On September 29, 2021, the Company entered into a Revenue Interest Agreement with certain entities managed by HealthCare Royalty Management, LLC (“HCR”), pursuant to which the Company sold to HCR the right to receive certain royalty payments from the Company for a purchase price of up to $125.0 million. The Company has evaluated the terms of the Revenue Interest Agreement and concluded that the features of the investment amount are similar to those of a debt instrument. The Company received gross proceeds of $50.0 million from HCR at an initial funding on October 19, 2021 (the “Initial Investment Amount”). As such, the Company accounted for this transaction as long-term debt as of December 31, 2021. The Company is entitled to receive an additional $50.0 million upon FDA approval of tebipenem HBr on or before December 31, 2022 (the “Second Investment Amount”), and an additional $25.0 million subject to the mutual agreement of the Company and HCR and if the Company meets certain minimum tebipenem HBr product sales thresholds in the United States within 12 months from commercial launch (the “Third Investment Amount,” and together with the Initial Investment Amount and the Second Investment Amount, collectively, the “Investment Amount”).

Under the Revenue Interest Agreement, HCR is entitled to receive tiered royalties on: (i) worldwide net sales of Included Products (as defined below) by the Company (and excluding sales by licensees), and (ii) any payments received by licensees, in each case of tebipenem HBr, SPR720, SPR206 and any other products marketed by the Company (the “Included Products”) in amounts ranging from 12% to 1% based on annual net revenues (or 14% to 1.5% if the Third Investment Amount is funded). The applicable royalty rate is subject to a step-down if certain sales milestones are met. When HCR has received aggregate payments equal to 250% of the Investment Amount (the “Hard Cap”), HCR’s right to receive royalties on Net Revenues will terminate. The Hard Cap will be $250 million upon tebipenem HBr approval, or $312.5 million if the Third Investment Amount is funded.

If the Company has not received FDA approval for tebipenem HBr for a cUTI indication on or prior to December 31, 2022, the Revenue Interest Agreement will terminate and the Company will pay to HCR, no later than January 15, 2023, an amount equal to the Initial Investment Amount plus interest equal to an annual 13.5% rate of return.

If HCR has not received aggregate payments of at least 60% of the Investment Amount by September 30, 2025 and at least 100% of the Investment Amount by September 30, 2027 (each, a “Minimum Amount”), then the Company will be obligated to make a cash payment to HCR in an amount sufficient to gross HCR up to the applicable Minimum Amount.

At inception of the Revenue Interest Agreement, the Company accounted for the transaction as long-term debt and as short-term debt as of March 31, 2022. The gross proceeds of the Initial Investment Amount of $50.0 million were recorded as a liability related to the sale of future royalties, net of transaction costs of $2.5 million and initial derivative liability of $1.0 million, which will be amortized over the estimated life of the arrangement using the effective interest method. The fair value for the liability related to the sale of future royalties at the time of the transaction was based on the Company's current estimates of future royalties expected to be paid to HCR over the remaining patent life of the product, which are considered Level 3 inputs.

The Company estimates the effective interest rate used to record non-cash interest expense under the Revenue Interest Agreement based on the estimate of future royalty payments to be received by HCR. As of March 31, 2022, the estimated effective interest rate under the agreement was 20.8%. Over the life of the arrangement, the actual effective interest rate will be affected by the amount and timing of the royalty payments received by HCR and changes in the Company's forecasted royalties. At each reporting date, the Company will reassess its estimate of total future royalty payments to be received by HCR, and prospectively adjust the effective interest rate and amortization of the liability as necessary.

In connection with the initial investment amount, the Company classified $1.0 million at inception of the Revenue Interest Agreement as a derivative liability on its consolidated balance sheet because there were embedded instruments that represent a conditional obligation to pay HCR the final payment, which is 250% of the Investment Amount, upon an event of default or change of control (see Note 3).

The following table presents the changes in the liability related to the sale of future royalties under the Revenue Interest Agreement with HCR as of March 31, 2022 (in thousands):



Liability related to sale of future royalties, as of December 31, 2021	$	48,414
Plus Interest expense accrued/ recognized		2,488
Liability related to sale of future royalties, as of March 31, 2022	$	50,902