Term loan debt

3 Months Ended

Mar. 31, 2024

Debt Disclosure [Abstract]

Term loan debt

Term loan debt

2024 Term Loan

On March 15, 2024 (the “Effective Date”), the Company entered into a Loan and Security Agreement (the “LSA”) and a Warrant Agreement (the “Warrant Agreement”) with Hercules Capital and funds managed by Hercules Capital (collectively, “Hercules” or “the lenders”). Under the terms of the LSA, the Company may borrow up to an aggregate principal amount of $175.0 million over the term of the agreement, in four separate tranches (the “Term Loans”) dependent on the achievement of certain milestones. On the Effective Date, the Company drew down the initial $75.0 million of gross proceeds (“Initial Loan”), and paid initial debt issuance costs of $3.5 million, inclusive of legal fees of approximately $2.7 million and the original issuance discount (“OID”) of $0.8 million, or 1% of the drawn amount, in accordance with the terms of the LSA. Additional amounts are available to borrow in two separate $25.0 million tranches based on the Company meeting certain pre-defined milestone achievements associated with cell collection from LYFGENIA patients (35 patients on or before September 30, 2024 or 55 patients on or before December 31, 2024) (“Tranche 2”) and compliance with a gross profit metric (no later than the period ending June 30, 2025) (“Tranche 3”). Additionally, the Company may request up to an additional $50.0 million through December 15, 2026 from Hercules (“Tranche 4”). The lenders have no obligation to fund any amounts under Tranche 4 as funding is conditioned on approval by the lenders’ investment committee.

The Term Loans bear both cash interest and paid-in-kind interest (“PIK”). The cash interest is due on the first business day of each month (“Payment Date”) and will be equal to the WSJ prime rate (“prime rate”) plus 1.45% (floored at 9.95%). The PIK interest is fixed at 2.45% and is to be capitalized and added to the outstanding principal on each Payment Date. Unless prepaid by the Company at their discretion, subject to certain prepayment penalties and conditions, the Term Loans are repayable in monthly interest-only payments until April 1, 2027, or April 1, 2028, if the Company has achieved, no later than December 31, 2026, certain financial metrics (the “Performance Milestone”). After the expiration of the interest-only payment period, the Term Loans are repayable in equal monthly payments of principal and accrued interest until maturity. The Term Loans will mature on April 1, 2029.

The 2024 Term Loan is collateralized by substantially all the Company’s assets. In addition to other covenants, the 2024 Term Loan contains affirmative covenants as well as certain financial covenants, including a minimum cash coverage requirement of 40% of the outstanding principal of the term loan and a minimum net product revenue requirement that commences with the quarter ending September 30, 2024. The Company was in compliance with the minimum cash coverage covenant as of March 31, 2024, but the Company projects that it will not maintain its minimum cash coverage requirement within the next 12 months (see the Company's going concern assessment in Note 1, Description of the business). As such, the term loan is presented as a current liability as of March 31, 2024.

The Company also issued warrants under the Warrant Agreement for the right to purchase shares of the Company’s common stock to Hercules, with the number of shares to be based on the amounts borrowed under the LSA (the “Warrants”). The Warrants are exercisable for a number of shares of common stock equal to the quotient of (i.) 5% times the aggregate original principal of amounts drawn under the LSA divided by (ii.) the exercise price of $1.45 per share. As of March 31, 2024, the Company had issued 2.6 million warrants associated with the Initial Loan (“Initial Warrants”) to purchase common stock at an exercise price of $1.45 per share and a contractual life of 7 years from the Effective Date.

The Warrants have been recorded at their relative fair value using the Black-Scholes option-pricing model and the following assumptions: no dividend yield, expected volatility of 81.1%, risk free rate of 4.3%, and expected term of 7 years, equal to the life of the warrant. The relative fair value allocated to the initial warrants was $2.7 million, which was classified as additional-paid-in-capital and recorded as a debt discount which will be amortized, together with debt issuance costs, to interest expense using the effective interest method over the life of the loan at an effective interest rate of 15.7%. For the period ended March 31, 2024, the Company recorded approximately $0.5 million in interest expense associated with the Term Loans, inclusive of amounts related to the Warrants.

Refer to Note 16, Subsequent Events, for further discussion on the amendments to the LSA and the Warrant Agreement subsequent to the three months ended March 31, 2024.