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Vivus Piles New Debt On Top Of Excuses (Updated)

Updated with new information on the amount of money Vivus must repay on its loan.

MOUNTAIN VIEW, Calif. ( TheStreet) -- When is a $110 million loan not considered debt? When it's struggling obesity pill marketer Vivus (VVUS - Get Report) that's doing the borrowing.

Vivus can call Tuesday's deal whatever it wants -- a "synthetic capped royalty financing" or a "non-dilutive capital" raise that is "innovative" and "structured to allow maximum flexibility." Whatever. Just don't be fooled. Vivus took out a loan for $110 million and the creditor -- Pharmakon Advisors -- expects to be repaid. You might be shocked at how much Pharmakon will receive back from Vivus.

Under terms of the loan (let's call it what it really is, please), Vivus will borrow $50 million immediately and can elect to borrow another $60 million before the end of the year. In return, Vivus is required to pay back the loan in quarterly installments starting in the second quarter of 2014, with the final amount of the scheduled payments tied to net sales of the weight-loss pill Qsymia.

Vivus doesn't make it easy to find the loan repayment schedule, it's stashed inside an exhibit to an 8-K filed today. But for the $48.9 million in net cash (minus fees) that Vivus receives from the first tranche of the loan, the company will be repay a minimum of $70.7 million to Pharmakon. The final amount could be higher if Qsymia doesn't reach specific sales targets.

Sounds like a lot of money for Vivus to repay, and it is. The implied interest rate on the loan is more than 13%, I'm told, not exactly usurious but well above the mid-single digit interest rates of other corporate debt. On the other hand, i'm also told that Vivus alternative financing option -- raising more money through the sale of stock -- would have been very dilutive and even more expensive as measured by the company's cost of capital.

To secure the debt, Vivus granted Pharmakon Advisors "patents, trademarks, copyrights and regulatory filings related to the Product." The "Product" is Qsymia. So, if Vivus defaults, Pharmakon gets basically everything of value.
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