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Revenue Interest Financing Payable | 3 Months Ended
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Mar. 31, 2023
Revenue Interest Financing Payable |
Revenue Interest Financing Payable | 11. Revenue Interest Financing Payable On January 9, 2023, we entered into the RIFA with HCR and HealthCare Royalty Management, LLC, pursuant to which and subject to the terms and conditions contained therein, HCR agreed to pay us an aggregate investment amount of up to $100.0 million (the “Investment Amount”). On January 27, 2023, $32.5 million of the Investment Amount was funded, $22.2 million of which was used to satisfy our existing obligations under the A&R SVB LSA (see Note 12). An additional $7.5 million of the Investment Amount will be funded fifteen business days after a request made by us to HCR to fund acquisition of rights, whether in the form of an acquisition, license, joint venture or similar transaction, to a clinical stage or commercial stage biopharmaceutical product to diagnose, prevent, or treat pulmonary hypertension, an additional $35.0 million of the Investment Amount will be funded fifteen business days after the earlier of regulatory approval of YUTREPIA or a favorable determination relating to the asserted patents in the ongoing patent litigation with United Therapeutics, and the remaining $25.0 million of the Investment Amount will be funded fifteen business days after the mutual agreement of HCR and us to fund such amount (the “Fourth Investment Amount”). As consideration for the Investment Amount and pursuant to the RIFA, we have agreed to pay HCR a tiered royalty on our annual net revenue after the first commercial sale of YUTREPIA (the “Revenue Interests”). Except as may otherwise be mutually agreed to in connection with the funding of the Fourth Investment Amount, the applicable tiered percentage will range from 3.60% to 10.00% on the first $250 million on annual net revenue, 1.44% to 4.00% on the next $250 million in annual net revenue, and 0.36% to 1.00% on all annual net revenue in excess of $500 million. The specific royalty rate within such ranges will depend upon the total amount advanced by HCR and our achievement of a certain annual net revenue threshold for the calendar year 2025. We will also make certain fixed quarterly payments to HCR, plus an additional amount on a ratable basis to reflect the funding of additional amounts by HCR under the RIFA. We will be required to make additional payments to HCR in the event that the first commercial sale of YUTREPIA does not occur by June 30, 2025 and certain minimum quarterly royalty payments beginning in 2026. If HCR has not received cumulative payments equaling at least 60% of the amount funded to date by December 31, 2026 or at least 100% of the amount funded to date by December 31, 2028, we will be obligated to make a cash payment to HCR immediately following each applicable date in an amount sufficient to achieve such percentage funded amounts to HCR giving full consideration of the cumulative amounts paid to HCR by us through each date. HCR’s rights to receive the Revenue Interests will terminate on the date on which HCR has received payments equal to 175% of funded portion of the Investment Amount less the aggregate amount of all payments made to HCR as of such date (the “Hard Cap”), plus an amount, if any, that HCR would need to receive to yield an internal rate of return on the funded Investment Amount equal to 18% (the “IRR True-Up Payment”), unless the RIFA is earlier terminated. If a change of control of occurs or upon the occurrence of an event of default, HCR may accelerate payments due under the RIFA up to the Hard Cap, plus the IRR True-Up Payment, plus any other obligations payable under the RIFA. The RIFA contains customary affirmative and negative covenants and customary events of default and other events that would cause acceleration, including, among other things, the occurrence of certain material adverse events or the material breach of certain representations and warranties and specified covenants, in which event HCR may elect to terminate the RIFA and require us to make payments to HCR equal to the lesser of (a) the Hard Cap, plus any other obligations payable under the RIFA, or (b) the funded portion of the Investment Amount, minus payments received by HCR in respect of the Revenue Interests, plus the IRR True-Up Payment. If the FDA grants final approval to an inhaled treprostinil product therapeutically equivalent to YUTREPIA and HCR has not received 100% of the amount funded by HCR to date, then we will be required to make payments to HCR equal to 100% of the amount funded by HCR to date, minus payments received by HCR in respect of the Revenue Interests. The RIFA contains certain restrictions on our ability, among other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions, dispose of assets, pay dividends and distributions, subject to certain exceptions. In addition, the RIFA contains a financial covenant that requires us to maintain cash and cash equivalents in an amount at least equal to $7.5 million during the calendar year beginning on January 1, 2024 and at least equal to $15.0 million for the remainder of the payment term after the calendar year ended December 31, 2024. As of the filing date of these condensed consolidated financial statements, we are not aware of any breach of covenants, occurrence of material adverse event, nor have we received any notice of event of default from HCR. We recorded the initial funds received from HCR of $32.5 million under the terms of the RIFA as a liability. The issuance costs, consisting primarily of legal fees, totaled $0.8 million and were recorded as a deduction of the carrying amount of the liability and will be amortized under the effective interest method over the estimated period the liability will be repaid. We estimated the total amount of future revenue to be generated over the life of the RIFA to determine the non-cash interest expense to record to accrete the liability to the amount ultimately due. For the three months ended March 31, 2023, we estimated an effective annual interest rate of approximately 17%. Over the course of the RIFA, the actual interest rate will be affected by the amount and timing of net revenue recognized and changes in the amount and timing of forecasted net revenue. On a quarterly basis, we will reassess the expected amount and timing of the net revenue, recalculate the amortization and effective interest rate and adjust the accounting prospectively as needed. The following table presents the changes in the liability related to RIFA during the three months ended March 31, 2023: ​
​ | ​ | ​ | ​
​ |  | March 31,
​ | ​ | 2023
Balance as of January 27, 2023 closing | ​ | $ | 32,500
Issuance costs | ​ | ​ | (836)
Non-cash interest expense | ​ | ​ | 938
Amortization of issuance costs | ​ | ​ | 15
Balance as of March 31, 2023 | ​ | $ | 32,617
Less: current portion of revenue interest financing payable | ​ | ​ | (2,000)
Long-term portion of revenue interest financing payable | ​ | $ | 30,617
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