Arcutis Biotherapeutics Inc

Previous wording

We launched our lead product, ZORYVE® (roflumilast) cream 0.3% ("ZORYVE cream"), in August 2022 after obtaining our initial U.S. Food and Drug Administration ("FDA") approval for the treatment of plaque psoriasis, including psoriasis in the intertriginous areas (e.g. groin or axillae), in individuals 12 years of age or older. ZORYVE cream is approved for once-daily treatment of mild, moderate, and severe plaque psoriasis with no limitations on location or duration of use. In October 2023, we received FDA approval for an expanded indication in plaque psoriasis down to 6 years of age. We are currently working with the FDA to potentially further expand this indication in plaque psoriasis down to 2 years of age following the generation of additional clinical data. In April 2023, we had our first commercial launch outside of the United States following Health Canada approval of ZORYVE cream for the treatment of plaque psoriasis in individuals 12 years or age or older. ZORYVE cream is a once-daily topical formulation of roflumilast, a highly potent and selective phosphodiesterase-4 ("PDE4") inhibitor. PDE4 is an established biological target in dermatology, with multiple PDE4 inhibitors approved by the FDA for the treatment of dermatological conditions.

Current wording

We launched our lead product, ZORYVE® (roflumilast) cream 0.3% ("ZORYVE cream 0.3%"), in August 2022 after obtaining our initial U.S. Food and Drug Administration ("FDA") approval for the treatment of plaque psoriasis, including psoriasis in the intertriginous areas (e.g. groin or axillae), in individuals 12 years of age or older. ZORYVE cream 0.3% is approved for once-daily treatment of mild, moderate, and severe plaque psoriasis with no limitations on location or duration of use. In October 2023, we received FDA approval for an expanded indication in plaque psoriasis down to 6 years of age. We are currently working with the FDA to potentially further expand this indication in plaque psoriasis down to 2 years of age following the generation of additional clinical data. In April 2023, we had our first commercial launch outside of the United States following Health Canada approval of ZORYVE cream 0.3% for the treatment of plaque psoriasis in individuals 12 years or age or older. ZORYVE cream 0.3% is a once-daily topical formulation of roflumilast, a highly potent and selective phosphodiesterase-4 ("PDE4") inhibitor. PDE4 is an established biological target in dermatology, with multiple PDE4 inhibitors approved by the FDA for the treatment of dermatological conditions.

Previous wording

In addition to the approval of ZORYVE cream for plaque psoriasis and ZORYVE foam for seborrheic dermatitis (collectively, "ZORYVE"), we are also developing ZORYVE cream for the treatment of atopic dermatitis. In atopic dermatitis, we have successfully completed three pivotal Phase 3 clinical trials: INTEGUMENT-1 and -2 enrolled subjects 6 years of age or older and INTEGUMENT-PED enrolled subjects between the ages of 2 and 5 years. We are also conducting INTEGUMENT-OLE, an open label extension study of the long-term safety of ZORYVE cream 0.15% in individuals 6 years of age or older and ZORYVE cream 0.05% in subjects between the ages 2 and 5 years. In the fourth quarter of 2022, we announced positive topline data from both INTEGUMENT-1 and -2 in atopic dermatitis, and in September 2023, we announced positive topline data from INTEGUMENT-PED and positive interim results from INTEGUMENT-OLE. In September 2023, we submitted a supplemental new drug application (“sNDA”) for ZORYVE cream 0.15% for the treatment of mild to moderate atopic dermatitis in individuals 6 years of age or older, which was accepted by the FDA and assigned a Prescription Drug User Fee Act ("PDUFA") target action date of July 7, 2024. Based on the positive results from the INTEGUMENT-PED study in September 2023, we expect to submit a subsequent sNDA for topical ZORYVE cream 0.05% for children ages 2 to 5 years of age if our current sNDA for ZORYVE cream 0.15% is approved for the treatment of mild to moderate atopic dermatitis in individuals 6 years of age or older.

Current wording

in July 2024 for the treatment of mild to moderate atopic dermatitis in adults and pediatric patients 6 years of age and older, with no limitation on location, body surface area treated, concomitant use, or duration of use. ZORYVE cream 0.15% is a once-daily, steroid-free cream that provides rapid disease clearance and significant reduction in itch and has been specifically developed to be a treatment option for long-term disease control. We have also completed a Phase 3 trial of ZORYVE cream 0.05% in pediatric patients 2 to 5 years of age with mild to moderate atopic dermatitis (INTEGUMENT-PED). Based on the positive results from the INTEGUMENT-PED study, and given our recent approval of ZORYVE cream 0.15% for the treatment of mild to moderate atopic dermatitis in individuals 6 years of age or older, we expect to submit a subsequent sNDA for topical ZORYVE cream 0.05% for children 2 to 5 years of age. We are also conducting INTEGUMENT-OLE, an open label extension study of the long-term safety of ZORYVE cream 0.15% in subjects 6 years of age or older and ZORYVE cream 0.05% in subjects between the ages 2 and 5 years, for which we reported positive interim results in September 2023. In July 2024, we entered into a co-promotion agreement with Kowa Pharmaceuticals America, Inc. ("Kowa"), under which Kowa will leverage its primary care sales force to market and promote ZORYVE cream and ZORYVE foam to primary care practitioners and pediatricians for all FDA approved indications.

Previous wording

Beyond seborrheic dermatitis, we are also developing ZORYVE foam for scalp and body psoriasis and have successfully completed our pivotal Phase 3 clinical trial. We announced positive topline data in September 2022, and we plan to submit an sNDA in the third quarter of 2024.

Current wording

Beyond seborrheic dermatitis, we are also developing ZORYVE foam for scalp and body psoriasis and have successfully completed our pivotal Phase 3 clinical trial. We announced positive topline data in September 2022, and we submitted an sNDA to the FDA for a label expansion to include scalp and body psoriasis in July 2024.

Previous wording

Beyond ZORYVE, we are developing ARQ-255, a deep-penetrating topical formulation of ivarmacitinib, a potent and highly selective topical Janus kinase type 1 ("JAK1") inhibitor, designed to preferentially deliver the drug deep into the hair follicle, the site of inflammation in alopecia areata, in order to potentially develop the first topical treatment for this disease. In December 2022, we announced that the first subject had been enrolled in a Phase 1b study evaluating ARQ-255 for the treatment of alopecia areata. The first subject in the alopecia areata cohort enrolled in the second quarter of 2023.

Current wording

In addition to ZORYVE, we are developing ARQ-255, a deep-penetrating topical formulation of ivarmacitinib, a potent and highly selective topical Janus kinase type 1 ("JAK1") inhibitor, designed to preferentially deliver the drug deep into the hair follicle, the site of inflammation in alopecia areata, in order to potentially develop the first topical treatment for this disease. In December 2022, we announced that the first subject had been enrolled in a Phase 1b study evaluating ARQ-255 for the treatment of alopecia areata. The first subject in the alopecia areata cohort enrolled in the second quarter of 2023.

Previous wording

We have incurred net losses in each year since inception, including net losses of net losses of $35.4 million and $80.1 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, we had an accumulated deficit of $1,017.3 million and cash, cash equivalents, restricted cash, and marketable securities of $404.5 million. As of March 31, 2024, we had $200.0 million outstanding under the Loan Agreement.

Current wording

We have incurred net losses in each year since inception, including net losses of $87.7 million and $151.1 million for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, we had an accumulated deficit of $1,069.6 million and cash, cash equivalents, restricted cash, and marketable securities of $363.1 million. As of June 30, 2024, we had $200.0 million outstanding under the Loan Agreement.

Previous wording

We expect to continue to incur losses and significant expenses as we commercialize ZORYVE cream in psoriasis and ZORYVE foam in seborrheic dermatitis, and as we advance our product candidates and label extensions through clinical trials, regulatory submissions, and commercialization. We expect to incur significant and prioritized commercialization expenses related to the sales, marketing, manufacturing, and distribution of ZORYVE cream and foam, while we focus our clinical development spend on ARQ-234, ARQ-255, and ZORYVE label extensions, if we obtain regulatory approval for them. If our available cash and marketable securities balances, amounts available under the Loan Agreement, and anticipated future cash flows from operations are insufficient to cover these expenses, we may need to fund our operations through equity or debt financings or other sources, such as future potential collaboration agreements. Adequate funding may not be available to us on acceptable terms, or at all. Any failure to obtain sufficient funds on acceptable terms as and when needed could have a material adverse effect on our business, results of operations, and financial condition. See “Liquidity, Capital Resources, and Requirements” below and Note 1 to the condensed consolidated financial statements for additional information.

Current wording

We expect to continue to incur losses and significant expenses as we commercialize ZORYVE cream in psoriasis and atopic dermatitis, and ZORYVE foam in seborrheic dermatitis, and as we advance our product candidates and label extensions through clinical trials, regulatory submissions, and commercialization. We expect to incur significant and prioritized commercialization expenses related to the sales, marketing, manufacturing, and distribution of ZORYVE cream and foam, while we focus our clinical development spend on ARQ-234, ARQ-255, and ZORYVE label extensions, if we obtain regulatory approval for them. If our available cash and marketable securities balances, amounts available under the Loan Agreement, and anticipated future cash flows from operations are insufficient to cover these expenses, we may need to fund our operations through equity or debt financings or other sources, such as future potential collaboration agreements. Adequate funding may not be available to us on acceptable terms, or at all. Any failure to obtain sufficient funds on acceptable terms as and when needed could have a material adverse effect on our business, results of operations, and financial condition. See “Liquidity, Capital Resources, and Requirements” below and Note 1 to the condensed consolidated financial statements for additional information.

Previous wording

We rely on third parties in the conduct of our nonclinical studies and clinical trials and for manufacturing and supply of our product candidates. We have no internal manufacturing capabilities, and we will continue to rely on third parties, many of whom are single source suppliers, for our nonclinical and clinical trial materials, as well as the commercial supply of our products.

Current wording

We rely on third parties to conduct our nonclinical studies and clinical trials and for manufacturing and supply of our product candidates. We have no internal manufacturing capabilities, and we will continue to rely on third parties, many of whom are single source suppliers, for our nonclinical and clinical trial materials, as well as the commercial supply of our products.

Previous wording

In August 2022, in conjunction with the launch of our first FDA approved product, ZORYVE cream, we began to recognize revenue from product sales, net of rebates, chargebacks, discounts, and other adjustments. Additionally, in June 2023, we began recognizing revenue net of deductions for ZORYVE cream in Canada and, in January 2024, for ZORYVE foam. We will continue to evaluate trends related to revenue for ZORYVE. Additionally, if our development efforts for our other product candidates and ZORYVE label extensions are successful and result in regulatory approval, we may generate additional revenue in the future from product sales.

Current wording

In August 2022, in conjunction with the launch of our first FDA approved product, ZORYVE cream 0.3%, we began to recognize revenue from product sales, net of rebates, chargebacks, discounts, and other adjustments. Additionally, in June 2023, we began recognizing revenue net of deductions for ZORYVE cream 0.3% in Canada and, in January 2024, for ZORYVE foam. We received FDA approval of ZORYVE cream 0.15% for atopic dermatitis and began recognizing related revenues in July 2024. We will continue to evaluate trends related to revenue for ZORYVE. Additionally, if our development efforts for our other product candidates and ZORYVE label extensions are successful and result in regulatory approval, we may generate additional revenue in the future from product sales.

Previous wording

Other revenue relates to the Sato License Agreement and the Huadong License and Collaboration Agreement. See Note 6 to the condensed consolidated financial statements for additional information.

Current wording

Other revenue for 2024 relates to the Sato License Agreement and the Huadong License and Collaboration Agreement. See Note 6 to the condensed consolidated financial statements for additional information. Other revenue for the 2023 periods is a result of shares of common stock acquired in connection with a collaboration.

Previous wording

Our cost of sales will reflect a lower average per unit cost of materials until inventory that was previously expensed is sold, which is expected to occur over the next eighteen months. As of March 31, 2024 and December 31, 2023, the value of this inventory, mostly at the raw materials stage, was approximately $8.7 million and $8.7 million, respectively.

Current wording

Our cost of sales will reflect a lower average per unit cost of materials until inventory that was previously expensed is sold, which is expected to occur over the next fourteen months. As of June 30, 2024 and December 31, 2023, the value of this inventory, mostly at the raw materials stage, was approximately $7.9 million and $8.7 million, respectively.

Previous wording

We expect to continue to incur research and development expenses in the future as we develop our product candidates. In particular, we expect to incur research and development expenses for the pediatric and open label extension Phase 3 trials of ZORYVE cream for atopic dermatitis, phase 1 ARQ-255 study for alopecia areata, and early development of ARQ-234 for atopic dermatitis.

Current wording

We expect to continue to incur research and development expenses in the future as we develop our product candidates. In particular, we expect to incur research and development expenses for the phase 1 ARQ-255 study for alopecia areata and early development of ARQ-234 for atopic dermatitis.

Previous wording

Our selling, general and administrative expenses consist primarily of salaries and related costs, including payroll taxes, benefits, stock-based compensation, and travel, and costs related to sales and marketing of ZORYVE cream. Other selling, general and administrative expenses include legal costs of pursuing patent protection of our intellectual property, insurance, and professional services fees for auditing, tax, and general legal services. We expect our selling, general and administrative expenses to continue to increase in the future as we continue to commercialize ZORYVE and potentially other product candidates and support our operations, including increased expenses related to legal, accounting, insurance, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, directors and officers liability insurance premiums, and investor relations activities.

Current wording

Our selling, general and administrative expenses consist primarily of salaries and related costs, including payroll taxes, benefits, stock-based compensation, and travel, and costs related to sales and marketing of ZORYVE cream and foam. Other selling, general and administrative expenses include legal costs of pursuing patent protection of our intellectual property, insurance, and professional services fees for auditing, tax, and general legal services. We expect our selling, general and administrative expenses to continue to increase in the future as we continue to commercialize ZORYVE and potentially other product candidates and support our operations, including increased expenses related to legal, accounting, insurance, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, directors and officers liability insurance premiums, and investor relations activities.

Previous wording

We began recording U.S. product revenue in the third quarter of 2022 following the FDA approval and subsequent commercial launch of ZORYVE cream in August 2022, Canada product revenue in the second quarter of 2023 following the Health Canada approval and subsequent commercial launch of ZORYVE in June 2023, and additional U.S. revenue in the first quarter of 2024 following the FDA approval and subsequent commercial launch of ZORYVE foam in January 2024.

Current wording

We began recording U.S. product revenue in the third quarter of 2022 following the FDA approval and subsequent commercial launch of ZORYVE cream 0.3% in August 2022, Canada product revenue in the second quarter of 2023 following the Health Canada approval and subsequent commercial launch of ZORYVE in June 2023, and additional U.S. revenue in the first quarter of 2024 following the FDA approval and subsequent commercial launch of ZORYVE foam in January 2024.

Previous wording

Product revenue, net, for ZORYVE cream increased by $12.2 million for the three months ended March 31, 2024 compared to three months ended March 31, 2023, primarily driven by higher end customer demand for ZORYVE cream in the United States and the commercial launch of ZORYVE cream in Canada in June 2023.

Current wording

Product revenue, net, for ZORYVE cream 0.3% increased by $12.5 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily driven by higher end customer demand and improving gross-to-net discounts for ZORYVE cream 0.3% in the United States and the commercial launch of ZORYVE cream 0.3% in Canada in June 2023.

Previous wording

Product revenue, net, for ZORYVE foam increased by $6.5 million for the three months ended March 31, 2024 compared to three months ended March 31, 2023, driven by its commercial launch in January 2024.

Current wording

Product revenue, net, for ZORYVE foam increased by $13.6 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, driven by its commercial launch in January 2024.

Previous wording

Cost of sales increased by $2.5 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase is related primarily to additional ZORYVE cream and foam product costs incurred. Prior to the dates on which the initial regulatory approvals were received for each product, costs of raw materials were recorded as research and development expense. Therefore, cost of sales will reflect a lower average per unit cost until the related inventory is sold, which is expected to occur over the next eighteen months. See Note 5 to the condensed consolidated financial statements for additional information.

Current wording

Cost of sales increased by $2.7 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase is related primarily to an increase in customer demand for ZORYVE cream 0.3% and foam. Prior to the dates on which the initial regulatory approvals were received for each product, costs of raw materials were recorded as research and development expense. Therefore, cost of sales will reflect a lower average per unit cost until the related inventory is sold, which is expected to occur over the next fourteen months. See Note 5 to the condensed consolidated financial statements for additional information.

Previous wording

Research and development expenses decreased by $12.2 million, or 35%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The decrease was primarily due to the completion of Phase 3 studies of roflumilast cream in atopic dermatitis and roflumilast foam in seborrheic dermatitis and scalp and body psoriasis, partially offset by manufacturing costs incurred related to the development of early stage programs.

Current wording

Research and development expenses decreased by $5.9 million, or 23%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The decrease was primarily due to the completion of Phase 3 studies of roflumilast cream in atopic dermatitis, coupled with a decrease in compensation and personnel-related expenses, partially offset by manufacturing costs incurred related to the development of early stage programs.

Previous wording

Selling, general, and administrative expenses increased by $11.9 million, or 28%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase was primarily due to an increase in sales and marketing expenses of $6.2 million and an increase in compensation and personnel-related expenses of $5.3 million. These increases were primarily due to our continued commercialization efforts for ZORYVE.

Current wording

Selling, general, and administrative expenses increased by $12.2 million, or 27%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase was primarily due to an increase in compensation and personnel-related expenses of $6.2 million and an increase in sales and marketing expenses of $5.3 million. These increases were primarily due to our continued commercialization efforts for ZORYVE.

Previous wording

Interest expense increased by $0.4 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, due to the impact of higher interest rates. See Note 7 to the condensed consolidated financial statements for additional information.

Current wording

Interest expense increased by $0.1 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, due to the impact of higher interest rates. See Note 7 to the condensed consolidated financial statements for additional information.

Previous wording

Other revenue in the first quarter of 2024 includes $25.0 million received as an upfront payment in connection with the Sato Agreement and a $3.0 milestone payment received in connection with the Huadong Agreement. See Note 6 to the condensed consolidated financial statements for additional information.

Current wording

Other revenue in the six months ended June 30, 2024 includes $25.0 million received as an upfront payment in connection with the Sato Agreement and a $3.0 milestone payment received in connection with the Huadong Agreement. See Note 6 to the condensed consolidated financial statements for additional information.

Previous wording

Other income, net increased by $0.8 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to the change in fair value of the derivative related to our debt, as well as the impact of higher interest rates. See Note 7 to the condensed consolidated financial statements for additional information.

Current wording

Other income, net increased by $2.9 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily due to the impact of higher interest rates, higher marketable securities balance and a decrease in fair value of the derivative related to our debt. See Note 7 to the condensed consolidated financial statements for additional information.

Previous wording

Income tax expense of $0.3 million for the three months ended March 31, 2024 was primarily due to withholding tax on the Huadong License and Collaboration Agreement.

Current wording

Income tax expense of $0.3 million for the six months ended June 30, 2024 was primarily due to withholding tax on the Huadong License and Collaboration Agreement. See Note 6 to the condensed consolidated financial statements for additional information.

Previous wording

Our primary sources of capital to date have been private placements of preferred stock, our IPO completed in January 2020, our follow-on financings in October 2020, February 2021, August 2022, October 2023, and March 2024, our Loan Agreement, our ATM, and revenue from the sale of ZORYVE cream and foam. We have incurred operating losses since our inception and have an accumulated deficit as a result of ongoing efforts to develop and commercialize our products and product candidates, including conducting nonclinical and clinical trials and providing selling, general and administrative support for these operations. As of March 31, 2024, we had cash, cash equivalents, restricted cash, and marketable securities of $404.5 million, and an accumulated deficit of $1,017.3 million. We maintain cash balances with financial institutions in excess of insured limits. In March 2024, we completed a public offering of shares of our common stock and received $161.7 million in net proceeds. In March 2024, we received an upfront payment of $25.0 million related to the Sato Agreement and a milestone payment $2.7 million related to the Huadong Agreement. As of March 31, 2024, we had $200.0 million outstanding under the Loan Agreement.

Current wording

Our primary sources of capital to date have been private placements of preferred stock, our IPO completed in January 2020, our follow-on financings in October 2020, February 2021, August 2022, October 2023, and March 2024, our Loan Agreement, our ATM, and revenue from the sale of ZORYVE cream 0.3% and foam. We have incurred operating losses since our inception and have an accumulated deficit as a result of ongoing efforts to develop and commercialize our products and product candidates, including conducting nonclinical and clinical trials and providing selling, general and administrative support for these operations. As of June 30, 2024, we had cash, cash equivalents, restricted cash, and marketable securities of $363.1 million, and an accumulated deficit of $1,069.6 million. We maintain cash balances with financial institutions in excess of insured limits. In March 2024, we completed a public offering of shares of our common stock and received $161.7 million in net proceeds. In March 2024, we received an upfront payment of $25.0 million related to the Sato Agreement and a milestone payment $2.7 million related to the Huadong Agreement. As of June 30, 2024, we had $200.0 million outstanding under the Loan Agreement.

Previous wording

•the scope, progress, results, and costs of researching and developing our lead product candidates or any future product candidates, and conducting nonclinical studies and clinical trials, in particular our planned or ongoing development activities of ZORYVE cream in plaque psoriasis and atopic dermatitis, ZORYVE foam in seborrheic dermatitis and scalp psoriasis, ARQ-255 in alopecia areata, and our formulation and nonclinical efforts for ARQ-234;

Current wording

•the scope, progress, results, and costs of researching and developing our lead product candidates or any future product candidates, and conducting nonclinical studies and clinical trials, in particular our planned or ongoing development activities of ZORYVE cream in atopic dermatitis, ARQ-255 in alopecia areata, and our formulation and nonclinical efforts for ARQ-234;

Previous wording

On December 22, 2021 we entered into a loan and security agreement, or Loan Agreement, with SLR and the lenders party thereto. The Loan Agreement was amended and restated on January 10, 2023 to include Arcutis Canada, Inc. as a borrower and party to the Loan Agreement. The lenders agreed to extend term loans to us in an aggregate principal amount of up to $225.0 million, comprised of: (i) a tranche A term loan of $75.0 million, (ii) a tranche B-1 term loan of $50.0 million, (iii) a tranche B-2 term loan of up to $75.0 million, available in minimum increments of $15.0 million, and (iv) a tranche C term loan of up to $25.0 million. We refer to the tranche A, tranche B, and tranche C term loans together as our Term Loans. As security for the obligations under the Loan Agreement, we granted SLR, for the benefit of the lenders, a continuing security interest in substantially all of our assets, including our intellectual property, subject to certain exceptions.

Current wording

On December 22, 2021, we entered into a loan and security agreement with SLR and the lenders party thereto (as amended, the “Prior Loan Agreement”). The Prior Loan Agreement was amended and restated on January 10, 2023 (the "AR Loan Agreement") to include Arcutis Canada, Inc., a corporation incorporated under the laws of the Province of Ontario, as a borrower and party to the AR Loan Agreement. We subsequently amended the AR Loan Agreement on November 1, 2023 (the "First Loan Agreement Amendment," and the AR Loan Agreement as amended by the First Loan Agreement Amendment, the "Amended Loan Agreement") and August 9, 2024 (the "Second Loan Agreement Amendment," and the Amended Loan Agreement, as amended, by Second Loan Agreement Amendment, the "Loan Agreement"). Pursuant to the Loan Agreement, the lenders have agreed to extend term loans to us in an aggregate principal amount of up to $200.0 million. The term loan facility is comprised of: (i) a tranche A term loan of $75.0 million, (ii) a tranche B-1 term loan of $50.0 million, (iii) a tranche B-2 term loan of up to $75.0 million, (iv) a tranche C-1 term loan of up to $50.0 million, and (v) a tranche C-2 term loan of up to $50.0 million. We refer to the tranche A, tranche B and tranche C term loans together as our Term Loans. The tranche A term loan was funded in December 2021 and we drew down the tranche B term loans in August 2022. The tranche C term loans were added pursuant to the Second Loan Agreement Amendment and will become available in the event that we make a 2024 Partial Prepayment, as defined below, and subject to certain terms and conditions.

Previous wording

Principal amounts outstanding under the Term Loans will accrue interest at a floating rate equal to the applicable rate in effect from time to time, as determined by SLR on the third business day prior to the funding date of the applicable Term Loan and on the first business day of the month prior to each payment date of each Term Loan. The applicable rate is a per annum interest rate equal to 7.45% plus the greater of (a) 0.10% and (b) the per annum rate published by the Intercontinental Exchange Benchmark Administration Ltd. (or on any successor or substitute published rate) for a term of one month, subject to a replacement with an alternate benchmark rate and spread in certain circumstances. Starting in July 2023, the Secured Overnight Financing Rate ("SOFR") for a term of one month was substituted for the benchmark rate. On March 31, 2024, the rate was 12.87%.

Current wording

Principal amounts outstanding under the Term Loans will generally accrue interest at a floating rate equal to the applicable rate in effect from time to time, as determined by SLR on the third business day prior to the funding date of the applicable Term Loan and on the first business day of the month prior to each payment date of each Term Loan. As of June 30, 2024, the applicable rate was a per annum interest rate equal to 7.45% plus the greater of (a) 0.10% and (b) the per annum rate equal to the one-month term Secured Overnight Financing Rate ("SOFR"). On June 30, 2024, the rate was 12.88%. Pursuant to the Second Loan Agreement Amendment, the applicable rate will be a per annum interest rate equal to 5.95% plus the greater of (a) 2.50% per annum and (b) the per annum rate equal to the one-month term SOFR; provided, however, that in the event that we do not make a 2024 Partial Prepayment, the applicable rate shall increase to a per annum interest rate equal to 7.45% plus the greater of (a) 0.10% per annum and (b) the per annum rate equal to the one-month term SOFR. Interest payments are payable monthly following the funding of any Term Loan. Any principal amounts outstanding under the Term Loans, if not repaid or prepaid, are due and payable on August 1, 2029, or if no 2024 Partial Prepayment is made, on January 1, 2027 (such date, the “Maturity Date”).

Previous wording

Interest payments are payable monthly following the funding of any Term Loan. Any principal amounts outstanding under the Term Loans, if not repaid sooner, are due and payable on January 1, 2027, or the Maturity Date. We may voluntarily prepay principal amounts outstanding under the Term Loans in minimum increments of $5.0 million, subject to a prepayment premium of (i) 3.0% of the principal amount of such Term Loan so prepaid prior to December 22, 2022, (ii) 2.0% of the principal amount of such Term Loan so prepaid after December 22, 2022 and prior to December 22, 2023, or (iii) 1.0% of the principal amount of such Term Loan so prepaid after December 22, 2023 and prior to December 22, 2025.

Current wording

Excluding the 2024 Partial Prepayment, we may voluntarily prepay principal amounts outstanding under the Term Loans in minimum increments of $25.0 million, subject to a prepayment premium of (i) 3.0% of the principal amount of such Term Loan so prepaid prior to the first anniversary of the Second Loan Agreement Amendment, (ii) 2.0% of the principal amount of such Term Loan so prepaid after the first anniversary of the Second Loan Agreement Amendment and prior to the second anniversary of the Second Loan Agreement Amendment, or (iii) 1.0% of the principal amount of such Term Loan so prepaid after the second anniversary of the Second Loan Agreement Amendment and prior to the Maturity Date.

Previous wording

The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among others, requirements as to financial reporting and insurance and restrictions on our ability to dispose of its business or property, to change its line of business, to liquidate or dissolve, to enter into any change in control transaction, to merge or consolidate with any other entity or to acquire all or substantially all the capital stock or property of another entity, to incur additional indebtedness, to incur liens on its property, to pay any dividends or other distributions on capital stock other than dividends payable solely in capital stock or to redeem capital stock. We also agreed to a financial covenant whereby, beginning with the month ending December 31, 2023, we must generate net product revenue in excess of specified amounts for applicable measuring periods pursuant to the Loan Agreement.

Current wording

The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among others, requirements as to financial reporting and insurance and restrictions on our ability to dispose of its business or property, to change its line of business, to liquidate or dissolve, to enter into any change in control transaction, to merge or consolidate with any other entity or to acquire all or substantially all the capital stock or property of another entity, to incur additional indebtedness, to incur liens on its property, to pay any dividends or other distributions on capital stock other than dividends payable solely in capital stock or to redeem capital stock. We also agreed to a financial covenant whereby we must generate minimum net product revenue equal to 75% of our projected net product revenue as set forth in our annual plan for the respective period, tested on a trailing six month basis as of the end of each month. Each annual plan shall be approved by our board of directors and SLR, in its capacity as collateral agent, in its reasonable discretion. Any failure by us to deliver such annual plan on or before December 15 of the prior year would be an immediate event of default.

Previous wording

In connection with the Loan Agreement, we are obligated to pay (i) a final fee equal to 6.95% of the aggregate original principal amount of the Term Loans funded upon the earliest to occur of the Maturity Date, the acceleration of any Term Loan and the prepayment, refinancing, substitution or replacement of any Term Loan and (ii) a certain amount of lenders’ expenses incurred in connection with the execution of the Loan Agreement. Additionally, in connection with the Loan Agreement, we entered into an Exit Fee Agreement, whereby we agreed to pay an exit fee in the amount of 3.0% of each Term Loan funded upon (i) any change of control transaction or (ii) a revenue milestone, calculated on a trailing six month basis. Notwithstanding the prepayment or termination of the Term Loan, the exit fee will expire 10 years from the date of the Loan Agreement.

Current wording

In connection with the Loan Agreement, we are obligated to pay (i) a final fee equal to 6.95% of the aggregate original principal amount of the Term Loans funded as of the Second Amendment Loan Agreement, (x) with respect to any 2024 Partial Prepayment, upon the earliest to occur of (A) January 1, 2027, (B) the acceleration of any Term Loan and (C) the prepayment, or refinancing, substitution or replacement of any Term Loan, and (y) with respect to the Term Loans outstanding on the Second Amendment Loan Agreement (other than 2024 Partial Prepayment), upon the earliest to occur of (A) the Maturity Date, (B) the acceleration of any Term Loan and (C) the prepayment, or refinancing, substitution or replacement of any Term Loan , (ii) a 2.00% fee with respect to tranche C term loans, due and payable on the earliest to occur of (A) the Maturity Date, (B) the acceleration of any Term Loan and (C) the prepayment, or refinancing, substitution or replacement of any Term Loan, (iii) a 2.00% extension fee with respect to tranche C term loans which remain unfunded after December 31, 2025, which shall accrue during the period commencing January 1, 2026, and ending on the earliest to occur of (A) the expiration of the tranche C term loan availability, and (B) the date on which tranche C term loan is fully drawn, and (iv) a certain amount of lenders’ expenses incurred in connection with the execution of the Loan Agreement. Additionally, in connection with the original Prior Loan Agreement, we previously had entered into an Exit Fee Agreement, whereby we agreed to pay an exit fee in the amount of 3.0% of each Term Loan funded upon (i) any change of control transaction or (ii) a revenue milestone, calculated on a trailing six month basis. Notwithstanding the prepayment or termination of the Term Loan, the exit fee will expire 10 years from the date of the Loan Agreement.

Previous wording

During the three months ended March 31, 2024, net cash used in operating activities was $31.6 million, which consisted of a net loss of $35.4 million and a change in net operating assets and liabilities of $5.4 million, partially offset by net non-cash charges of $9.2 million. The net non-cash charges were primarily related to stock-based compensation expense of $10.0 million.

Current wording

During the six months ended June 30, 2024, net cash used in operating activities was $76.7 million, which consisted of a net loss of $87.7 million and a change in net operating assets and liabilities of $9.7 million, partially offset by net non-cash charges of $20.7 million. The net non-cash charges were primarily related to stock-based compensation expense of $22.6 million.

Previous wording

During the three months ended March 31, 2023, net cash used in operating activities was $80.3 million, which consisted of a net loss of $80.1 million and a change in net operating assets and liabilities of $9.0 million, partially offset by net non-cash charges of $8.8 million. The net non-cash charges were primarily related to stock-based compensation expense of $9.5 million.

Current wording

During the six months ended June 30, 2023, net cash used in operating activities was $146.8 million, which consisted of a net loss of $151.1 million and a change in net operating assets and liabilities of $14.7 million, partially offset by net non-cash charges of $19.0 million. The net non-cash charges were primarily related to stock-based compensation expense of $20.1 million.

Previous wording

During the three months ended March 31, 2024, net cash used in investing activities was $28.7 million, which was comprised primarily by purchases of marketable securities of $106.0 million, offset by proceeds from the maturities of marketable securities of $77.3 million.

Current wording

During the six months ended June 30, 2024, net cash used in investing activities was $90.8 million, which was comprised primarily by purchases of marketable securities of $231.7 million, offset by proceeds from the maturities of marketable securities of $140.9 million.

Previous wording

During the three months ended March 31, 2023, net cash provided by investing activities was $107.8 million, which was comprised primarily of proceeds from the maturities of marketable securities of $147.5 million, partially offset by purchases of marketable securities of $39.7 million.

Current wording

During the six months ended June 30, 2023, net cash provided by investing activities was $196.9 million, which was comprised primarily of proceeds from the maturities of marketable securities of $282.5 million, partially offset by purchases of marketable securities of $85.3 million.

Previous wording

During the three months ended March 31, 2024, net cash provided by financing activities was $161.8 million, which was comprised primarily of $161.7 million of net proceeds from our February 2024 public stock offering.

Current wording

During the six months ended June 30, 2024, net cash provided by financing activities was $163.2 million, which was comprised primarily of $161.7 million of net proceeds from our February 2024 public stock offering.

Previous wording

During the three months ended March 31, 2023, net cash provided by financing activities was $0.1 million, which related to proceeds from the issuance of common stock upon the exercise of stock options.

Current wording

During the six months ended June 30, 2023, net cash provided by financing activities was $1.2 million, which was comprised primarily of $1.0 million in proceeds from the issuance of common stock as part of our ESPP.