Note Payable

6 Months Ended

Jun. 30, 2022

Debt Disclosure [Abstract]

Note Payable

8. Note Payable

On October 29, 2019 (the “Closing Date”), the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Hercules Capital, Inc. (“Hercules”) pursuant to which a term loan in an aggregate principal amount of up to $50,000 (the “Original Credit Facility”) was available to the Company in three tranches, subject to certain terms and conditions. The first tranche of $25,000 was advanced to the Company on the Closing Date. The Company did not meet the milestone requirements for the second tranche under the Original Credit Facility, and as such, the additional amount up to $12,500 was not available for the Company to borrow. The Company elected not to borrow the third tranche of $12,500, which was available upon Hercules’ approval until June 30, 2021.

Effective as of February 24, 2022 (the “Effective Date”), the Company entered into a Second Amendment to the Loan and Security Agreement (the “Second Amendment”), with the lenders party thereto (the “Lenders”), and Hercules in its capacity as the

administrative agent and the collateral agent for the Lenders, which amended the Original Credit Facility. Pursuant to the Second Amendment, term loans in an aggregate principal amount of up to $100,000 (the “New Credit Facility”) became available to the Company in five tranches, subject to certain terms and conditions.

The first tranche in an aggregate principal amount of $25,000 was outstanding as of the Effective Date, after taking into account reborrowing by the Company on the Effective Date of a previously-repaid principal amount of approximately $2,900. The second tranche in an aggregate principal amount of $12,500 and the third tranche in an aggregate principal amount of $12,500 have been advanced to the Company and were outstanding as of the Effective Date. The fourth tranche in an aggregate principal amount of $25,000 is available upon satisfaction of certain conditions, including the approval by the FDA of a biologics license application in respect of SER-109 (the "Regulatory Approval Milestone") by no later than December 15, 2023. The fifth tranche in an aggregate principal amount of up to $25,000 is available through the Amortization Date (as defined below) upon satisfaction of certain conditions, including the Lenders’ investment committee approval.

All advances outstanding under the New Credit Facility will bear interest at a rate equal to the greater of either (i) the Prime Rate (as reported in The Wall Street Journal) plus 6.40%, and (ii) 9.65%. For all advances outstanding under the New Credit Facility, the Company will make interest only payments through December 31, 2023, extendable to December 31, 2024 upon satisfaction of certain conditions (such applicable date, the “Amortization Date”). The principal balance and interest of the advances will be repaid in equal monthly installments after the Amortization Date and continuing through October 1, 2024, extendable to October 1, 2025, upon satisfaction of certain conditions (such applicable date, the “Maturity Date”).
 

The Company may prepay advances under the New Credit Facility, in whole or in part, at any time subject to a prepayment charge equal to: (a) 2.0% of amounts so prepaid, if such prepayment occurs during the first year following the Effective Date; (b) 1.5% of the amount so prepaid, if such prepayment occurs during the second year following the Effective Date, and (c) 1.0% of the amount so prepaid, if such prepayment occurs during the third year following the Effective Date.
 

The Company will pay an end of term charge of 4.85% of the aggregate amount of the advances made under the Original Credit Facility on the earliest date of (i) November 1, 2023; (ii) the date that the Company prepays all of the outstanding principal in full, or (iii) the date the loan payments are accelerated due to an event of default. The Company will pay an additional end of term charge of 1.75% of the aggregate amount of the advances under the New Credit Facility (including the first tranche of $25,000) on the earliest date of (i) the Maturity Date; (ii) the date that the Company prepays all of the outstanding principal in full, or (iii) the date the loan payments are accelerated due to an event of default.
 

Other terms of the New Credit Facility remain generally identical to those under the Original Credit Facility, with certain covenants amended by the Second Amendment to provide the Company with additional operational flexibility, including the ability for the Company to issue up to $350,000 in convertible notes. The New Credit Facility includes a conditional liquidity covenant commencing on June 15, 2023, which ceases to apply if certain conditions are satisfied.
 

The New Credit Facility is secured by substantially all of the Company’s assets, other than the Company’s intellectual property. The Company has agreed to not pledge or secure its intellectual property to others.
 

The Company accounted for the New Credit Facility as a modification in accordance with the guidance in ASC 470-50, Debt. Amounts paid to the lenders were recorded as debt discount and a new effective interest rate was established. Upon issuance, the New Credit Facility was recorded as a liability with an initial carrying value of $50,586, net of debt issuance costs. The initial carrying value will be accreted to the repayment amount, which includes the outstanding principal plus the end of term charge, through interest expense using the effective interest rate method over the term of the debt. The effective interest rate in effect as of June 30, 2022 is 12.40%. As of June 30, 2022, the carrying value of the debt is $50,632, which is classified as a long-term liability on the condensed consolidated balance sheet. As of December 31, 2021, the carrying value of the debt was $24,643, which was classified as a long-term liability on the condensed consolidated balance sheet.

As of June 30, 2022 the future principal payments due under the arrangement, excluding interest and the end of term charge, are as follows (in thousands):

Year Ending December 31,	Principal
2022 (remaining 6 months)	$	—
2023		—
2024		50,000
Total	$	50,000

During the three and six months ended June 30, 2022 and 2021, the Company recognized $1,501, $2,413, $732 and $1,453, respectively, of interest expense related to the Loan Agreement, which is reflected in interest expense on the condensed consolidated statement of operations and comprehensive (loss) income.