Non-Recourse Long-Term Debt, Net

November

2016,

through a new wholly-owned subsidiary MNTX Royalties Sub LLC (“MNTX Royalties”), we entered into a loan agreement (the “Royalty-Backed Loan”) with a fund managed by HealthCare Royalty Partners III, L.P. (“HCRP”). We borrowed

$50.0

million and can borrow an additional

$50.0

million, subject to mutual agreement with HCRP, up to

twelve

months after the closing date. Under the terms of the Royalty-Backed Loan, the lenders have

recourse to us or to any of our assets other than the right to receive royalty payments from the commercial sales of RELISTOR products owed under our agreement with Valeant. The RELISTOR royalty payments will be used to repay the principal and interest on the loan. The Royalty-Backed Loan bears interest at a per annum rate of

9.5%.

Under the terms of the loan agreement, payments of interest and principal, if any, under the loan will be made on the last day of

each calendar quarter out of RELISTOR royalty payments received since the immediately-preceding payment date. On each payment date prior to

March 31, 2018,

RELISTOR royalty payments received since the immediately preceding payment date will be applied solely to the payment of interest on the loan, with any royalties in excess of the interest amount retained by us. Beginning on

March 31, 2018,

50%

of RELISTOR royalty payments received since the immediately-preceding payment date in excess of accrued interest on the loan will be used to repay the principal of the loan, with the balance retained by us. Starting on

September 30, 2021,

all of the RELISTOR royalties received since the immediately-preceding payment date will be used to repay the interest and outstanding principal balance until the balance is fully repaid. The loan has a maturity date of

June 30, 2025.

Upon the occurrence of certain triggers in the loan agreement, or if HCRP so elects on or after

January 1, 2018,

all of the RELISTOR royalty payments received after the immediately-preceding payment date shall be applied to the payment of interest and repayment of principal until the principal of the loan is fully repaid. In the event of such an election by HCRP, we have the right to repay the loan without any prepayment penalty.

In connection with the Royalty-Backed Loan,

we paid HCRP a lender fee of

$0.5

million and incurred additional debt issuance costs totaling

$0.9

million, which includes expenses that we paid on behalf of HCRP and expenses incurred directly by us. Debt issuance costs and the lender fee have been netted against the debt as of

September 30, 2017,

and are being amortized over the estimated term of the debt using the effective interest method. The assumptions used in determining the expected repayment term of the debt and amortization period of the issuance costs were based on estimates derived from

third

-party forecasts. Changes to the assumptions could impact the short- and long-term classification of the debt, as well as the period over which the issuance costs will be amortized.

The following table

s summarize the components of the Royalty-Backed Loan in our condensed consolidated financial statements for the periods presented (in thousands):

	September 30,			December 31,
Condensed Consolidated Balance Sheets	2017			2016
Outstanding principal balance	$	2,083		$	-
Unamortized debt discount		(244	)		-
Current portion of debt, net	$	1,839		$	-

Outstanding principal balance, long-term portion	$	48,669		$	50,765
Unamortized debt discount, long-term portion		(883	)		(1,312	)
Long-term debt, net	$	47,786		$	49,453

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Condensed Consolidated Statements of Operations	2017		2016		2017		2016
Interest expense	$	1,205	$	-	$	3,603	$	-
Non-cash interest expense		62		-		172		-
Total interest expense included in interest (expense) income, net	$	1,267	$	-	$	3,775	$	-

As of

September 30, 2017,

we were in compliance with all material covenants under the Royalty-Backed Loan and there was

material adverse change in our business, operations, or financial conditions, as defined in the loan agreement.