NovoCure Ltd (NVCR) FY 2021 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide information to assist you in better understanding and evaluating our financial condition and results of operations. We encourage you to read this MD&A in conjunction with our consolidated financial statements and the notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Please refer to the information under the heading "Cautionary Note Regarding Forward-Looking Statements" elsewhere in this report. References to the words "we," "our," "us," and the "Company" in this report refer to NovoCure Limited, including its consolidated subsidiaries.

Overview

We are a global oncology company with a proprietary platform technology called Tumor Treating Fields ("TTFields"), which are electric fields tuned to specific frequencies that disrupt cancer cell division. Our key priorities are to drive commercial adoption of Optune and Optune Lua, our commercial devices, and to advance clinical and product development programs intended to extend overall survival in some of the most aggressive forms of cancer.

Optune is approved by the U.S. Food and Drug Administration ("FDA") under the Premarket Approval ("PMA") pathway for the treatment of adult patients with newly diagnosed glioblastoma ("GBM") together with temozolomide, a chemotherapy drug, and for adult patients with GBM following confirmed recurrence after chemotherapy as monotherapy treatment. We also have a CE certificate to market Optune for the treatment of GBM in the European Union ("EU"), as well as approval or local registration in the United Kingdom ("UK"), Japan and certain other countries. Optune Lua is approved by the FDA under the Humanitarian Device Exemption ("HDE") pathway to treatment malignant pleural mesothelioma ("MPM") together with standard chemotherapies. We have also received CE certification in the EU and approval or local registration to market Optune Lua in certain other countries. We market Optune and Optune Lua in multiple countries around the globe with the majority of our revenues coming from the use of Optune in the U.S., Germany and Japan. We are actively evaluating opportunities to expand our international footprint.

We believe the physical mechanism of action behind TTFields therapy may be broadly applicable to solid tumor cancers. Currently, we are conducting phase 3 pivotal studies evaluating the use of TTFields in non-small cell lung cancer ("NSCLC"), ovarian cancer, brain metastases from non-small cell lung cancer ("brain metastases") and pancreatic cancer. In 2021, we completed patient enrollment in our phase 3 pivotal NSCLC and ovarian cancer studies with data anticipated in 2022 and 2023, respectively. Additionally, we have multiple ongoing phase 2 pilot studies evaluating the use of TTFields in gastric cancer, for which patient enrollment is complete, and stage 3 NSCLC, as well as testing the potential incremental survival benefit of TTFields delivered using high-intensity arrays versus standard arrays. We are designing several phase 2 pilot studies in partnership with oncology leaders to further explore the capabilities of TTFields. We are also currently conducting a global phase 4 post-marketing study testing the potential survival benefit of initiating Optune concurrent with radiation therapy versus following radiation therapy in patients with newly diagnosed GBM. In 2021, we presented data from our phase 2 pilot study studying the use of TTFields in liver cancer and are currently evaluating protocol design options for a large, randomized study in this indication. We anticipate expanding our clinical pipeline over time to study the safety and efficacy of TTFields for additional solid tumor indications and combinations with other cancer treatment modalities.

The table below presents the current status of the ongoing clinical studies in our pipeline and anticipated timing of data.

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Our therapy is delivered through a medical device and we continue to advance our Products with the intention to extend survival and maintain quality of life for patients. We have several product development programs underway that are designed to optimize TTFields delivery to the target tumor and enhance patient ease of use. Our intellectual property portfolio contains hundreds of issued patents and numerous patent applications pending worldwide. We believe we possess global commercialization rights to our Products in oncology and are well-positioned to extend those rights into the future as we continue to find innovative ways to improve our Products.

In 2018, we granted Zai Lab (Shanghai) Co., Ltd. ("Zai") a license to commercialize Optune in China, Hong Kong, Macau and Taiwan ("Greater China") under a License and Collaboration Agreement (the "Zai Agreement"). The Zai Agreement also establishes a development partnership intended to accelerate the development of TTFields in multiple solid tumor cancer indications. For additional information, see Note 12 to the Consolidated Financial Statements.

Impact of COVID-19

In March 2020, the World Health Organization (“WHO”) declared COVID-19 a global pandemic. Since the pandemic began, we have been following the guidance of the WHO, the U.S. Centers for Disease Control and Prevention, and local health authorities in all of our active markets and we have adjusted the way we conduct business to adapt to the evolving situation. The COVID-19 pandemic did not have a material impact on our financial results throughout 2021. The pandemic has had and is having an impact on our day-to-day operations, which varies by region based on factors such as geographical spread, stage of containment and recurrence of the pandemic in each region. We believe the prolonged disruption caused by COVID-19 is resulting in increased volatility across global health care systems, such as fluctuations in patient volumes and changes in patterns of care in certain regions, which is currently impacting and might continue to impact our business and clinical studies in the future. For example, we continue to see fluctuations in the timing of surgeries and radiation therapy in certain regions, which has had some adverse influence on the eligible patient population for Optune. We have also have been impacted by staff disruptions and turnover internally and at treatment sites, clinical study sites and third-party providers, either directly as a result of illness or indirectly as a result of vaccine mandates and other changes in terms of employment. TTFields is an emerging modality in cancer care and requires significant educational effort to drive awareness and acceptance of our therapy. We have relied heavily on virtual engagement to manage these educational efforts since the onset of the pandemic, which poses challenges to our ability to effectively communicate and engage with our customers and partners around the world.

Given the aggressive nature of the cancers that we treat, we believe that the fundamental value proposition of the TTFields platform remains unchanged. We continue to evaluate and plan for the potential effects of COVID-19 on our business moving forward. The extent to which the COVID-19 pandemic may impact our business and clinical studies in the future will depend on further developments, which are highly uncertain and cannot be predicted with confidence. The COVID-19 pandemic may also heighten many of the other risks described in our risk factors disclosed in this Annual Report.

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We view our operations and manage our business in one operating segment. Our net revenues were $535.0 million for the year ended December 31, 2021, $494.4 million for the year ended December 31, 2020 and $351.3 million for the year ended December 31, 2019. Our net loss was $58.4 million for the year ended December 31, 2021, net income was $19.8 million for the year ended December 31, 2020 and net loss was $7.2 million for the year ended December 31, 2019. As of December 31, 2021, we had an accumulated deficit of $685.9 million.

Commentary on Results of Operations

Net revenues

Our revenues are primarily derived from patients using our Products in our active markets. We charge for treatment with our Products on a monthly basis. Our potential net revenues per patient are determined by our ability to secure payment, the monthly fee we collect and the number of months that the patient remains on therapy.

We also receive revenues pursuant to the Zai Agreement. For additional information regarding the Zai Agreement, see Note 12 to the Consolidated Financial Statements.

Cost of revenues

We contract with third parties to manufacture our Products. Our cost of revenues is primarily comprised of the following:

•disposable arrays;

•depreciation expense for the field equipment, including the electric field generator used by patients; and

•personnel and overhead costs such as facilities, freight and depreciation of property, plant and equipment associated with managing our inventory, warehousing and order fulfillment functions.

Operating expenses

Our operating expenses consist of research, development and clinical studies, sales and marketing and general and administrative expenses. Personnel costs are a significant component for each category of operating expenses and consist of wages, benefits and bonuses. Personnel costs also include share-based compensation.

Research, development and clinical studies

Our research, development and clinical studies activity is focused on advancing TTFields through clinical studies across multiple solid tumor types and improving the efficacy and usability of our devices. Research, development and clinical studies costs, including direct and allocated expenses, are expensed as incurred and consist primarily of the following:

•personnel costs for those employees involved in our preclinical and basic research, clinical development programs, clinical affairs, product development and regulatory activities;

•costs to conduct research, product development and clinical study activity through agreements with contract research organizations and other third parties;

•manufacturing expenses associated with our Products, including durable components and disposable arrays, utilized in clinical studies and other research;

•costs associated with medical grants, publications, presentations and investigator-sponsored trials;

•professional fees related to regulatory approvals and conformity assessment procedures; and

•facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment and laboratory and other supplies.

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The following table summarizes our research, development and clinical study expenses by program for the years ended December 31, 2021, 2020 and 2019:

(1)     Other research, development and clinical study costs include regulatory affairs, quality assurance, intellectual property, product safety, allocated facilities and other overhead costs.

We are committed to investing strategically to maximize the growth potential of the TTFields platform. We expect growth in our research and development investments to continue into 2022 as we work to advance our pipeline programs and increase acceptance of Tumor Treating Fields across the global oncology community.

Sales and marketing

Sales and marketing expenses consist primarily of personnel costs, travel, marketing and promotional activities, commercial shipping and facilities costs. Over the next few years, we expect to continue to make significant expenditures associated with selling and marketing our Products, primarily in connection with continued commercialization in the United States, EU and Japan for the treatment of our approved indications.

General and administrative

General and administrative expenses consist primarily of personnel, professional fees and facilities costs. General and administrative personnel costs include our executive, finance, human resources, information technology and legal functions. These costs also include our contributions to support industry and patient groups. Our professional fees consist primarily of accounting, information technology, legal and other consulting costs. We expect that general and administrative expenses will increase to support our growth. In addition, we incur significant legal and accounting costs related to compliance with SEC rules and regulations, including the costs of achieving and maintaining compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and compliance with rules of the NASDAQ Stock Market, as well as insurance, investor relations and other costs associated with being a public company.

Financial expenses, net

Financial expenses, net primarily consists of credit facility interest expense and related debt issuance costs, interest income from cash balances and short-term investments and gains (losses) from foreign currency transactions. Our reporting currency is the U.S. dollar. We have historically held substantially all of our cash balances in U.S. dollar denominated accounts to minimize the risk of translational currency exposure.

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Critical accounting policies and estimates

In accordance with U.S. GAAP, in preparing our financial statements we must make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of net revenues and expenses during the reporting period. We develop and periodically change these estimates and assumptions based on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates.

The critical accounting policies requiring estimates, assumptions and judgments that we believe have the most significant impact on our consolidated financial statements are described below.

Revenue recognition

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), an updated standard on revenue recognition and issued subsequent amendments to the initial guidance in March 2016, April 2016, May 2016 and December 2016 within ASU 2016-08, 2016-10, 2016-12 and 2016-20, respectively. The Company adopted the standard effective January 1, 2018 using the modified retrospective method for all contracts. The reported results for 2018 and thereafter reflect the application of Accounting Standards Codification ("ASC") 606 guidance. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for our Products. For additional information, see Note 2(m) to the Consolidated Financial Statements.

We also receive revenues pursuant to the Zai Agreement. For additional information regarding the Zai Agreement, see Note 12 to the Consolidated Financial Statements.

Share-based compensation

Under the FASB's ASC 718, Compensation-Stock Compensation, we measure and recognize compensation expense for share options granted to our employees and directors and for our ESPP based on the fair value of the awards on the date of grant. The fair value of share options is estimated at the date of grant using the Black-Scholes option pricing model and for market condition awards we also use the Monte-Carlo simulation model. Both models requires management to apply judgment and make estimates, including:

•the expected term of the stock option award, which we calculate using the simplified method, in accordance with ASC No.718-10-S99-1 (SAB No. 110) as we have insufficient historical information regarding our stock options to provide a basis for an estimate;

•the expected share price volatility of our underlying ordinary shares, which since the beginning of 2021, we estimate based on a combination of our own stock price and a representative group of publicly traded biopharmaceutical and medical technology companies with similar characteristics to us ("peer-based companies") for a period matching the expected term assumption when there is not sufficient historical information for our ordinary shares (prior to 2021 our estimation was based on the historical volatility of peer-based companies);

•the risk-free interest rate, which we base on the yield curve of U.S. Treasury securities with periods commensurate with the expected term of the options being valued; and

•the expected dividend yield, which we estimate to be zero based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends.

For information about our ESPP, see Note 14 to the Consolidated Financial Statements.

We recognize share-based compensation costs only for those shares expected to vest over the requisite vesting period of the award, which is generally the option vesting term of four years, using the accelerated method.

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The table below summarizes the assumptions that were used to estimate the fair value of the options granted to employees during the periods presented:

If any of the assumptions used in the Black-Scholes option pricing model change significantly, share-based compensation for future awards may differ materially from the awards granted previously.

So long as our ordinary shares are publicly traded in a liquid market, we will rely on the daily trading price of our ordinary shares when we estimate the fair value of options granted.

We incurred share-based compensation expense of $94.9 million, $75.7 million and $52.4 million during the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021, we have unrecognized compensation expense of $96.4 million, which is expected to be recognized over a weighted average period of approximately 2.63 years. We expect to continue to grant equity awards in the future, and to the extent that we do, our recognized share-based compensation expense will likely increase. For additional information, see Note 14 to the Consolidated Financial Statements.

Long-lived assets

Property and equipment and field equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful life of the relevant asset. We make estimates of the useful life of our property and equipment and field equipment, based on similar assets purchased in the past and our historical experience with such similar assets, in order to determine the depreciation expense to be recorded for each reporting period.

Our field equipment consists of equipment being utilized under rental agreements accounted for on a monthly basis as an operating lease, as well as service pool equipment. Service pool equipment is equipment owned and maintained by us that is swapped for equipment that needs repair or maintenance by us while being used by a patient. We record a provision for any excess, lost or damaged equipment when warranted based on an assessment of the equipment.

We assess impairment whenever events or changes in circumstances indicate that the carrying amount of the asset is impaired or the estimated useful life is no longer appropriate. Circumstances such as changes in technology or in the way an asset is being used may trigger an impairment review. For additional information, see Notes 2(i) and 2(j) to the Consolidated Financial Statements.

Inventories

Inventories are stated at the lower of cost or net realizable value. We regularly evaluate the ability to realize the value of inventory. If the inventories are deemed damaged, if actual demand for our devices declines, or if market conditions are less favorable than those projected, inventory write-offs may be required. For additional information, see Note 2(h) to the Consolidated Financial Statements.

Income taxes

As part of the process of preparing our consolidated financial statements, we are required to calculate our income taxes based on taxable income by jurisdiction. We make certain estimates and judgments in determining our income taxes, including assessment of our uncertain tax positions, for financial statement purposes. Significant changes to these estimates may result in an increase or decrease to our tax provision in the subsequent period when such a change in estimate occurs.

Uncertain tax positions are based on estimates and assumptions that have been deemed reasonable by management. Our estimates of unrecognized tax benefits and potential tax benefits may not be representative of actual outcomes.

For additional information, see Note 13 to the Consolidated Financial Statements.

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Results of operations

The following discussion provides an analysis of our results of operations and reasons for material changes therein for 2021 as compared to 2020. See "Results of Operations" in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 2020 Annual Report on Form 10-K, filed with the SEC on February 25, 2021, for an analysis of the 2020 results as compared to 2019.

The following table sets forth our consolidated statements of operations data:

The following table details the share-based compensation expense included in costs and expenses:

Key performance indicators

We believe certain commercial operating statistics are useful to investors in evaluating our commercial business as they help investors evaluate and compare the adoption of our Products from period to period. The number of active patients on therapy is our principal revenue driver. An "active patient" is a patient who is receiving treatment under a commercial prescription order as of the measurement date, including patients who may be on a temporary break from treatment and who plan to resume treatment in less than 60 days. Prescriptions are a leading indicator of

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demand. A "prescription received" is a commercial order for Optune or Optune Lua that is received from a physician certified to treat patients with our Products for a patient not previously on Optune or Optune Lua. Orders to renew or extend treatment are not included in this total.

The following table includes certain commercial operating statistics for and as of the end of the periods presented.

In the U.S., there were 11 active MPM patients on therapy as of December 31, 2021 and 48 MPM prescriptions were received in the year ended December 31, 2021.

Year ended December 31, 2021 compared to year ended December 31, 2020

Net revenues. Net revenues increased by $40.7 million, or 8%, to $535.0 million for the year ended December 31, 2021 from $494.4 million for the year ended December 31, 2020. This primarily was due to an increase of 176 active patients, representing 5% growth and increased efficiency in our revenue operations, offset by a reduction in net revenue per active patient in Germany.

For the year ended December 31, 2021, we recorded $40.3 million in revenues from Medicare fee-for-service beneficiaries billed under the coverage policy compared to $36.1 million for the year ended December 31, 2020. We believe we have completed our administrative ramp-up for processing Medicare claims and efficiently pursuing appeals.

In 2021, we did not record material revenue from the successful appeal of previously denied claims for Medicare fee-for-service beneficiaries billed prior to established coverage, compared to approximately $19 million in incremental net revenues recorded in 2020. We continue to actively appeal and pursue previously denied claims for beneficiaries billed prior to established coverage, but the cadence and amount of these Medicare payments are impossible to predict.

Cost of revenues. Our cost of revenues increased by $8.4 million, or 8%, to $114.9 million for the year ended December 31, 2021 from $106.5 million for the year ended December 31, 2020. The increase in cost of revenues primarily was due to increased array utilization and shipping costs to a higher volume of active patients, which

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increased 5% in the year ended December 31, 2021 compared to the year ended December 31, 2020. An increase of $5 million in product sales to Zai in the year ended December 31, 2021 compared to the year ended December 31, 2020 contributed to the increase in cost of revenues. Excluding sales to Zai, cost of revenues per active patient per month decreased 5% to $2,474 for the year ended December 31, 2021 from $2,602 for the year ended December 31, 2020 due to on-going efficiency initiatives and scale.

Cost of revenues per active patient is calculated by dividing the cost of revenues for the year less product sales to Zai for the year by the average of the active patients at the end of the each quarter in the current year and the end of the year active patients from the prior year. This annual figure is then divided by twelve to estimate the monthly cost of revenues per active patient. Sales to Zai are deducted because they are made at cost and in anticipation of future royalties from Zai, and Zai patient counts are not included in our active patient population. Product sales to Zai totaled $11.3 million for the year ended December 31, 2021 compared to $6.3 million for the year ended December 31, 2020.

Gross margin was 79% for the year ended December 31, 2021 and 78% for the year ended December 31, 2020. Gross margin continues to benefit from ongoing efficiency initiatives and increasing scale and is tempered by product sales to Zai.

Research, development and clinical studies expenses. Research, development and clinical studies expenses increased by $69.3 million, or 52%, to $201.3 million for the year ended December 31, 2021 from $132.0 million for the year ended December 31, 2020. The change is primarily due to an incremental $31.6 million in clinical studies and clinical administration expenses, $5.5 million in product development expenses, $3.5 million in preclinical and basic research expenses, and $3.4 million in clinical affairs expenses.

We expect growth in our research and development investments to continue into 2022 as we work to advance our pipeline programs and increase acceptance of Tumor Treating Fields across the global oncology community. We balance our investments in research and development with our organizational capacity to effectively execute our strategic initiatives.

Sales and marketing expenses. Sales and marketing expenses increased by $19.0 million, or 16%, to $137.1 million for the year ended December 31, 2021 from $118.0 million for the year ended December 31, 2020. The change primarily was due to increases of $7.0 million, $4.0 million and $2.6 million in health policy, marketing and sales expenses, respectively, which are intended to support our growing commercial business and reimbursement efforts, including an incremental $5.7 million invested in pre-commercial activities associated with potential commercial launches in additional cancer indications and expansion into new markets in our approved indications.

General and administrative expenses. General and administrative expenses increased by $18.7 million, or 17%, to $126.1 million for the year ended December 31, 2021 from $107.4 million for the year ended December 31, 2020. The change primarily was due to increase of $10.1 million in expenses associated with personnel costs and professional services, as well as an increase of $4.6 in expenses associated with supply chain optimization.

Financial expenses, net. Financial expenses, net, decreased by $4.6 million, or 37%, to $7.7 million for the year ended December 31, 2021 from $12.3 million for the year ended December 31, 2020. The change primarily was due to a prepayment premium related to the 2018 Credit Facility, amortization costs related to the issuance of our convertible notes and expenses related to the senior secured revolving credit facility. See Note 10 to the Consolidated Financial Statements.

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Income taxes. Income tax expenses increased by $8.0 million, or 468%, resulting in a tax expense of $6.3 million for the year ended December 31, 2021 compared to a tax benefit of $1.7 million for the year ended December 31, 2020. The change was primary due to a net one-time tax benefit of $11.3 million which was recorded in the first quarter of 2020 in response to the changes in the U.S. tax code related to the economic impact of the COVID-19 pandemic. Without this one-time benefit in 2020, income taxes expenses decreased $3.3 million in 2021 driven by a change in the mix of applicable statutory tax rates in our active jurisdictions.

Non-GAAP financial measures

We also measure our performance based upon a non-U.S. GAAP measurement of earnings before interest, taxes, depreciation, amortization and shared-based compensation ("Adjusted EBITDA"). We believe Adjusted EBITDA is useful to investors in evaluating our operating performance because it helps investors evaluate and compare the results of our operations from period to period by removing the impact of earnings attributable to our capital structure, tax rate and material non-cash items, specifically share-based compensation.

We calculate Adjusted EBITDA as operating income before financial expenses and income taxes, net of depreciation, amortization and share-based compensation. The following table reconciles net loss (which is the most directly comparable U.S. GAAP operating performance measure) to Adjusted EBITDA.

Adjusted EBITDA decreased by $54.5 million, or 47%, to $60.8 million for the year ended December 31, 2021 from $115.3 million for the year ended December 31, 2020. This decrease was in part due to a $59.8 million increase in investment in research, development and clinical studies expenses (net of share-based compensation expenses), intended to advance our pipeline programs and increase acceptance of TTFields across the global oncology community, as well as an incremental $5.7 million invested in pre-commercial activities associated with potential commercial launches in additional cancer indications and expansion into new markets in our approved indications.

Liquidity and capital resources

We have incurred significant losses and cumulative negative cash flows from operations with only limited and intermittent operating profits since our founding in 2000. As of December 31, 2021, we had an accumulated deficit of $685.9 million. To date, we primarily have financed our operations through the issuance and sale of equity and the proceeds from long-term loans.

At December 31, 2021, we had $208.8 million in cash and cash equivalents and $728.9 million in short-term investments. At December 31, 2021, our cash, cash equivalents and short-term investments totaled $937.7 million, an increase of $95.1 million compared to $842.6 million at December 31, 2020. The increase was primarily due to net cash generated by operating activities and the exercise of options.

We believe our cash, cash equivalents and short-term investments as of December 31, 2021 are sufficient for our operations for at least the next 12 months based on our existing business plan and our ability to control the timing of significant expense commitments. We expect that our research, development and clinical expenses, sales and marketing expenses and general and administrative expenses will continue to increase over the next several years and may outpace our gross profit. As a result, we may need to raise additional capital to fund our operations.

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The following summary of our cash flows for the periods indicated has been derived from our consolidated financial statements, which are included elsewhere in this Annual Report:

Operating activities

Net cash provided by operating activities primarily represents our net income for the periods presented. Adjustments to net income for non-cash items include share-based compensation, depreciation, amortization and asset write-downs. Operating cash flows are also impacted by changes in operating assets and liabilities, principally trade payables, deferred revenues, other payables, prepaid expenses, inventory and trade receivables.

Net cash provided by operating activities was $82.8 million for the year ended December 31, 2021 compared to $99.1 million for the year ended December 31, 2020. Gross profit increased by $32.3 million in 2021 versus 2020, partially funding incremental investments of $69.3 million in research and development and $37.7 million in sales, marketing, general and administrative expenses. The year over year decrease in cash provided by operating activities was driven by lower cash earnings, offset by lower interest payments, as well as the timing of receipts and payments in the ordinary course of business.

Upcoming use of cash in operations will include payments in the normal course of business of $45.3 million in purchase obligations with certain of our suppliers, primarily for the purchase of Product components along with other commitments to purchase goods or services. These amounts include approximately $34.4 million of commitments with three major suppliers. We make such commitments through a combination of purchase orders, supplier contracts, and open orders based on projected demand information. We also have employment agreements with certain employees that require the funding of a specific level of payments if certain events, such as a change in control or termination without cause, occur. In the course of normal business operations, we also have agreements with contract service providers to assist in the performance of our research and development (including clinical studies) and manufacturing activities. We could also enter into additional collaborative research, contract research, manufacturing and supplier agreements in the future, which may require up-front payments and even long-term commitments of cash.

Investing activities

Our investing activities primarily consist of capital expenditures to purchase property and equipment and field equipment, as well as investments in and redemptions of our short-term investments.

Net cash used in investing activities was $144.8 million for the year ended December 31, 2021 compared to net cash used in investing activities of $472.8 million for the year ended December 31, 2020. The net cash used in investing activities for 2021 was primarily attributable to $24.2 million in property and equipment and the net purchase of $120.7 million in short-term investments. The net cash used in investing activities for 2020 was primary attributable to $15.0 million in property and equipment and the net purchase of $457.9 million in short-term investments.

Financing activities

To date, our primary financing activities have been the sale of equity and the proceeds from long-term loans.

Net cash provided by financing activities was $25.7 million for the year ended December 31, 2021 compared to $440.2 million for the year ended December 31, 2020. The net cash provided by financing activities for 2021 was primary attributable to proceeds from exercise of options and issuance of shares pursuant to the ESPP. The net cash provided by financing activities for 2020 primarily was attributable to $558.4 million in proceeds from the convertible note issuance and $31.8 million in proceeds from exercise of options and shares related to the ESPP partially offset by $150.0 million in repayment of the 2018 Credit Facility (as described below).

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Convertible Notes

On November 5, 2020, we issued $575.0 million aggregate principal amount of 0% Convertible Senior Notes due 2025 (the “Notes”). The net proceeds from the offering were approximately $558.4 million. We intend to use the net proceeds to further advance our clinical and product development programs and to invest in associated pre-commercial and commercial activities, as well as for general corporate purposes.

The Notes are senior unsecured obligations. The Notes do not bear regular interest, and the principal amount of the Notes will not accrete. Special interest, if any, payable in accordance with the terms of the Notes will be payable in cash semi-annually in arrears on May 1 and November 1 of each year, beginning on May 1, 2021. The Notes mature on November 1, 2025, unless earlier repurchased, redeemed or converted.

The Notes are convertible at an initial conversion rate of 5.9439 ordinary shares per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $168.24 per ordinary share. In January 2021, we irrevocably elected to settle all conversions of Notes by a combination of cash and our ordinary shares and that the cash portion per $1,000 principal amount of Notes for all conversion settlements shall be $1,000, Accordingly, from and after the date of the election, upon conversion of any Notes, holders of Notes will receive, with respect to each $1,000 principal amount of Notes converted, cash in an amount up to $1,000 and the balance of the conversion value, if any, in our ordinary shares

The Notes are not redeemable prior to November 6, 2023, except in the event of certain tax law changes. We may redeem for cash all or any portion of the Notes, at our option, on or after November 6, 2023 if the last reported sale price of our ordinary shares has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the redemption date. No sinking fund is provided for the Notes.

Prior to the close of business on the business day immediately preceding August 1, 2025, the Notes are convertible at the option of the holders only upon the satisfaction of certain conditions and during certain periods and if we exercise our right to redeem the Notes as permitted or required by the indenture. On or after August 1, 2025 until the close of the business on the business day immediately preceding the maturity date, holders may convert all or any portion of their Notes at the conversion rate at any time irrespective of the foregoing conditions.

Term loan credit facility

On November 6, 2020, we entered into a new three-year $150.0 million senior secured revolving credit facility with a syndicate of relationship banks (the "2020 Credit Facility"). We may, subject to certain conditions and limitations, increase the revolving credit commitments outstanding under the 2020 Credit Facility or incur new incremental term loans in an aggregate principal amount not to exceed $250.0 million in total.

The commitments under the 2020 Credit Facility are guaranteed by certain of our subsidiaries and secured by a first lien on our and certain of our subsidiaries’ assets. Outstanding loans will bear interest per annum at a sliding scale based on the our secured leverage ratio from 2.75% to 3.25% above the applicable interbank borrowing reference rate for the currency in which the loan is denominated. Additionally, the 2020 Credit Facility contains a fee for the unused revolving credit commitments at a sliding scale based on our secured leverage ratio from 0.35% to 0.45%. The 2020 Credit Facility contains financial covenants requiring maintenance of a minimum fixed charge coverage ratio and specifying a maximum senior secured net leverage ratio, as well as customary events of default which include a change of control. As of December 31, 2021, we were in compliance with such covenants.

As of December 31, 2021, we had no outstanding balance borrowed under the 2020 Credit Facility.

For additional information, see Note 12(c) to the Consolidated Financial Statements.

2020 Prepayment of 2018 term loan

In 2018, we entered into a Loan and Security Agreement ("2018 Loan Agreement") pursuant to which we borrowed a term loan in the aggregate principal amount of $150.0 million (the "2018 Credit Facility"). The term loan, which was drawn in full upon execution of the 2018 Loan Agreement, bore interest at 9.0% per annum, payable quarterly in arrears. In 2020, we terminated the 2018 Credit Facility and prepaid the principal amount in full. The prepayment included $150.0 million in principal repayment and $3.0 million in prepayment premium, plus accrued and unpaid interest and expenses payable through the payoff date.

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