XML 25 R14.htm IDEA: XBRL DOCUMENT v3.24.3
Royalty Financing Obligation
 9 Months Ended
Sep. 30, 2024
Debt Disclosure [Abstract]  
Royalty Financing Obligation Royalty Financing Obligation
On March 29, 2023, the Company and Avadel CNS Pharmaceuticals, LLC entered into the RPA with RTW Investments, L.P. (“RTW”) that could provide the Company up to $75,000 of royalty financing in two tranches. The first tranche of $30,000 became available upon satisfaction of certain conditions which included the Company’s first shipment of LUMRYZ. The second tranche became available to use, at the Company’s election, when the Company achieved quarterly net revenue of $25,000 prior to the quarter ending June 30, 2024. The Company allowed the second tranche to expire on August 31, 2024 and paid a one-time commitment fee of $2,000 to RTW in accordance with the terms of the RPA.

On August 1, 2023, the Company received the first tranche of $30,000. The Company is required to make quarterly royalty payments calculated as 3.75% of worldwide net product revenue of LUMRYZ, up to a total payback of $75,000.

The RPA is recorded as a royalty financing obligation on the unaudited condensed consolidated balance sheets based on the Company’s evaluation of the terms of the RPA. The accounts receivable and inventory balances of LUMRYZ are pledged as collateral for the RPA. There are no subjective acceleration clauses or provisions, and there are no covenants in violation or other clauses that would cause the full amount of the royalty financing obligation to be callable. As such, the RPA is recorded as a long-term obligation on the unaudited condensed consolidated balance sheets.

The Company imputes interest using the effective interest method and records interest expense based on the unamortized royalty financing obligation. The Company’s estimate of the interest rate under the RPA is based primarily on forecasted net revenue and the calculated amounts and timing of net royalty payments to reach the total payback of $75,000. As of September 30, 2024 and December 31, 2023 the effective interest rate is estimated as 30.4%. The Company will account for changes in the imputed interest rate resulting from changes in forecasted net product revenue using the prospective method.
The following table shows the activity within the royalty financing obligation account:

Royalty Financing Obligation:September 30, 2024December 31, 2023
Royalty financing obligation – beginning balance$33,490 $— 
Receipt of the first tranche of the royalty financing obligation— 30,000 
Accretion of imputed interest expense on royalty financing obligation8,128 3,743 
Less: royalty payments made to RTW(3,305)(253)
Less: one-time payment for expiration of second tranche(2,000)— 
Royalty financing obligation – ending balance36,313 33,490 
Less: royalty payable to RTW classified within accrued expenses(1,876)(730)
Royalty financing obligation, non-current$34,437 $32,760 

The accretion of imputed interest expense is reflected as interest expense in the unaudited condensed consolidated statements of loss. For the three months ended September 30, 2024 and 2023, the total interest expense related to the royalty financing obligation was $2,820 and $1,404, respectively. For the nine months ended September 30, 2024 and 2023, the total interest expense related to the royalty financing obligation was $8,128 and $1,404, respectively.