Liability Related to the Sale of Future Royalties

12 Months Ended

Dec. 31, 2024

In March 2019, the Company and Curis Royalty entered into the royalty interest purchase agreement (“Oberland Purchase Agreement”) with TPC Investments I LP and TPC Investments II LP ("the Purchasers"), each of which is a Delaware limited partnership managed by Oberland Capital Management, LLC, and Lind SA LLC, a Delaware limited liability company managed by Oberland Capital Management, LLC, as collateral agent for the Purchasers. The Company sold to the Purchasers a portion of its rights to receive royalties from Genentech on potential net sales of Erivedge. Concurrently with the closing of the Oberland Purchase Agreement, Curis Royalty used a portion of the proceeds to terminate and repay the then existing loan with Healthcare Royalty Partners III, L.P.

As upfront consideration for the purchase of the royalty rights, the Purchasers paid to Curis Royalty $65.0 million less certain transaction expenses. Curis Royalty will also be entitled to receive up to $53.5 million in milestone payments based on sales of Erivedge if the Purchasers receive payments pursuant to the Oberland Purchase Agreement in excess of $117.0 million on or prior to December 31, 2026.

The Oberland Purchase Agreement provides that after the occurrence of an event of default as defined under the security agreement by Curis Royalty, the Purchasers shall have the option, for a period of 180 days, to require Curis Royalty to repurchase a portion of certain royalty and royalty related payments, excluding a portion of non-U.S. royalties retained by Curis Royalty ("Purchased Receivables"), at a price (the "Put/Call Price") equal to 250% of the sum of the upfront purchase price and any portion of the milestone payments paid in a lump sum by the Purchasers, if any, minus certain payments previously received by the Purchasers with respect to the Purchased Receivables. The Company concluded the put option is an embedded derivative that requires bifurcation from the deferred royalty obligation and evaluates the fair value of the put option each reporting period. The estimated fair value of the put option is immaterial as of both December 31, 2024 and 2023. Additionally, Curis Royalty shall have the option at any time to repurchase the Purchased Receivables at the Put/Call Price as of the date of such repurchase. No events of default occurred as of December 31, 2024.

As a result of the obligation to pay future royalties to the Purchasers, the Company recorded the proceeds as a liability on its Consolidated Balance Sheets. It accounts for the liability and interest expense using the interest method over the expected life of the Oberland Purchase Agreement. As a result, the Company imputes interest on the transaction and records imputed interest expense at the estimated interest rate. The Company's estimate of the interest rate under the Oberland Purchase Agreement is based on the amount of royalty payments expected to be received by the Purchasers over the life of the Oberland Purchase Agreement. The projected amount of royalty payments expected to be paid to the Purchasers involves the use of significant estimates and assumptions with respect to the revenue growth rate in the Company's projections of sales of Erivedge. The Company periodically assesses the expected royalty payments to Curis Royalty from Genentech using a combination of historical results and forecasts from market data sources. To the extent such payments are greater or less than its estimates or the timing of such payments is materially different than its original estimates, the Company will prospectively adjust the amortization of the liability.

The Company determined the fair value of the liability related to the sale of future royalties at the time of the Oberland Purchase Agreement to be $65.0 million. The Company uses the prospective method to impute interest on this obligation. Under the prospective method, the current effective annual imputed interest rate is 6.2% as of December 31, 2024. The carrying value of the liability related to the sale of future royalties approximates fair value as of December 31, 2024. The Company incurred $0.6 million of transaction costs in connection with the Oberland Purchase Agreement. These transaction costs will be amortized to imputed interest expense over the estimated term of the Oberland Purchase Agreement.

The following table shows the activity with respect to the liability related to the sale of future royalties during the years ended December 31, 2023 and 2024:


(in thousands)

Carrying value of liability related to the sale of future royalties at January 1, 2023	$	49,483
Imputed interest expense	2,138
Other	(119)
Less: payments to the Purchasers	(8,896)
Carrying value of liability related to the sale of future royalties at December 31, 2023	$	42,606
Imputed interest expense	559
Other	56
Less: payments to the Purchasers	(9,047)
Carrying value of liability related to the sale of future royalties at December 31, 2024	$	34,174

The Company has revised the balance sheet classification of the liability related to the sale of future royalties, net to adjust for an immaterial reclassification of the presentation of this liability between long term and short term. A summary of adjustments as of December 31, 2023 are as follows:


	As Previously reported	Adjustment	As Revised



December 31, 2023
Current portion of liability related to sale of future royalties	—	8,504	8,504
Liability related to sale of future royalties, net	42,606	(8,504)	34,102

The revisions increased total current liabilities by the amounts noted above and have no impact on total liabilities for any of the periods presented. The revisions did not impact the Consolidated Statement of Operations and Comprehensive Loss, the Consolidated Statement of Cash Flows, or the Consolidated Statement of Stockholders' Equity (Deficit).