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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

Or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-37463 

GLAUKOS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

33-0945406

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)

229 Avenida Fabricante

San Clemente, California

92672

(Address of registrant’s principal executive offices)

(Zip Code)

(949) 367-9600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

GKOS

New York Stock Exchange

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

As of May 3, 2021, there were 46,281,586 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.

Table of Contents

GLAUKOS CORPORATION

Form 10-Q

For the Quarterly Period Ended March 31, 2021

Table of Contents

Page

PART I: FINANCIAL INFORMATION

3

Item 1.

Financial Statements

3

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Operations

4

Condensed Consolidated Statements of Comprehensive Loss

5

Condensed Consolidated Statements of Stockholders’ Equity

6

Condensed Consolidated Statements of Cash Flows

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

PART II: OTHER INFORMATION

33

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

34

Item 6.

Exhibits

48

SIGNATURES

49

We use Glaukos, our logo, iStent, iStent inject, iStent inject W, iStent Infinite, iStent SA, iPrism, iDose, iPRIME, MIGS, Avedro, Photrexa, iLink, KXL, Mosaic and other marks as trademarks. This report contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this report, including logos, artwork and other visual displays, may appear without the ® or ™ symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other entities’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other entity.

References throughout this document to “we,” “us,” “our,” the “Company,” or “Glaukos” refer to Glaukos Corporation and its consolidated subsidiaries.

2

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

GLAUKOS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par values)

March 31, 

December 31, 

2021

2020

    

(unaudited)

    

 

Assets

Current assets:

Cash and cash equivalents

$

96,625

$

96,596

Short-term investments

310,755

307,772

Accounts receivable, net

36,694

36,059

Inventory, net

15,271

15,809

Prepaid expenses and other current assets

14,954

13,206

Total current assets

474,299

469,442

Restricted cash

9,416

9,566

Property and equipment, net

43,314

24,008

Operating lease right-of-use asset

19,720

20,009

Finance lease right-of-use asset

50,838

51,443

Intangible assets, net

351,465

357,693

Goodwill

66,134

66,134

Deposits and other assets

7,591

7,207

Total assets

$

1,022,777

$

1,005,502

Liabilities and stockholders' equity

Current liabilities:

Accounts payable

$

8,624

$

4,371

Accrued liabilities

47,944

45,331

Convertible senior notes

278,996

-

Total current liabilities

335,564

49,702

Convertible senior notes

-

189,416

Operating lease liability

20,450

20,704

Finance lease liability

61,068

60,690

Deferred tax liability, net

8,323

10,512

Other liabilities

7,598

7,029

Total liabilities

433,003

338,053

Commitments and contingencies (Note 12)

Stockholders' equity:

Preferred stock, $0.001 par value; 5,000 shares authorized; no shares issued and outstanding

-

-

Common stock, $0.001 par value; 150,000 shares authorized; 46,016 and 45,275 shares issued and 45,988 and 45,247 shares outstanding as of March 31, 2021 and December 31, 2020 respectively

46

45

Additional paid-in capital

920,819

976,590

Accumulated other comprehensive income

1,128

1,004

Accumulated deficit

(332,087)

(310,058)

Less treasury stock (28 shares as of March 31, 2021 and December 31, 2020)

(132)

(132)

Total stockholders' equity

589,774

667,449

Total liabilities and stockholders' equity

$

1,022,777

$

1,005,502

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

GLAUKOS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share amounts)

Three Months Ended

March 31, 

    

2021

    

2020

    

Net sales

$

67,968

$

55,336

Cost of sales

16,633

32,529

Gross profit

51,335

22,807

Operating expenses:

Selling, general and administrative

41,921

50,546

Research and development

21,219

24,873

Total operating expenses

63,140

75,419

Loss from operations

(11,805)

(52,612)

Non-operating (expense) income:

Interest income

383

696

Interest expense

(3,229)

(881)

Other expense, net

(1,539)

(1,711)

Total non-operating expense

(4,385)

(1,896)

Loss before taxes

(16,190)

(54,508)

Income tax provision (benefit)

279

(450)

Net loss

$

(16,469)

$

(54,058)

Basic and diluted net loss per share

$

(0.36)

$

(1.24)

Weighted average shares used to compute basic and diluted net loss per share

45,709

43,766

See accompanying notes to condensed consolidated financial statements.

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GLAUKOS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited)

(in thousands)

Three Months Ended

March 31, 

    

2021

    

2020

    

Net loss

$

(16,469)

$

(54,058)

Other comprehensive income:

Foreign currency translation gain

541

1,169

Unrealized loss on short-term investments

(417)

(480)

Other comprehensive income

124

689

Total comprehensive loss

$

(16,345)

$

(53,369)

See accompanying notes to condensed consolidated financial statements.

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GLAUKOS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands)

Accumulated

Additional

other

Common stock

paid-in

comprehensive

Accumulated

Treasury stock

Total

    

Shares

    

Amount

    

capital

    

income

    

deficit

    

Shares

    

Amount

    

equity

Balance at December 31, 2020

45,275

$

45

$

976,590

$

1,004

$

(310,058)

 

(28)

$

(132)

$

667,449

Effect of adoption of ASU 2020-06

(81,553)

(5,560)

(87,113)

Common stock issued under stock plans

741

1

17,034

17,035

Stock-based compensation

8,748

8,748

Other comprehensive income

124

124

Net loss

(16,469)

(16,469)

Balance at March 31, 2021

46,016

$

46

$

920,819

$

1,128

$

(332,087)

 

(28)

$

(132)

$

589,774

Accumulated

Additional

other

Common stock

paid-in

comprehensive

Accumulated

Treasury stock

Total

    

Shares

    

Amount

    

capital

    

income

    

deficit

    

Shares

    

Amount

    

equity

Balance at December 31, 2019

43,530

$

44

$

861,740

$

1,330

$

(189,710)

 

(28)

$

(132)

$

673,272

Common stock issued under stock plans

589

4,220

4,220

Stock-based compensation

17,176

17,176

Other comprehensive income

689

689

Net loss

(54,058)

(54,058)

Balance at March 31, 2020

44,119

$

44

$

883,136

$

2,019

$

(243,768)

 

(28)

$

(132)

$

641,299

See accompanying notes to condensed consolidated financial statements.

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GLAUKOS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

Three Months Ended March 31, 

    

2021

    

2020

 

Operating Activities

Net loss

$

(16,469)

$

(54,058)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation

1,150

1,082

Amortization of intangible assets

6,228

6,228

Amortization of lease right-of-use assets

1,170

1,311

Amortization of debt issuance costs

343

-

Deferred income tax benefit

(24)

(709)

Stock-based compensation

8,748

17,176

Change in fair value of cash settled stock options

-

(3,171)

Unrealized foreign currency losses

1,101

2,024

Amortization of premium (discount) on short-term investments

256

(19)

Other liabilities

570

207

Changes in operating assets and liabilities:

Accounts receivable, net

(547)

9,246

Inventory, net

403

14,568

Prepaid expenses and other current assets

(1,803)

(2,235)

Accounts payable and accrued liabilities

3,023

(4,750)

Other assets

29

1

Net cash provided by (used in) operating activities

4,178

(13,099)

Investing activities

Purchases of short-term investments

(54,007)

(18,680)

Proceeds from sales and maturities of short-term investments

50,349

19,676

Purchases of property and equipment

(17,182)

(782)

Investment in company-owned life insurance

(423)

414

Net cash (used in) provided by investing activities

(21,263)

628

Financing activities

Proceeds from exercise of stock options

16,552

4,454

Proceeds from share purchases under Employee Stock Purchase Plan

1,549

1,278

Payment of employee taxes related to vested restricted stock units

(1,065)

(1,512)

Principal paid on finance lease

(251)

-

Proceeds from tenant improvement allowance

629

-

Net cash provided by financing activities

17,414

4,220

Effect of exchange rate changes on cash and cash equivalents

(450)

(565)

Net decrease in cash, cash equivalents and restricted cash

(121)

(8,816)

Cash, cash equivalents and restricted cash at beginning of period

106,162

71,756

Cash, cash equivalents and restricted cash at end of period

$

106,041

$

62,940

Supplemental disclosures of cash flow information

Taxes (refunded) paid

$

(35)

$

250

See accompanying notes to condensed consolidated financial statements.

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GLAUKOS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1.  Organization and Basis of Presentation

Organization and business

Glaukos Corporation (Glaukos or the Company), incorporated in Delaware on July 14, 1998, is an ophthalmic medical technology and pharmaceutical company focused on developing novel therapies for the treatment of glaucoma, corneal disorders, and retinal disease. The Company developed Micro-Invasive Glaucoma Surgery (MIGS) to serve as an alternative to the traditional glaucoma treatment paradigm and launched its first MIGS device commercially in 2012. The Company also offers commercially a proprietary bio-activated pharmaceutical therapy for the treatment of a corneal disorder, keratoconus, that was approved by the U.S. Food and Drug Administration in 2016 and is developing a pipeline of surgical devices, sustained pharmaceutical therapies, and implantable biosensors intended to treat glaucoma progression, corneal disorders such as keratoconus, dry eye and refractive vision correction, and retinal diseases such as neovascular age-related macular degeneration, diabetic macular edema and retinal vein occlusion.

The accompanying condensed consolidated financial statements include the accounts of Glaukos and its wholly-owned subsidiaries. All significant intercompany balances and transactions among the consolidated entities have been eliminated in consolidation.

Basis of presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X.

The unaudited interim financial statements have been prepared on a basis consistent with the audited financial statements. As permitted under those rules, certain footnotes and other financial information that are normally required by GAAP have been condensed or omitted. In the opinion of management, the unaudited interim financial statements reflect all adjustments necessary for the fair presentation of the Company’s financial information contained herein. All such adjustments are of a normal and recurring nature. The condensed consolidated balance sheet as of December 31, 2020 has been derived from audited financial statements at that date, but excludes disclosures required by GAAP for complete financial statements. These interim financial statements do not include all disclosures required by GAAP and should be read in conjunction with the Company’s financial statements and accompanying notes for the fiscal year ended December 31, 2020, which are contained in the Company’s Annual Report on Form 10-K filed with the United States (U.S.) Securities and Exchange Commission (SEC) on March 1, 2021. The results for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any other interim period.

Recent Developments

Acquisition of Avedro, Inc.

On November 21, 2019, the Company acquired Avedro, Inc. (Avedro), a hybrid ophthalmic pharmaceutical and medical technology company focused on developing therapies designed to treat corneal diseases and disorders and correct refractive conditions, in a stock-for-stock transaction (Avedro Merger). Avedro developed novel bio-activated drug formulations used in combination with proprietary systems for the treatment of progressive keratoconus and corneal ectasia following refractive surgery. The therapy is the first and only minimally invasive anterior segment product offering approved by the FDA shown to halt the progression of keratoconus.

Note 2.  Summary of Significant Accounting Policies

There have been no significant changes in the Company’s significant accounting policies during the three months ended March 31, 2021, as compared with those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 1, 2021, including in connection with the Company’s adoption of the accounting pronouncements noted below in the sub-heading “Recently Adopted Accounting Pronouncements” with the

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exception of the adoption of Accounting Standards Update (ASU) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06). See Recently Adopted Accounting Pronouncements and Note 9. Convertible Senior Notes for more detail.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates and assumptions. Management considers many factors in selecting appropriate financial accounting policies and controls and in developing the estimates and assumptions that are used in the preparation of these condensed consolidated financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of reasonable estimates of the ultimate future outcomes, and management must select an amount that falls within that range of reasonable estimates. The most significant estimates in the accompanying condensed consolidated financial statements relate to revenue recognition, the fair value of the liability component of the Convertible Notes, the incremental borrowing rate related to the Company’s leased assets, stock-based compensation expense and the valuation of certain intangible assets related to the Company’s acquisition of Avedro. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, this process may result in actual results differing materially from those estimated amounts used in the preparation of the condensed consolidated financial statements.

The Company’s condensed consolidated financial statements as of and for the three months ended March 31, 2021 reflect the Company’s estimates of the impact of the ongoing COVID-19 pandemic. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are uncertain, including the duration and severity of the COVID-19 outbreak, the severity and transmission rates of new variants of COVID-19, and the actions taken to contain it or treat COVID-19, including the availability, distribution, rate of public acceptance and efficacy of vaccines for COVID-19, as well as the economic impact on local, regional, national and international customers and markets. As a result, there may be changes to the Company’s estimates regarding the impact of COVID-19 in future periods.

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets that equate to the amount reported in the condensed consolidated statement of cash flows as of the beginning and end of the three months ended March 31, 2021 (in thousands):

March 31, 

December 31, 

2021

2020

Cash and cash equivalents

$

96,625

$

96,596

Restricted cash

9,416

9,566

Cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows

$

106,041

$

106,162

Recently Adopted Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (FASB )issued ASU 2020-06, which simplifies accounting for convertible instruments. The embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under ASU 2020-06, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. The new guidance also requires the if-converted method to compute diluted earnings per share to be applied for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. Adoption of the standard requires using either a modified retrospective or a full retrospective approach. Effective January 1, 2021, the Company early adopted ASU

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2020-06 using the modified retrospective adoption approach. The cumulative effect of the change was recognized as an adjustment to the opening balance of retained earnings at the date of adoption. The comparative information has not been restated and continues to be presented according to accounting standards in effect for those periods.

The adoption of ASU 2020-06 resulted in an increase to accumulated deficit of $5.5 million, a decrease to additional paid-in capital of $81.6 million, a decrease in the deferred tax liability of $2.2 million and an increase to convertible notes, net of $89.2 million. Interest expense recognized in future periods will be reduced as a result of accounting for the convertible debt instrument as a single liability measured at its amortized cost. Lastly, the Company derecognized deferred income taxes associated with the Convertible Notes and adjusted the deferred tax liability associated with the embedded conversion feature and corresponding change in the valuation allowance.

Recently Issued Accounting Pronouncements Not Yet Adopted

We reviewed recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to the condensed consolidated financial statements.

Note 3.  Balance Sheet Details

Short-term Investments

Short-term investments consisted of the following (in thousands):

At March 31, 2021

 

Maturity

Amortized cost

Unrealized

Unrealized

Estimated

 

    

(in years)

    

or cost

    

gains

    

losses

    

fair value

  

U.S. government agency bonds

less than 3

198,062

121

(32)

198,151

Bank certificates of deposit

less than 2

20,799

5

(6)

20,798

Corporate notes

less than 3

 

61,391

 

198

 

(74)

 

61,515

Asset-backed securities

less than 2

 

12,945

 

150

 

(1)

 

13,094

Municipal bonds

less than 3

17,218

8

(29)

17,197

Total

$

310,415

$

482

$

(142)

$

310,755

At December 31, 2020

 

Maturity

Amortized cost

Unrealized

Unrealized

Estimated

 

    

(in years)

    

or cost

    

gains

    

losses

    

fair value

 

U.S. government agency bonds

less than 3

206,704

223

(3)

206,924

Bank certificates of deposit

less than 1

20,700

8

20,708

Commercial paper

less than 1

 

1,500

 

 

 

1,500

Corporate notes

less than 3

 

54,866

 

308

 

(1)

 

55,173

Asset-backed securities

less than 2

 

13,290

 

205

 

 

13,495

Municipal bonds

less than 3

9,954

21

(3)

9,972

Total

$

307,014

$

765

$

(7)

$

307,772

Accounts Receivable, Net

Accounts receivable consisted of the following (in thousands):

March 31, 

December 31, 

    

2021

    

2020

  

Accounts receivable

$

38,161

$

37,729

Allowance for credit losses

(1,467)

(1,670)

$

36,694

$

36,059

The Company’s allowance for credit losses represents management’s estimate of current expected credit losses and there were immaterial bad-debt write offs charged during the three months ended March 31, 2021.

As of March 31, 2021, the Company evaluated the current and expected future economic and market conditions surrounding the COVID-19 pandemic as it relates to collectability of its accounts receivable and determined the estimate

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of expected credit losses was not materially impacted. The Company will continue to re-evaluate the estimate of credit losses related to COVID-19 in conjunction with its assessment of expected credit losses in subsequent quarters.

Additionally, no customers accounted for more than 10% of net accounts receivable as of any such date.

Inventory, Net

Inventory, net consisted of the following (in thousands):

March 31, 

December 31, 

    

2021

    

2020

  

Finished goods

$

6,662

$

5,346

Work in process

3,761

3,584

Raw material

4,848

6,879

$

15,271

$

15,809

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

March 31, 

December 31, 

    

2021

    

2020

Accrued bonuses

$

4,669

$

10,815

Accrued vacation benefits

4,175

3,728

Accrued payroll taxes

7,568

3,198

Other accrued liabilities

31,532

27,590

$

47,944

$

45,331

Note 4.  Fair Value Measurements

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

The carrying amounts of cash equivalents, accounts receivable, accounts payable, and accrued liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments.

The valuation of assets and liabilities is subject to fair value measurements using a three-tiered approach and fair value measurements are classified and disclosed by the Company in one of the following three categories:

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 for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

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The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

At March 31, 2021

Quoted prices

Significant

in active

other

Significant

markets for

observable

unobservable

March 31, 

identical assets

inputs

inputs

    

2021

    

(Level 1)

    

(Level 2)

    

(Level 3)

Assets

Cash equivalents:

Money market funds (i)

$

3,089

$

3,089

$

-

$

-

Available for sale securities:

U.S. government agency bonds (ii)

198,150

-

198,150

-

Bank certificates of deposit (ii)(iii)

24,799

-

24,799

-

Corporate notes (ii)

61,515

-

61,515

-

Asset-backed securities (ii)

13,094

-

13,094

-

Municipal bonds (ii)

17,197

-

17,197

-

Investments held for deferred compensation plans

5,754

5,754

Total Assets

$

323,598

$

3,089

$

320,509

$

-

Liabilities

Deferred compensation plans

$

5,689

$

-

$

5,689

$

-

Total Liabilities

$

5,689

-

$

5,689

$

-

At December 31, 2020

Quoted prices

Significant

in active

other

Significant

markets for

observable

unobservable

December 31, 

identical assets

inputs

inputs

    

2020

    

(Level 1)

    

(Level 2)

    

(Level 3)

Assets

Cash equivalents:

Money market funds (i)

$

5,169

$

5,169

$

-

$

-

Available for sale securities:

U.S. government agency bonds (ii)

206,924

-

206,924

-

Bank certificates of deposit (ii) (iii)

25,708

-

25,708

-

Commercial paper (ii)

1,500

-

1,500

-

Corporate notes (ii)

55,173

-

55,173

-

Asset-backed securities (ii)

13,495

-

13,495

-

Municipal bonds (ii)

9,972

-

9,972

-

Investments held for deferred compensation plans

5,331

5,331

-

Total Assets

$

323,273

$

5,169

$

318,104

$

-

Liabilities

Deferred compensation plans

$

5,232

-

$

5,232

-

Total Liabilities

$

5,232

$

-

$

5,232

$

-

(i)Included in cash and cash equivalents with a maturity of three months or less from date of purchase on the condensed consolidated balance sheets.
(ii)Included in short-term investments on the condensed consolidated balance sheets.
(iii)As of March 31, 2021 and December 31, 2020, a bank certificate of deposit totaling $4,000 and $5,000 (in thousands), respectively, is included in cash and cash equivalents on the condensed consolidated balance sheets, as the investment has a maturity of three months or less from the date of purchase on the condensed consolidated balance sheets.

Money market funds and currency are highly liquid investments and are actively traded. The pricing information on these investment instruments is readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.

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U.S. government agency bonds, U.S. government bonds, bank certificates of deposit, commercial paper, municipal bonds, corporate notes and asset-backed securities are measured at fair value using Level 2 inputs. The Company reviews trading activity and pricing for these investments as of each measurement date. Pursuant to the Company’s deferred compensation plan (the Deferred Compensation Plan), the Company has also established a rabbi trust that serves as an investment to shadow the Deferred Compensation Plan liability. The investments of the rabbi trust and Deferred Compensation Plan liability consist of company-owned life insurance policies (COLIs) and the pricing on these investments can be independently evaluated. When sufficient quoted pricing for identical securities is not available, the Company uses market pricing and other observable market inputs for similar securities obtained from third party data providers. These inputs represent quoted prices for similar assets in active markets or these inputs have been derived from observable market data. This approach results in the classification of these securities as Level 2 of the fair value hierarchy.

There were no transfers between levels within the fair value hierarchy during the periods presented.

The Company did not have any assets or liabilities measured at fair value on a recurring basis within Level 3 fair value measurements as of March 31, 2021 and December 31, 2020.

Convertible Senior Notes

As of March 31, 2021, the fair value of the Convertible Notes was $488.4 million. The fair value was determined on the basis of the market prices observable for similar instruments and is considered Level 2 in the fair value hierarchy. See Note 9, Convertible Senior Notes for additional information.

Note 5.   Leases

The Company has operating and finance leases for facilities and certain equipment.  Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheet. Lease expense for operating leases is recognized on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of ASC 842, the Company combines lease and non-lease components.

The Company’s leases have remaining non-cancelable lease terms of approximately one year to thirteen years, some of which include options to extend the leases for up to ten years, and some of which include options to terminate the lease within one year. The exercise of lease renewal options is at the Company’s sole discretion. In certain of the Company’s lease agreements, the rental payments are adjusted periodically to reflect actual charges incurred for common area maintenance, landlord incentives and/or inflation.

On November 14, 2018, the Company entered into an office building lease pursuant to which the Company will lease one property containing three existing office buildings, comprising approximately 160,000 rentable square feet of space, located in Aliso Viejo, California (Aliso Facility) which was accounted for as a finance lease. The term of the Aliso Facility commenced on April 1, 2019 and continues for thirteen years. The agreement contains an option to extend the lease for two additional five year periods at market rates. The Company intends to relocate its corporate administrative headquarters, along with certain laboratory, research and development and warehouse space, to the Aliso Facility. The lease landlord agreed to provide the Company with a tenant improvement allowance in the amount of the cost of any leasehold improvements, not to exceed approximately $12.7 million, upon the Company providing the necessary documentation evidencing the costs of the allowable leasehold improvements. Nearly all of the aforementioned tenant improvement allowances were utilized by the end of the quarter ended March 31, 2021 and the Company expects to receive reimbursement during the quarter ending June 30, 2021.

The Company leases two adjacent facilities located in San Clemente, California. The total leased square footage of these facilities equals approximately 98,000. On July 2, 2020, the Company extended the term of these facilities by five years, both of which now expire on May 31, 2030. Each agreement contains an option to extend the lease for one additional five year period at market rates. In conjunction with these extensions, the lease landlords agreed to provide the Company with tenant improvement allowances in the amount of the cost of any leasehold improvements, not to exceed approximately $0.5 million, upon the Company providing the necessary documentation evidencing the costs of the allowable leasehold improvements.

The Company currently intends to maintain its manufacturing facilities at its San Clemente location for the foreseeable future.

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The Company leases approximately 27,000 square feet of office and laboratory space in Waltham, Massachusetts, pursuant to a lease agreement that expires in 2023. The Company also currently occupies approximately 19,000 square feet of leased manufacturing space in Burlington, Massachusetts pursuant to a lease agreement that expires in 2031.

The Company’s remaining U.S.-based and foreign subsidiaries’ leased office space totals less than 14,000 square feet.

The following table presents the maturity of the Company’s operating and finance lease liabilities as of March 31, 2021:

Maturity of Lease Liabilities

Operating

Finance

(in thousands)

    

Leases (a)

Leases (b)

Remainder of 2021

$

2,001

$

2022

2,953

2023

2,555

1,465

2024

2,408

5,184

2025

2,444

5,340

2026

2,498

5,500

Thereafter

20,790

107,522

Total lease payments

$

35,649

$

125,011

Less: imputed interest

13,926

63,943

Total lease liabilities

$

21,723

$

61,068

(a)Operating lease payments include $12.2 million related to options to extend lease terms that are reasonably certain of being exercised.
(b)Finance lease payments include $75.8 million related to options to extend lease terms that are reasonably certain of being exercised.