Commitments and Contingencies |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies | Commitments and Contingencies
Service Agreements
The Company pays Community Blood Center, (d/b/a Community Tissue Service) ("CTS") a facility fee for the use of clean rooms, storage and office space and for services in support of its tissue processing including for routine sterilization of daily supplies, providing disposable supplies and microbial services, and office support. The Company paid $600 and $541 for the three months ended September 30, 2023, and 2022, respectively, and $1,911 and $1,785 during the nine months ended September 30, 2023, and 2022, respectively, related to the agreement with CTS. The agreement terminates on December 31, 2023, subject to earlier termination by either party at any time for cause, or without cause upon six months prior notice. The Company expects to reduce its utilization of CTS in the remainder of 2023 for Avance, and will continue to utilize CTS beyond 2023 for Avive +.
In December 2011, the Company entered into a Master Services Agreement for clinical research and related services. The Company was required to pay $151 upon execution of this agreement and the remainder monthly based on activities associated with the execution of the Company's phase 3 pivotal clinical trial to support the biologics license application ("BLA") for Avance Nerve Graft. Payments made under this agreement were $23 and $279 for the three months ended September 30, 2023, and 2022, respectively, and $191 and $963 for the nine months ended September 30, 2023, and 2022, respectively.
Axogen Processing Center Facility
The Company is highly dependent on the continued availability of its processing facilities at CTS and APC in Dayton, Ohio and could be harmed if the physical infrastructure of these facilities are unavailable for any prolonged period of time.
On July 31, 2018, the Company purchased the APC Facility in Vandalia, Ohio, located near the CTS processing facility where Avance Nerve Graft is currently processed. The APC Facility, when and if operational, will be the new processing facility for Avance Nerve Graft to provide continued capacity for growth and to support the transition of Avance Nerve Graft from a human cellular and tissue-based product to a biologic product. The APC Facility is comprised of a 107,000 square foot building on approximately 8.6 acres of land. The Company paid $731 for the land, and this is recorded as land within Property and equipment, net on the condensed consolidated balance sheets. The Company paid $4,300 for the building and this is recorded within Property and equipment, net on the condensed consolidated balance sheets.
On July 9, 2019, the Company entered into a Standard Form of Agreement Between Owner and Design-Builder with CRB Builders, L.L.C., (“CRB”), pursuant to which CRB will renovate and retrofit the APC Facility. For the three and nine months ended September 30, 2023, the Company recorded $808 and $4,047, respectively, related to renovations and design and build in projects in progress. The Company has recorded $50,401 to date related to this project. In addition to these project costs, the Company has capitalized interest of $1,043 and $5,240 for the three and nine months ended September 30, 2023. To date, the Company has capitalized interest of $16,669 related to this project. During the quarter ended September 30, 2023, the APC Facility was placed into service. These costs were recorded to their respective asset category in Property and equipment, net on the condensed consolidated balance sheet. Validation of the tissue processing center was completed and we began operations during the third quarter of this year. The costs related to the labs at APC are recorded in projects in process in Property and equipment, net on the condensed consolidated balance sheet.
The Company obtained certain economic development grants from state and local authorities totaling up to $2,685 including $1,250 of cash grants to offset costs to acquire and develop the APC Facility. The economic development grants are subject to certain job creation milestones through December 31, 2023, and have clawback clauses if the Company does not meet the job creation milestones The Company requested an extension from the grant authorities to extend the job creation milestones and received approval to extend the evaluation date to December 31, 2024, and the expiration date to December 31, 2026. As of September 30, 2023, the Company received $1,188 from the cash grants and has a grant receivable of $0 recorded in receivables on the condensed consolidated balance sheets.
Fair Value of the Debt Derivative Liabilities
The fair value of the debt derivative liabilities is $3,869 as of September 30, 2023. The fair value of the debt derivative liabilities was determined using a probability-weighted expected return model based upon the four potential settlement scenarios for the Credit Facility. The estimated settlement value of each scenario, which includes any required make-whole payment, is then discounted to present value using a discount rate that is derived based upon the initial terms of the Credit Facility at issuance and corroborated utilizing a synthetic rating analysis. The calculated fair values under the four scenarios are then compared to the fair value of a plain vanilla note, with the difference reflecting the fair value of the debt derivative liabilities. The Company estimated the make-whole payments required under each scenario according to the terms of the Credit
Facility to generate an internal rate of return equal to 11.5% through the scheduled maturity dates, less the total of all quarterly interest and royalty payments previously paid to the Lender. The calculation utilized the XIRR function in Microsoft Excel as required by the Credit Facility. If the debt is not prepaid but instead is held to its scheduled maturities, the Company’s estimate of the make-whole payment for the first tranche and second tranche of the Credit Facility due on June 30, 2027, and June 30, 2028, respectively, are approximately zero. The Company has consistently applied this approach since the inception of the debt agreement on June 30, 2020.
The Company is aware that the Lender may have an alternative interpretation of the calculation of the make-whole payments that the Company believes does not properly utilize the same methodology utilized by the XIRR function in Microsoft Excel as described in the Credit Facility. The Company estimates the top end of the range of the make-whole payments if the debt is held to scheduled maturity under an alternative interpretation to be approximately $8,000 for the first tranche of the Credit Facility due on June 30, 2027, and approximately $4,000 for the second tranche of the Credit Facility due on June 30, 2028. Further, if the debt is prepaid prior to the scheduled maturity dates and subject to the alternative interpretation, the make-whole payment would be larger than the amounts herein.
Legal Proceedings
The Company is and may be subject to various claims, lawsuits, and proceedings in the ordinary course of the Company's business. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. While there can be no assurances as to the ultimate outcome of any legal proceeding or other loss contingency involving the Company, in the opinion of management, such claims are either adequately covered by insurance or otherwise indemnified, or are not expected individually or in the aggregate, to result in a material, adverse effect on the Company's financial condition, results of operations or cash flows. However, it is possible that the Company's results of operations, financial position and cash flows in a particular period could be materially affected by these contingencies.
|