Long-Term Debt

3 Months Ended

Mar. 31, 2023

Long-term debt consisted of the following:


(in thousands)	March 31, 2023		December 31, 2022
Principal amount of long-term debt	$	32,500	$	32,500
Debt discount, net of accretion	(767)		(196)
Cumulative accretion of end of term payments	648		1,315
Long-term debt	$	32,381	$	33,619
Less: current portion	$	(554)	$	(1,315)
Long-term debt, net of current portion	$	31,827	$	32,304

Hercules Loan Agreement, As Amended

In October 2018, the Company entered into a Loan and Security Agreement (the “Hercules Loan Agreement”), as amended most recently in January 2023, with Hercules, under which the Company has borrowed an aggregate of $32.5 million of term loans to date representing the maximum borrowings. Borrowings under the Hercules Loan Agreement accrues interest at a variable rate equal to the greater of (i) 10.15% or (ii) The Wall Street Journal prime rate plus 3.15%. 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 September 2024, and in equal monthly payments of principal and accrued interest from October 1, 2024 until the maturity date of the loan on April 1, 2026; provided, however, if certain conditions are met and the Company achieves certain operational and financial milestones,

the maturity date will be extended to July 1, 2027. The Company may prepay all, but not less than all, of the outstanding borrowings, subject to a prepayment premium of 3.0% of the principal amount outstanding as of the date of repayment. In addition, the Hercules Loan Agreement provides for payments of $0.8 million and $1.3 million payable on July 1, 2023 and April 1, 2026, 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).

Under the Hercules Loan Agreement, the Company has agreed to affirmative and negative covenants. Pursuant to the Hercules Loan Agreement, the Company is required to maintain cash in an account or accounts in which Hercules has a first priority security interest, in an aggregate amount greater than $20.0 million. Upon the FDA’s approval of the sale and marketing of mavorixafor for the treatment to patients with WHIM syndrome with a label claim that is generally consistent with that sought in the Company’s New Drug Application filing, the required level shall be reduced to $10.0 million. A breach of any of the covenants under the Hercules Loan Agreement could result in a default under the loan. Upon the occurrence of an event of default under the loan facility with Hercules, the lender could elect to declare all amounts outstanding, if any, to be immediately due and payable and terminate all commitments to extend further credit. If there are any amounts outstanding that the Company is unable to repay, Hercules could proceed against the collateral to secure such indebtedness.

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 March 31,
	2023		2022
Total interest expense	$	884	$	909
Non-cash interest expense	$	225	$	198

The annual effective interest rate of the Hercules Loan Agreement as of March 31, 2023 is 13.8%. There were no principal payments due or paid under the Hercules Loan Agreement during the three months ended March 31, 2023. An end-of-term payment of $1.3 million was paid during the three months ended March 31, 2023 in conjunction with the second amendment and restatement of the Hercules Loan Agreement, which was entered into on January 6, 2023. The Company concluded that the amendment and restatement represented a modification to the debt. Accordingly, fees paid to third parties directly related to the amended and restated debt were expensed as incurred and fees paid to Hercules in conjunction with the amendment and restatement were deferred and are being amortized to interest expense over the life of the debt arrangement using the effective interest method.

As of March 31, 2023, future principal and accrued end-of-term payments due under the Hercules Loan Agreement were as follows (in thousands):


Year Ending December 31,	Total
2023	$	554
2024	4,750
2025	20,386
2026	7,458
Long-term debt	$	33,148