Long-Term Debt

3 Months Ended

Mar. 31, 2021

Debt Disclosure [Abstract]

Long-Term Debt

5. Long-Term Debt

Secured Term Loan Facility

On March 10, 2021, the Company executed a Loan and Security Agreement with Hercules as agent for its affiliates serving as lenders thereunder. The Term Loan provides a loan in the aggregate principal amount of $80 million. On March 29, 2021, the Company drew the initial $25.0 million tranche under the Term Loan. After giving effect to payment of fees and expenses associated with the draw, the Company received net proceeds of approximately $24.4 million.

In addition to the initial amount of $25.0 million, the Term Loan provides the Company with the potential for two additional tranches: a second tranche in the amount of $35.0 million or $25.0 million, which it may become entitled to draw through September 15, 2021 subject to the Company’s receipt of the EUA for lenzilumab for the treatment of hospitalized patients with COVID-19 pneumonia; and a third tranche of $20.0 million which the Company may become entitled to draw through June 15, 2022, at the discretion of Hercules if the Company requests additional funding in support of the Company’s strategic initiatives.

The Company will be required to repay amounts borrowed by March 1, 2025, subject to a one-year extension option that it may exercise if it has received FDA approval of a BLA for the use of lenzilumab for the treatment of hospitalized patients with COVID-19 pneumonia, and the FDA-authorized label for lenzilumab is generally consistent with that sought in the Company’s BLA filing, and the Company has paid Hercules certain fees and expenses associated with the extension.

Amounts drawn bear interest at a floating rate equal to the greater of either (i) 8.75% plus the prime rate as reported in The Wall Street Journal minus 3.25%, or (ii) 8.75% (such greater amount, the “Base Interest Rate”). Subject to there not having occurred any default or event of default under the loan agreement, the Base Interest Rate will be reduced by 25 basis points upon the occurrence of each of the first three of the four following events to occur:

· if the Company achieves the protocol-specified primary efficacy endpoint for the pivotal Phase 3 study of lenzilumab for COVID-19, (clinicaltrials.gov identifier NCT04351152), and receives EUA for the use of lenzilumab for the treatment of hospitalized patients with COVID-19 pneumonia;

· if the Company achieves product revenue from lenzilumab that is invoiced and/or recognized as revenue (as determined in accordance with GAAP) solely from the sale of lenzilumab (“Net Lenzilumab Product Revenue”) of at least $100.0 million;

· if the Company achieves Net Lenzilumab Product Revenue of at least $250.0 million; and

· if the Company achieves Net Lenzilumab Product Revenue of at least $350.0 million.

No principal payments will be due during an interest-only period, commencing on the initial borrowing date and continuing to April 1, 2023, subject to extension to April 1, 2024, and potentially October 1, 2024, under certain conditions. Following the interest-only period, the outstanding balance of the loan will be required to be repaid monthly, continuing through the maturity date.

The Company may prepay amounts drawn under the agreement in full prior to the maturity date then in effect, subject to payment of prepayment charges equal to:

· 2.0% of the amounts borrowed, if the prepayment occurs on or prior to March 29, 2022;

· 1.5% of the amounts borrowed, if the prepayment occurs after March 29, 2022 and before March 29, 2023; and

· 1.0% of the amounts borrowed, if the prepayment occurs after March 29, 2023 and before March 29, 2024.

In addition, on the earliest to occur of (i) the maturity date, (ii) the date the Company prepays the outstanding principal amount of the Term Loan, or (iii) the date the outstanding principal amount of the Term Loan otherwise becomes due, the Company will owe Hercules an end of term (“EOT”) charge equal to 6.75% of the aggregate amount of the Term Loan funded by Hercules.

As a condition to obtaining the term loan facility, the Company granted Hercules a security interest in substantially all of its assets and personal property not otherwise subject to existing or permitted liens. In addition, the loan agreement contains customary representations and warranties and events of default for a term loan facility of this size and type. Under the Term Loan, the Company also agreed to comply with certain customary affirmative and negative covenants that become effective upon the initial draw of the first tranche, including covenants to: 

· maintain $10.0 million unrestricted cash, which amount may be increased to $20.0 million if the Company borrows the second tranche of the Term Loan;

· comply with certain requirements to provide Hercules with financial information and other rights to inspect the Company’s books and records and the collateral for the Term Loan;

· refrain from incurring debt that is not expressly subordinated to the Term Loan; “Rule 144A-style” convertible notes in aggregate principal amount up to $250.0 million; and other permitted indebtedness;

· refrain from granting (or permitting to exist) liens on the Company’s assets and properties, other than certain permitted liens, including in respect of its patents and other intellectual property;

· refrain from making certain investments, other than permitted acquisitions and certain other permitted investments;

· refrain from repurchasing the Company’s stock or paying dividends, subject to limited exceptions;

· refrain from transferring any material portion of its assets; and

· refrain from entering into any merger or consolidation in which the Company is not the surviving entity.

All of these covenants will not apply upon repayment of any borrowings under the Term Loan.

Certain of the baskets for permitted investments and other exceptions to the covenants described above will increase in the event the Company raises more than $100.0 million in unrestricted net cash proceeds from one or more bona fide equity financings prior to March 31, 2022. Further, the covenants in the loan agreement will not prohibit the Company from pursuing its strategy of entering into out-bound license agreements for lenzilumab that may be exclusive as to specific geographic regions outside the U.S., nor will the covenants prohibit the Company from entering into co-development or co-promotion or commercialization agreements relating to lenzilumab, so long as such agreements generally are negotiated on arm’s length and commercially reasonable terms.

While the Term Loan is outstanding, the lenders will have the right to convert a portion of the principal amount outstanding under the Term Loan (ranging from $5.0 million to $10.0 million in the aggregate) into shares of the Company’s common stock at a conversion price equal to $19.57 per share, subject to customary anti-dilution adjustments.

The following table summarizes the outstanding future payments of principal and interest associated with the Company’s Term Loan as of March 31, 2021 (in thousands):

2021	$	1,501
2022		2,218
2023		10,800
2024		13,671
2025		5,153
Total payments		33,343
Less amount representing interest		(6,655	)
Notes payable, gross		26,688
Less: Unamortized portion of EOT charge		(1,688	)
Less: Unamortized discount on notes payable		(213	)
Less: Unamortized debt issuance costs		(343	)
Long-term debt		24,444
Less current portion		-
Long-term debt, net of current portion	$	24,444

Interest expense related to the Term Loan, recorded during the three months ended March 31, 2021, was approximately $18 thousand and the effective interest rate was 9.0%.