Long-Term Debt

9 Months Ended

Sep. 30, 2022

Long-term debt consisted of the following:


(in thousands)	September 30, 2022		December 31, 2021
Principal amount of long-term debt	$	32,500	$	32,500
Debt (discount) premium, net of accretion	(221)		277
Cumulative accretion of end of term payments	1,075		1,157
Long-term debt	$	33,354	$	33,934
Less: current portion	$	(14,621)	$	(795)
Long-term debt, net of current portion	$	18,733	$	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, February 2022 and June 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) The Wall Street Journal prime rate plus 3.75%. 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 or 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 its intellectual property (but including rights to payment and proceeds from the sale, licensing or disposition of the intellectual property).

On February 9, 2022, the Company entered into Amendment No. 3 of the Hercules Loan Agreement (“Amendment 3”). Amendment 3 primarily added a financial milestone that if met by June 30, 2022, modifies the minimum cash covenant contained in the Hercules Loan Agreement effective beginning September 1, 2022, as further described below. The Company achieved this financial milestone. The Company concluded that Amendment 3 represented a modification to the debt as opposed to an extinguishment. 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 are being amortized to interest expense over the life of the debt arrangement using the effective interest method.

On June 30, 2022, the Company entered into Amendment No. 4 of the Hercules Loan Agreement (“Amendment 4”). Amendment 4 primarily added two additional milestones that if met will extend the interest-only period of the debt under the Hercules facility. To achieve the first interest-only extension milestone, which would extend the interest-only period from February 1, 2023 to August 1, 2023, the Company must raise $50.0 million in external financing and achieve Performance Milestone III, as defined in the Hercules Loan Agreement. Performance Milestone III includes, assuming no other events of default, (a) the Company’s Phase 3 trial for the treatment of WHIM having achieved its protocol-specified primary efficacy endpoint with statistical significance, an acceptable safety profile, and supporting efficacy data, such that the totality of safety and efficacy data are sufficient to file a New Drug Application (“NDA”) as the immediate next step in clinical development and (b) the Company has proceeded towards filing such NDA. The Company has achieved the external financing portion of this milestone effective June 30, 2022 and has not yet achieved Performance Milestone III. To achieve the second interest-only extension milestone, which would further extend the interest-only period of the debt to February 1, 2024, the Company must raise an additional $25.0 million in external financing and file an NDA for mavorixafor for the treatment of WHIM syndrome. The Company has concluded that Amendment 4 represents a modification to the debt as opposed to a debt extinguishment. 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 are being 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 September 1, 2022, the Company must maintain cash in an account or accounts in which Hercules has a first priority security interest, in an aggregate amount greater than $30.0 million. Following the achievement of Performance Milestone III, as defined in the Hercules Loan Agreement, the required level shall be reduced to $20.0 million; and provided further, that subject to the Company’s filing of a NDA for mavorixafor for the treatment of WHIM syndrome, 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)	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Total interest expense	$	1,018	$	920	$	2,845	$	2,716
Non-cash interest expense	$	256	$	193	$	653	$	557

The annual effective interest rate of the Hercules Loan Agreement as of September 30, 2022 is 12.9%. There were no principal payments due or paid under the Hercules Loan Agreement during the nine months ended September 30, 2022. An end-of-term payment of $0.8 million was paid during the nine months ended September 30, 2022 in accordance with the Hercules Loan Agreement.

As of September 30, 2022, future principal and accrued end-of-term payments due under the Hercules Loan Agreement were as follows (in thousands):


Year Ending December 31,	Total
2022	$	—
2023	20,050
2024	13,525
Long-term debt	$	33,575