Long-Term Debt

3 Months Ended

Mar. 31, 2022

Long-term debt consisted of the following:


(in thousands)	March 31, 2022		December 31, 2021
Principal amount of long-term debt	$	32,500	$	32,500
Debt discount, net of accretion	127		277
Cumulative accretion of end of term payments	597		1,157
Long-term debt	$	33,224	$	33,934
Less: current portion of long-term debt	$	(3,415)	$	(795)
Long-term debt, net of current portion	$	29,809	$	33,139

Hercules Loan Agreement, As Amended

In October 2018, the Company entered into a Loan and Security Agreement (the “Hercules Loan Agreement”), as amended in December 2018, June 2019, March 2020, December 2020 and February 2022, with Hercules, under which the Company has borrowed an aggregate of $32.5 million of term loans to date. The Hercules Loan Agreement provides for maximum borrowings of up to $50.0 million, which include, subject to Hercules investment committee’s sole discretion, a right of the Company to request that Hercules make additional term loan advances in an aggregate amount of up to $17.5 million through December 31, 2022. Borrowings under the Hercules Loan Agreement accrues interest at a variable rate equal to the greater of (i) 8.75% or (ii) 8.75% plus The Wall Street Journal prime rate minus 6.0%. In an event of default and until such event is no longer continuing, the interest rate applicable to borrowings would be increased by 4.0%.

Borrowings under the Hercules Loan Agreement are repayable in monthly interest-only payments through January 1, 2023, and in equal monthly payments of principal and accrued interest from February 1, 2023 until the maturity date of the loan, which is July 1, 2024. The Company may prepay all, but not less than all, of the outstanding borrowings, subject to a prepayment premium of up to 1.0% of the principal amount outstanding as of the date of repayment. In addition, the Hercules Loan Agreement provides for payments of $1.3 million and $0.8 million payable on July 1, 2023 and July 1, 2024, respectively, which payments are accelerated upon the prepayment of the borrowings upon the Company’s election on upon default of the loan. Borrowings under the Hercules Loan Agreement are collateralized by substantially all of the Company’s personal property and other assets except for their intellectual property (but including rights to payment and proceeds from the sale, licensing or disposition of the intellectual property).

As noted above, on February 9, 2022, the Company entered into Amendment No. 3 the Hercules Loan Agreement. The amendment primarily added a financial milestone that if met by June 30, 2022 would modify the minimum cash covenant contained in the Hercules Loan Agreement, which is effective beginning September 1, 2022, as further described below. The Company concluded that the amendment represented a modification to the debt. Accordingly, fees paid to third parties directly related to the amended debt were expensed as incurred and fees paid to Hercules in conjunction with the amendment were deferred and will be amortized to interest expense over the life of the debt arrangement using the effective interest method.

Pursuant to the Hercules Loan Agreement, effective as of the earlier of (a) certain specified events impacting the Company’s Phase III trial of mavorixafor for the treatment of WHIM syndrome and (b) September 1, 2022, the Company at all times thereafter must maintain cash in an account or accounts in which Hercules has a first priority security interest, in an aggregate amount greater than or equal to the greater of (i) $30.0 million or (ii) 6 multiplied by a metric based on prior months’ cash expenditures; provided, however, that from and after the Company’s achievement of certain financing milestones through June 30, 2022, the Company must maintain cash in an account or accounts in which Hercules has a first priority security interest in an aggregate amount of $30.0 million. Following the achievement of certain operational performance milestones, the required level shall be reduced to the greater of $20.0 million, or, if the Company had not met the financing milestones noted above, 3 multiplied by the current cash expenditures metric; and provided further, that subject to the achievement of certain milestones, this covenant will be extinguished. The Hercules Loan Agreement also restricts the Company’s ability to incur additional indebtedness, pay dividends, encumber its intellectual property, or engage in certain fundamental business transactions, such as mergers or acquisitions of other businesses, with certain exceptions.

The Company recognized interest expense under the Hercules Loan Agreement as follows:


(in thousands)	For the Three Months ended March 31,
	2022		2021
Total interest expense	$	909	$	890
Non-cash interest expense	$	198	$	178

The annual effective interest rate of the Hercules Loan Agreement as of March 31, 2022 is 10.7%. There were no principal payments due or paid under the Hercules Loan Agreement during the three months ended March 31, 2022. An end-of-term payment of $0.8 million was paid during the three months ended March 31, 2022 in accordance with the Hercules Loan Agreement.

As of March 31, 2022, future principal and end-of-term payments due under the Hercules Loan Agreement were as follows (in thousands):


Year Ending December 31,	Total
2022	$	—
2023	19,802
2024	13,295
Long-term debt	$	33,097