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Revenue Interest Financing Payable

9 Months Ended

Sep. 30, 2024

12. 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”) in four tranches.

On January 27, 2023, $32.5 million of the Investment Amount was funded from the first tranche, $22.2 million of which was used to satisfy existing obligations due to Silicon Valley Bank. This repayment resulted in a loss on extinguishment during the year ended December 31, 2023 of $2.3 million.

On June 28, 2023 and July 27, 2023, we entered into the Second Amendment to the RIFA and Third Amendment to the RIFA, respectively, pursuant to which HCR funded $10.0 million from the second tranche on July 27, 2023.

On January 3, 2024, we entered into the Fourth Amendment to the RIFA pursuant to which HCR funded an additional $25.0 million from the second tranche on January 5, 2024.

On September 11, 2024 we entered into the Fifth Amendment to the RIFA pursuant to which HCR funded an additional $32.5 million from the second tranche on September 12, 2024 and eliminated the third and fourth tranches.

As consideration for the Investment Amount and pursuant to the RIFA, we have agreed to pay HCR according to a fixed quarterly payment schedule.

As of September 30, 2024, we were required to pay $13.3 million within one year of the balance sheet date, which is classified as current in our condensed consolidated balance sheet.

Aggregate payments to HCR are capped at 175% of funded portion of the Investment Amount (the “Hard Cap”), plus an amount, if any, that HCR would need to receive to yield an internal rate of return of (i) 18% on the first $67.5 million funded and (ii) 16% on the last $32.5 million funded (the “IRR True-Up Payment”), unless the RIFA is earlier terminated. If a change of control 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, or the occurrence of any material adverse event, nor have we received any notice of event of default from HCR.

The Fourth Amendment to the RIFA qualifies as a debt extinguishment and issuance of a new debt instrument in accordance with ASC 405-20, Extinguishments of Liabilities. We recorded a loss on extinguishment during the quarter ended March 31, 2024 of $11.5 million, equal to the fair value of the amended RIFA less the carrying value of the existing RIFA on January 5, 2024.

The Fifth Amendment to the RIFA qualifies as a debt extinguishment and issuance of a new debt instrument in accordance with ASC 405-20, Extinguishments of Liabilities. We recorded a gain on extinguishment during the quarter ended September 30, 2024 of $7.2 million, equal to the fair value of the amended RIFA less the carrying value of the existing RIFA on September 12, 2024.

We recorded the total funds received from HCR under the terms of the RIFA as a liability. The issuance costs, consisting primarily of legal fees, totaled $0.9 million and were recorded as a deduction of the carrying amount of the liability and are being amortized under the effective interest method over the estimated period the liability will be repaid. We estimated the total amount of payments over the life of the RIFA to determine the interest expense to record to accrete the liability to the amount ultimately due. For the three and nine months ended September 30, 2024, we estimated an effective annual interest rate of approximately 15.2%. Over the course of the RIFA, the effective annual interest rate may be affected by potential changes in forecasted payments. On a quarterly basis, we will reassess the expected amount and timing of payments, recalculate the amortization and effective interest rate and adjust the accounting prospectively as needed.

The following table presents the changes in the RIFA payable during the nine months ended September 30, 2024:


Balance as of December 31, 2023	$	46,033
Accretion		107
Amortization of issuance costs		2
Second tranche funding, net of fees		24,975
Balance as of January 5, 2024, prior to extinguishment	$	71,117
Loss on extinguishment		11,483
Balance as of January 5, 2024, after extinguishment	$	82,600
Accretion		7,161
Payments		(2,731)
Second tranche funding, net of fees		32,485
Balance as of September 12, 2024, prior to extinguishment	$	119,515
(Gain) on extinguishment		(7,215)
Balance as of September 12, 2024, after extinguishment	$	112,300
Accretion		844
Balance as of September 30, 2024	$	113,144
Less: current portion of revenue interest financing payable		(13,252)
Long-term portion of revenue interest financing payable	$	99,892

The expected annual payments on the revenue interest financing payable as of September 30, 2024 are as follows:


Year ending December 31:
2024 (three months remaining)	$	2,122
2025		18,017
2026		52,724
2027		32,962
2028		32,962
Thereafter		31,828
Total	$	170,615