Loan and Security Agreement

6 Months Ended

Jun. 30, 2024

Debt Disclosure [Abstract]

Loan and Security Agreement

Note 8. Loan and Security Agreement

Hercules Capital, Inc.

Fourth Amendment to the Loan Agreement

On May 8, 2023, the Company entered into the Waiver and Fourth Amendment (the “Fourth Amendment”) to its Loan and Security Agreement, dated as of September 25, 2020 (as amended by that certain First Amendment to Loan and Security Agreement, dated as of October 14, 2021, as further amended by the Second Amendment to Loan and Security Agreement, dated as of March 27, 2022, and as further amended by the Third Amendment to Loan and Security Agreement, dated as of January 9, 2023) (the “Loan Agreement”) with Hercules Capital, Inc., a Maryland corporation (“Hercules”), in its capacity as administrative agent and collateral agent, and the other financial institutions or entities party thereto as lenders, with respect to the term loan thereunder (the “2020 Term Loan”).

The Fourth Amendment increased the amount of cash that could be held by Axsome Malta Ltd. (“Axsome Malta”) outside of the United States from $3.0 million to $15.0 million for a 45-day period after the closing of the Fourth Amendment and to $10.0 million thereafter. The Fourth Amendment also waived any purported default with respect to the amount of cash held by Axsome Malta prior to the date of the Fourth Amendment. In August 2023, Hercules granted the Company a waiver to the Fourth Amendment, permitting Axsome Malta to hold up to $12.5 million in Cash outside of the United States until December 31, 2023.

Third Amendment to the Loan Agreement

On January 9, 2023, the Company entered into a Third Amendment (the “Third Amendment”) to the Loan Agreement with Hercules, in its capacity as administrative agent and collateral agent, and the other financial institutions or entities party thereto as lenders.

The Third Amendment amended the terms of the Loan Agreement to, among other things:

•Extend the maturity date to January 1, 2028, unless the Company meets certain revenue targets as described in the Loan Agreement, in which case the Company can extend the maturity date to January 1, 2029;

•Increase the aggregate principal amount under the Loan Agreement from $300.0 million to $350.0 million;

•Subject to the terms and conditions in the Loan Agreement, change the term loan advance amounts and dates available under the tranche 1 advance through tranche 5 advance, including increasing the tranche 1 advance from one tranche of $95.0 million to five sub-tranches of $95.0 million, $55.0 million, $30.0 million, $35.0 million and $35.0 million, respectively, changing the tranche 2 advance from three sub-tranches of $35.0 million, $35.0 million and $30.0 million to one tranche of $25.0 million, changing the tranche 3 advance from two sub-tranches of $15.0 million and $5.0 million to one tranche of $75.0 million and removing the tranche 4 advance and tranche 5 advance entirely;

•Revise the interest rate applicable to extensions of credit under the Loan Agreement to equal (a) if the prime rate is greater than or equal to 7.00%, the greater of either (i) the prime rate plus 2.20%, and (ii) 9.95%, but in no event greater than 10.70%, and (b) if the prime rate is less than 7.00%, 9.70%;

•Increase the minimum cash requirement of the Company to $30.0 million; and

•Require the Company to pay a facility fee equal to 0.75% of the amount of principal actually funded pursuant to the tranche 1B advance, tranche 1C advance, tranche 1D advance, tranche 1E advance, tranche 2 advance and tranche 3 advance.

As of June 30, 2024, the Company had allowed tranches 1D, 1E, and 2 which totaled $95 million, to expire undrawn.

On October 14, 2021, the Company entered into a First Amendment to the Loan and Security Agreement with Hercules. On March 27, 2022, in connection with the Acquisition (as described above), the Company entered into a Second Amendment to the Loan and Security Agreement (the “Second Amendment”) with Hercules. The Second Amendment closed on May 9, 2022, concurrently with the closing of the Acquisition.

As collateral for the obligations, the Company has granted to Hercules a senior security interest in all of the Company’s right, title, and interest in, to and under all of the Company’s property, inclusive of intellectual property, which includes one of the Company’s existing license agreements (the “License Agreement”) with Antecip, an entity owned by Axsome’s Chief Executive Officer and Chairman of the Board, Herriot Tabuteau, M.D., subject to limited exceptions. Antecip consented to the collateral assignment of the License Agreement, among other things, under a direct agreement (the “Direct Agreement”) with the Company, Antecip and Hercules.

The Loan Agreement contains customary representations, warranties and covenants, including covenants by the Company limiting additional indebtedness, liens (including a negative pledge on intellectual property and other assets), guaranties, mergers and consolidations, substantial asset sales, investments and loans, certain corporate changes, transactions with affiliates and fundamental changes. At the initial closing, there were no applicable financial covenants contained in the Loan Agreement. Effective upon closing of the Third Amendment of the Loan Agreement in January 2023, the following limited financial covenants applied:

•Effective upon closing of the Third Amendment of the Loan Agreement, 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 $30.0 million, plus the amount of the Company’s accounts payable under U.S. GAAP not paid after the 180th day following the invoice for such account payable (such amount, the “Qualified Cash A/P Amount”).

•The Company must meet, beginning June 30, 2023, any of the following conditions: (A) ensure that at all times its market capitalization exceeds $1.5 billion, and that it maintains cash in an account which Hercules has a first priority security interest in an amount not less than 50% of the sum of the outstanding principal amount of the term loan advances plus the Qualified Cash A/P Amount, (B) ensure that at all times that it maintains cash in an account which Hercules has a first priority security interest in an amount not less than 95% of the sum of the outstanding principal amount of the term loan advances plus the Qualified Cash A/P Amount, or (C) achieve at least 60% of the net product revenue per the Board approved forecast solely from the sale of AXS-05, AXS-07, and Sunosi (which may include royalty, profit sharing, or sales-based milestone revenue recognized in accordance with GAAP, but will not include any upfront or non-sales-based milestone payments under business development or licensing transactions), measured on a trailing six-month basis as of the date of the Company’s most recent quarterly financial statement, determined on a quarterly basis.

•Axsome Malta, a company organized under the laws of the Republic of Malta, shall not hold cash outside of the United States in excess of $3.0 million in the aggregate at any time. This amount, however, was increased by the Fourth Amendment to $15.0 million for a 45-day period after the closing of the Fourth Amendment and to $10.0 million thereafter. Furthermore, in August 2023, Hercules granted the Company a waiver to the Fourth Amendment, permitting Axsome Malta to hold up to $12.5 million in Cash outside of the United States until December 31, 2023.

•Restrictions on 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’s obligations under the Loan Agreement are subject to acceleration upon the occurrence of specified events of default, including payment default, insolvency and a material adverse change in the Borrower’s business, operations or financial or other condition.

In addition, the Company is required to pay certain end of term charges, including (A) an initial end of term charge of $4.45 million and (B) a subsequent end of term charge of (i) 1.10% of the aggregate amount of all tranche 1A advances plus (ii) 4.95% of the aggregate amount of all term loan advances (other than tranche 1A advances) funded. The end of term charges are being accreted into interest expense using the effective interest rate method over the term of the loan.

If certain maturity extension conditions are satisfied, the Company must pay an extension end of term charge equal to 1.00% of the aggregate amount of all term loan advances outstanding as of the date on which the maturity extension conditions are satisfied, in addition to the end of term charges described above.

The Company may, at its option prepay the term loans in full or in part, subject to a prepayment penalty equal to (i) 2.0% of the principal amount prepaid if the prepayment occurs prior to February 1, 2024, (ii) 1.5% of the principal amount prepaid if the prepayment occurs on or after February 1, 2024 but prior to February 1, 2025, and (iii) 1.0% of the principal amount prepaid if the prepayment occurs on or after February 1, 2025 but prior to February 1, 2026.

The Company evaluated whether the Third Amendment entered into in January 2023 represented a debt modification or extinguishment in accordance with ASC 470-50, Debt – Modifications and Extinguishments. As the present value of the cash flows under the terms of the Third Amendment is less than 10% different from the remaining cash flows under the terms of the Second Amendment, the Third Amendment was accounted for as a debt modification. The unamortized balance of debt discount costs incurred in connection with those loans and additional debt discount costs incurred in connection with entry into the Third Amendment are being amortized through maturity in January 2028 utilizing the effective interest rate method.

Loan Interest Expense and Amortization

Long-term debt and unamortized debt discount balances are as follows:

	June 30, 2024			December 31, 2023
Total outstanding debt	$	180,000		$	180,000
Add: accreted final payment fee		3,318			2,610
Less: unamortized debt discount, long-term		(3,988	)		(4,540	)
Less: current portion of long-term debt		—			—
Loan payable, long-term	$	179,330		$	178,070

The book value of debt approximates its fair value given its variable interest rate.

Interest expense, amortization of the final payment fee, amortization of the debt discount related to the issuance costs and warrants for the Company’s debt are as follows:

	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
Interest expense	$	4,869	$	4,067	$	9,738	$	7,702
Amortization of final payment fee		360		272		709		522
Amortization of debt discount related issuance costs and warrants		281		637		551		971

Scheduled principal payments on outstanding debt, as of June 30, 2024, are as follows:

2024	$	—
2025		—
2026		—
2027		—
2028		180,000
Thereafter		—
Total principal payments outstanding	$	180,000