Item 1.01. Entry into a Material Definitive Agreement.
Loan and Security Agreement
On September 17, 2021 (the "Closing Date"), Phathom Pharmaceuticals, Inc. (the
"Company") entered into a Loan and Security Agreement (the "Loan Agreement")
with Hercules Capital, Inc., in its capacity as administrative agent and
collateral agent and as a lender (in such capacity, the "Agent" or "Hercules")
and the other financial institutions that from time to time become parties to
the Loan Agreement as lenders (collectively, the "Lenders").
Amount. The Loan Agreement provides for term loans in an aggregate principal
amount of up to $200.0 million (the "Term Loan") under multiple tranches. The
tranches consist of (i) a first tranche consisting of term loans in an aggregate
principal amount of $100.0 million, all of which was funded to the Company on
the Closing Date (the "First Advance"), (ii) a second tranche consisting of up
to an additional $50.0 million, which will become available to the Company upon
achievement of the protocol-specified primary efficacy endpoints in the
Company's Phase 3 trial studying vonoprazan for the healing and maintenance of
healing of erosive esophagitis with acceptable safety data, such that the
results support the submission of a New Drug Application or supplemental New
Drug Application without the need to conduct another Phase 3 study and will be
available, if specified conditions are met, through December 15, 2022, (iii) a
third tranche consisting of an additional $25.0 million, which will become
available to Phathom upon the achievement of (a) FDA approval of Phathom's New
Drug Application for vonoprazan and amoxicillin, or its New Drug Application for
vonoprazan, amoxicillin and clarithromycin, in each case for an indication
relating to the treatment of H. pylori with an approved indication on the claim
that is generally consistent with that sought in Phathom's New Drug Application
submission; and (b) filing of Phathom's New Drug Application or supplemental New
Drug Application for vonoprazan for indications relating to the healing and
maintenance of healing of erosive esophagitis (milestones (a) and (b), together,
the "Second Performance Milestone"), and will be available, if specified
conditions are met, through September 30, 2023, and (iv) a fourth tranche
consisting of up to an additional $25.0 million, which will be available, if
specified conditions are met, through March 31, 2024, upon achievement of the
same conditions required for availability of the third tranche. The Company
intends to use the proceeds of the Term Loan advances for working capital and
general corporate purposes. In addition, approximately $54 million of the
proceeds from the First Advance was used to satisfy in full and retire the
Company's indebtedness under its previously outstanding credit facility with
Silicon Valley Bank (the "SVB Term Loan").
Interest Rate and Repayment. The Term Loan will mature on October 1, 2026 (the
"Maturity Date"). The Term Loan bears (i) cash interest at a variable annual
rate equal to the greater of (a) 5.50% and (b) the Prime Rate (as reported in
the Wall Street Journal) plus 2.25% (the "Interest Rate") and
(ii) payment-in-kind interest at a per annum rate of interest equal to 3.35%.
Phathom may make payments of interest only through October 1, 2024, which may be
extended to October 1, 2025, upon the achievement of the Second Performance
Milestone prior to September 30, 2024 and the condition that no default or event
of default exists, and which is further extendable to October 1, 2026, subject
to FDA approval of Phathom's New Drug Application (or supplemental New Drug
Application) for vonoprazan for an indication relating to the healing and
maintenance of healing of erosive esophagitis with an approved indication on the
label that is generally consistent with that sought in Phathom's New Drug
Application submission (or supplemental New Drug Application submission) (the
"Third Performance Milestone") prior to September 30, 2025 and no default or
event of default exists (the "interest-only period"). After the interest-only
period, the principal balance and related interest will be required to be repaid
in equal monthly installments and continuing until the Maturity Date.
Covenants, Representations and Warranties; Other Provisions. The Loan Agreement
contains customary closing fees, prepayment fees and provisions, events of
default, and representations, warranties and covenants, including a financial
covenant requiring Phathom to maintain certain levels of cash subject to a
control agreement in favor of the Agent (minus accounts payable not paid within
120 days of invoice) ("Qualified Cash"), and commencing on May 15, 2023,
trailing three-month net product revenue from the sale of vonoprazan and
products containing vonoprazan. The revenue covenant will be waived at any time
in which Phathom maintains Qualified Cash equal to at least 60.0% (prior to the
Third Performance Milestone), and 35% (following the Third Performance
Milestone) of the total outstanding Term Loan principal amount, or Phathom's
market capitalization is at least $900.0 million.
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Security. As collateral for the obligations, the Company has granted to Hercules
a senior security interest in all of Company's right, title, and interest in, to
and under substantially all of Company's property, inclusive of intellectual
property.
The foregoing description of the terms of the Loan Agreement are not complete
and are qualified in their entirety by reference to the full text of the Loan
Agreement, which will be filed as exhibits to the Company's next Quarterly
Report on Form 10-Q.
Warrant
In connection with the entry into the Loan Agreement, the Company issued to
Hercules a warrant (the "Warrant") to purchase a number of shares of the
Company's common stock, par value $0.0001 per share (the "Common Stock") equal
to 2.5% of the aggregate amount of the Term Loan advances that are funded, as
such amounts are funded. On the Closing Date, the Company issued a Warrant for
74,783 shares of Common Stock. The Warrant will be exercisable for a period of
seven years from the date of issuance at a per-share exercise price equal to
$33.43, which was the closing price of the Company's Common Stock on
September 16, 2021.
The issuance of the Warrant by the Company to Hercules was made in reliance on
the exemption from registration contained in Section 4(a)(2) of the Securities
Act of 1933, as amended.
The foregoing description of the terms of the Warrant is not complete and is
qualified in its entirety by reference to the full text of the Warrant, which
will be filed as an exhibit to the Company's next Quarterly Report on Form 10-Q.
Item 1.02 Termination of a Material Definitive Agreement
The information provided in Item 1.01 of this Current Report on Form 8-K
regarding termination of the SVB Term Loan is incorporated by reference into
this Item 1.02.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The information provided in Item 1.01 of this Current Report on Form 8-K
regarding the Loan Agreement is incorporated by reference into this Item 2.03.
Item 3.02 Unregistered Sales of Equity Securities.
The information provided in Item 1.01 of this Current Report on Form 8-K
regarding the Warrant is incorporated by reference into this Item 3.02.
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