Term loan debt

9 Months Ended

Sep. 30, 2024

Debt Disclosure [Abstract]

Term loan debt

Term loan debt

2024 Term Loan

On March 15, 2024 (the “Effective Date”), the Company entered into 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.

On August 13, 2024, the Company and Hercules entered into an amendment to the LSA (the “Third Amendment”), pursuant to which the parties agreed to, among other things, revised terms for the availability of the second and third tranches of funding under the LSA and an increase to the minimum cash coverage requirement. In accordance with the Third Amendment, the Company may draw the second tranche of $25.0 million during the period commencing on the date the Company has (x) received at least $75.0 million in gross cash proceeds from qualified financing transactions by December 20, 2024 and (y) completed patient starts (cell collections) for at least 50 LYFGENIA patients by March 31, 2025 or 70 LYFGENIA patients by June 30, 2025 (collectively, the “Tranche 2 Milestone”) and ending on the earlier of (i) the date that is 30 days immediately following achievement of the Tranche 2 Milestone and (ii) July 31, 2025. The Company may draw the third tranche of $25.0 million during the period commencing on the date the Company has (x) received at least $100.0 million in gross cash proceeds from qualified financing transactions by December 20, 2024 or at least $125.0 million by June 30, 2025 and (y) completed 70 drug product deliveries within a given six-month period ending no later than December 31, 2025, at least 40 of which are for LYFGENIA (collectively, the “Tranche 3 Milestone”) and ending on the earlier of (i) the date that is 30 days immediately following the date the Company achieves the Tranche 3 Milestone and (ii) December 31, 2025. 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 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 45% of the outstanding principal of the term loan. The Company was in compliance with the minimum cash coverage covenant as of September 30, 2024, but the Company projects that it may 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 September 30, 2024.

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 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.

Upon issuance, during the period ended March 31, 2024, the Warrants were 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%.

In connection with the Third Amendment, the Company agreed to amend the exercise price of the Warrants to purchase shares of the Company’s common stock from $1.45 per share to the lesser of the volume weighted average price (“VWAP”) of the Company’s common stock for the ten-day period preceding August 13, 2024 (determined to be $1.03), and the price per share of the Company’s first financing event within six months of the Third Amendment date, or February 13, 2025. As the modification only impacts the exercise price, the amendment does not impact the number of shares the lenders may purchase pursuant to the Warrants. As of September 30, 2024, the Company had issued 2.6 million warrants associated with the Initial Loan (“Initial Warrants”) to purchase common stock and a contractual life of 7 years from the Effective Date.

As a result of the Third Amendment, the price adjustment feature on the warrant exercise price is affected by variables that are extraneous to the pricing of a fixed-for-fixed option or forward contract on common shares, and therefore, the Initial Warrants were reclassified from additional paid-in-capital within stockholders' equity to other non-current liabilities on the Condensed Consolidated Balance Sheet (see Note 4, Fair value measurements). Upon modification of the warrants at the Third Amendment date, the Company recorded the incremental increase in fair value of $0.2 million as debt discount which will be amortized over the life of the Initial Loan at an effective interest rate of 16%. The fair value of the Initial Warrants was then remeasured to $1.0 million at the reporting date of September 30, 2024, resulting in a gain in the amount of $1.1 million recorded within other income, net, on the Condensed Consolidated Statement of Operations.

For the three and nine months ended September 30, 2024, the Company recorded approximately $2.8 million and $6.1 million in interest expense associated with the Term Loans, respectively, inclusive of amounts related to the debt discount.