Non-Recourse Long-Term Debt, Net

November 4, 2016,

through a new wholly-owned subsidiary MNTX Royalties Sub LLC (“MNTX Royalties”), we entered into a

$50.0

million loan agreement (the “Royalty-Backed Loan”) with a fund managed by HealthCare Royalty Partners III, L.P. (“HCRP”). Under the terms of the Royalty-Backed Loan, the lenders have

recourse to us or to any of our assets other than the right to receive royalty payments from the commercial sales of RELISTOR products owed under our agreement with Valeant. The RELISTOR royalty payments will be used to repay the principal and interest on the loan. The Royalty-Backed Loan bears interest at a per annum rate of

9.5%.

Under the terms of the loan agreement, payments of interest and principal, if any, under the loan will be made on the last day of each calendar quarter out of RELISTOR royalty payments received since the immediately-preceding payment date. On each payment date prior to

March 31, 2018,

RELISTOR royalty payments received since the immediately preceding payment date were applied solely to the payment of interest on the loan, with any royalties in excess of the interest amount retained by us. Beginning on

March 31, 2018,

50%

of RELISTOR royalty payments received since the immediately-preceding payment date in excess of accrued interest on the loan will be used to repay the principal of the loan, with the balance retained by us. HCRP did

not

transfer

first

quarter

2018

interest and principal from the blocked account until

April

2018,

as such,

$2.4

million (representing both interest and principal) is restricted as of

March 31, 2018

and included as restricted cash in current assets, and

$1.2

million of interest is accrued and included in accrued expenses on our condensed consolidated balance sheet as of

March 31, 2018.

Starting on

September 30, 2021,

all of the RELISTOR royalties received since the immediately-preceding payment date will be used to repay the interest and outstanding principal balance until the balance is fully repaid. The loan has a maturity date of

June 30, 2025.

Upon the occurrence of certain triggers in the loan agreement, or if HCRP so elects on or after

January 1, 2018,

all of the RELISTOR royalty payments received after the immediately-preceding payment date shall be applied to the payment of interest and repayment of principal until the principal of the loan is fully repaid. In the event of such an election by HCRP, we have the right to repay the loan without any prepayment penalty.

In connection with the Royalty-Backed Loan, the debt issuance costs have been recorded as a debt discount in our consolidated balance sheets and are being amortized and recorded as interest expense throughout the life of the loan using the effective interest method.

The following tables summarize the components of the Royalty-Backed Loan in our condensed consolidated financial statements for the periods presented (in thousands):

	March 31,			December 31,
Condensed Consolidated Balance Sheets	2018			2017
Outstanding principal balance, current portion	$	4,981		$	2,686
Unamortized debt discount, current portion		(246	)		(241	)
Current portion of debt, net	$	4,735		$	2,445

Outstanding principal balance, long-term portion	$	45,771		$	48,066
Unamortized debt discount, long-term portion		(756	)		(824	)
Long-term debt, net	$	45,015		$	47,242

	Three Months Ended
	March 31,
Condensed Consolidated Statements of Operations	2018		2017
Interest expense	$	1,205	$	1,192
Non-cash interest expense		63		61
Total interest expense included in interest (expense) income, net	$	1,268	$	1,253

As of

March 31, 2018,

we were in compliance with all material covenants under the Royalty-Backed Loan and there was

material adverse change in our business, operations, or financial conditions, as defined in the loan agreement.