NOTE PAYABLE AND DEBT ISSUANCE COSTS

6 Months Ended

Jun. 30, 2013

NOTE PAYABLE AND DEBT ISSUANCE COSTS [Abstract]

NOTE PAYABLE AND DEBT ISSUANCE COSTS

4. NOTE PAYABLE AND DEBT ISSUANCE COSTS

Note payable consists of the Company's loan agreement with HC Royalty, as lender, under which the Company agreed to borrow $50.0 million in two $25.0 million tranches. The Company drew down the first tranche in the amount of $25.0 million in December 2012 and received the second tranche on May 21, 2013. With respect to the first $25.0 million tranche, for each calendar year (prorated for any portion thereof), the loan bears a royalty rate of 6.25% of the first $25.0 million of PROCYSBI and future approved product net revenues for such calendar year, 3.0% of the PROCYSBI and future approved product net revenues for such calendar year in excess of $25.0 million and below $50.0 million, and 1.0% of the PROCYSBI and future approved product net revenues for such calendar year in excess of $50.0 million, payable quarterly. With respect to the second $25.0 million tranche, for each calendar year (prorated for any portion thereof), the loan bears a royalty rate of 6.0% of the first $25.0 million of PROCYSBI and future approved product net revenues for such calendar year, 3.0% of the PROCYSBI and future approved product net revenues for such calendar year in excess of $25.0 million and below $50.0 million, and 1.0% of the PROCYSBI and future approved product net revenues for such calendar year in excess of $50.0 million, payable quarterly.

The Company received marketing approval of PROCYSBI from the FDA on April 30, 2013 and commenced shipment of PROCYSBI during June 2013, and as a result, royalties became payable to HC Royalty based upon net revenues of PROCYSBI. As of June 30, 2013, royalties payable to HC Royalty are recorded as interest expense. Approximately $2,000 was accrued based on net revenues for the three months ended June 30, 2013.

The loan and the Company's obligation to make any payments shall terminate immediately when all payments received by HC Royalty aggregate to $97.5 million. If, by December 20, 2014, net revenues for the immediately preceding four fiscal quarters exceed $100.0 million, then the loan and the Company's obligation to make any payments shall terminate immediately when all payments received by HC Royalty from the Company aggregate to $90.0 million.

To secure the performance of its obligations under the HC Royalty Loan, the Company granted a security interest to HC Royalty in substantially all of its assets, the assets of its subsidiaries and a pledge of stock of certain of its domestic subsidiaries. The Company's failure to comply with the terms of the HC Royalty Loan agreement and related documents, the occurrence of a change of control of the Company or the occurrence of an uncured material adverse effect on the Company, or the occurrence of certain other specified events, could result in an event of default under the HC Royalty Loan agreement that, if not cured or waived, could result in the acceleration of the payment of all of its indebtedness to HC Royalty and interest thereon. Under the terms of the security agreement, in an event of default, the lender could potentially take possession of, foreclose on, sell, assign or grant a license to use, the Company's pledged collateral and assign and transfer the pledged stock of certain of its subsidiaries. Further, HC Royalty may terminate its commitment to fund the second $25.0 million tranche upon the occurrence of any such event prior to the funding of such tranche.