuing, the trustee for the 2022 notes by notice to it, or the holders of at least 25% in principal amount of the outstanding 2022 notes by notice to it and the trustee for the 2022 notes, may, and the trustee at the request of such holders (subject to the provisions of the indenture governing the 2022 notes) shall, declare 100% of the principal of and accrued and unpaid interest, if any, on all the 2022 notes to be due and payable. In case of certain events of bankruptcy, insolvency or reorganization, involving it or a significant subsidiary, 100% of the principal of and accrued and unpaid interest on the 2022 notes will automatically become due and payable. Upon such a declaration of acceleration, such principal and accrued and unpaid interest, if any, will be due and payable immediately.
2017 Notes
On June 11, 2012, the company completed its private offering of $275.0 million aggregate principal amount of its 1.375% convertible senior notes due 2017, or the 2017 notes. The net proceeds from the offering were $266.2 million, after deducting the initial purchasers’ discounts and commissions and its offering expenses. The 2017 notes were its senior unsecured obligations and paid cash interest at a rate of 1.375% per year, payable semi-annually on June 1 and December 1 of each year. The conversion rate for the 2017 notes was 35.8038 shares of its common stock per $1,000 principal amount of 2017 notes, which is equivalent to an initial conversion price of $27.93 per share of its common stock.
In June 2016, the company used approximately $323.2 million of the net proceeds of the 2023 notes to repurchase $220.0 million in aggregate principal amount of the 2017 notes in privately negotiated transactions effected through the initial purchasers of the 2017 notes. As part of the June 2016 repurchase of the 2017 notes, the company settled a proportionate amount of outstanding bond hedge and warrants related to the bonds that were repurchased for a net cash receipt of $12.6 million.
The remaining 2017 notes matured on June 1, 2017. In connection with the maturity of 2017 notes, the holders converted substantially all of the outstanding principal amount of the 2017 notes (other than $14,000 of principal amount of 2017 notes which was not converted and which amount was paid in full to the holders thereof), the company paid cash to the converting 2017 note holders equal to $55.0 million in respect of principal, interest and fractional shares on the 2017 notes converted and delivered 819,901 shares of its common stock in respect of the remainder of its conversion obligation in excess of the aggregate principal amount of the 2017 notes converted.
Convertible Note Hedge and Warrant Transactions
In connection with the offering of the 2017 notes, on June 5, 2012, the company entered into convertible note hedge transactions and warrant transactions with several of the initial purchasers of the 2017 notes, their respective affiliates and other financial institutions, which the company refer to as the hedge counterparties. The company used approximately $19.8 million of the net proceeds from the offering of the 2017 notes to pay the cost of the convertible note hedge transactions, after such cost was partially offset by the proceeds to it from the sale of warrants in the warrant transactions.
As part of the June 2016 repurchase of $220.0 million in aggregate principal amount of the 2017 notes, the company settled the related hedges and warrants for a net cash receipt of $12.6 million. On June 1, 2017, in connection with the maturity of the 2017 notes, the company settled the note hedges and received from the note hedge counterparties approximately 820,000 shares of its common stock at an average price of $48.79 per share. The redemption offset the dilution with respect to the 819,901 shares of its common stock that were issued upon the conversion of the 2017 notes. The shares delivered to it in connection with the redemption of the 2017 note hedges are held by it as treasury shares. The remaining warrants, which were settled in December 2017, and the concurrent redemption of the note hedges, provide the holders the right to purchase up to approximately two million shares of its common stock, subject to customary antidilution adjustments, at a strike price of $34.20 per share. The warrants had a dilutive effect with respect to its common stock to the extent that the market price per share of its common stock, as measured under the terms of the warrants, exceeds the applicable strike price. The warrants were net-settled issuing common stock. The holders of the 2017 warrants exercised 787,680 warrants on a net basis and as a result the company issued 44,283 shares of common stock.
U.S. Healthcare Reform
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, or PPACA, which was amended by the Health Care and Education Reconciliation Act of 2010. The PPACA, as amended, contains numerous provisions that impact the pharmaceutical and healthcare industries and it empowers the Department of Health and Human Services, or HHS, to implement a number of related healthcare reform measures that are likely to have a broad impact on the pharmaceutical and healthcare industry. Medicines Company is continually evaluating the impact of the PPACA and other healthcare reform-related programs and regulations on its business, including potential PPACA repeal and replacement. As of the date of this Quarterly Report on Form 10-Q, Medicines Company has not identified any provisions that currently materially impact its business and results of operations. However, the potential impact of the PPACA and other healthcare reform measures on its business and results of operations is inherently difficult to predict because many of the details regarding the implementation of this legislation have not been determined. In addition, the impact on its business and results of operations may change as and if its business evolves. On December 22, 2017, Congress passed and President Trump signed a bill entitled “To provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” which, among other things, repealed the PPACA individual mandate. President Trump and HHS Secretary Azar have announced support for regulatory provisions that would limit PPACA and a number of healthcare reform programs initiated under the Obama administration. It remains unclear whether replacement programs will include similar limitations affecting reimbursement, although scrutiny over drug pricing and government costs is expected to continue. Similarly, efforts in Congress to reform Medicare and Medicaid may impact the pharmaceutical and healthcare industries.
