Note 7 – Deerfield Loan

Long-term debt consists solely of amounts due under a $30 million loan (Deerfield Loan) with affiliates of Deerfield Management Company, L.P. (Deerfield) for the periods presented:

(in thousands)	June 30, 2014			December 31, 2013

Note Payable	$	30,000		$	30,000
Unamortized discount		(10,736	)		(11,646	)
Long-term debt, net of discount	$	19,264		$	18,354

The principal amount of the loan is payable in three equal annual installments on the fourth, fifth, and sixth anniversaries of the Deerfield Loan agreement beginning in February 2017, provided that the amount payable on the fourth anniversary shall be deferred for one year if either (i) “Net Sales” for the immediately preceding 12-month period are at least $20 million, or (ii) “Equity Value” is at least $200 million; and provided further, that the amount payable on the fifth anniversary (together with any amount deferred on the fourth anniversary) shall be deferred until the sixth anniversary if either (i) “Net Sales” for the immediately preceding 12-month period are at least $30 million, or (ii) “Equity Value” is at least $250 million. Accordingly, if the milestones are achieved in each year, payment of the principal amount could be deferred until the sixth anniversary date of the loan, February 13, 2019.

The following amounts comprise the Deerfield Loan interest expense for the periods presented:

(in thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013

Cash interest expense	$	654	$	218	$	1,302	$	331
Non-cash amortization of debt discounts		470		118		909		177
Amortization of debt costs		5		5		10		8
Total interest expense	$	1,129	$	341	$	2,221	$	516

Cash interest expense represents interest at an annual rate of 8.75% on the outstanding principal amount for the period, payable quarterly in cash. Non-cash amortization of debt discount represents the amortization of transaction fees and the fair value of the warrants issued in connection with the Deerfield Loan. The amortization of debt costs represents legal costs incurred in connection with the Deerfield Loan.

In connection with the loan, we issued to Deerfield warrants to purchase 7.0 million shares of our common stock at an exercise price of $2.81 per share that expire on February 13, 2019. The Deerfield warrants are derivatives that qualify for an exemption from liability accounting provided in ASC 815 and are classified as equity. See, Note 9, “Deerfield Loan,” to the consolidated financial statements in our 2013 Form 10-K.