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Royalty Financing Agreement

3 Months Ended

Mar. 31, 2024

9Royalty Financing Agreement

On May 12, 2023, the Company entered into a royalty purchase agreement (the “Royalty Financing Agreement”) with HemB SPV, L.P. (the “Purchaser”). Under the terms of the Royalty Financing Agreement the Company received an upfront payment of $375.0 million in exchange for its rights to the lowest royalty tier on CSL Behring’s worldwide net sales of HEMGENIX® for certain current and future royalties due to the Company. The Company is also eligible to receive an additional $25.0 million milestone payment under the Royalty Financing Agreement if 2024 net sales of HEMGENIX® exceed a pre-specified threshold, as set forth in the Royalty Financing Agreement. The Purchaser will receive 1.85 times the upfront payment (or $693.8 million) and 1.85 times the $25.0 million milestone payment (if paid) until June 30, 2032 (“First Hard Cap Date”) if such thresholds are met or, if such cap is not met by June 30, 2032, up to 2.25 times of the upfront and milestone payment (if paid) through December 31, 2038. If 2024 net sales do not exceed a pre-specified threshold, the Company will be obligated to pay $25.0 million to the Purchaser but only to the extent that the Company achieves a future sales milestone under the CSL Behring Agreement. If such milestone payment is not due from CSL Behring, the Company is not obligated to pay any amounts to the Purchaser.

The Company has retained the rights to all other royalties, as well as contractual milestones totaling up to $1.3 billion, under the terms of the CSL Behring Agreement.

Net proceeds from the Royalty Financing Agreement, after deducting professional and financial advisory fees related to the transaction of $4.9 million, were $370.1 million. The Company initially recorded these net proceeds as “Liability from royalty financing agreement” at their fair market value on its balance sheet as of closing of the transaction on June 5, 2023. Following the initial recognition, the Company records the debt at amortized cost.

The Company expects to satisfy its commitment to the Purchaser prior to the First Hard Cap Date. The Company will record the difference of $323.7 million between the total expected payments of $693.8 million to the Purchaser and the $370.1 million net proceeds as interest expense using the effective interest rate method. The Company determined the effective interest rate based on the projected cash flows up to the First Hard Cap Date. Based on the Company’s projections the effective interest rate is expected to be within a range of 12.0% per annum to 13.5% per annum. The Company would have recorded between $12.1 million and $13.7 million of interest expense through the three months ended March 31, 2024 (nil for the three months ended March 31, 2023) if it had used 12.0% or 13.5%, instead of the $12.4 million recorded in the three months ended March 31, 2024 (nil for the three months ended March 31, 2023). The Company will prospectively update the effective interest rate at each reporting date based on updated projections.

The liability was initially recognized at fair value and inputs were considered Level 3 inputs.

The following table presents the movement in the liability related to the Royalty Financing Agreement between the December 31, 2023 and March 31, 2024:


		Amount of liability
		(in thousands)
Balance as of December 31, 2023 (includes $1.4 million presented as "Accrued expenses and other current liabilities)	$	395,678
Royalty payments to Purchaser		(1,437)
Liability owed to the Purchaser (presented as "Accrued expense and other current liabilities")		(1,205)
Interest expense for the period		12,362
Liability related to the royalty financing agreement	$	405,398