On February 4, 2022, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Hercules in its capacity as administrative agent and collateral agent, and Hercules and SVB as lenders. The Loan Agreement was subsequently amended on March 17, 2022 and June 15, 2022 (the "Amended Loan Agreement").

The Amended Loan Agreement provides for up to $80.0 million in borrowing capacity (the “Term Loans”) available in four tranches. The first tranche consists of a Term Loan in an aggregate principal amount of $30.0 million, all of which was funded to the Company on the closing date. The Company intends to use the proceeds of the Term Loans for working capital and general corporate purposes.

The second tranche, not to exceed $20.0 million, is available for draw at the Company’s option beginning September 1, 2022, and on or prior to March 31, 2023, subject to the terms of the Amended Loan Agreement and the tranche two draw test, defined as the achievement by the Company of net product revenue of at least $75.0 million, measured on a trailing six-month basis as of the Company’s most recent financial statements provided to the lenders. Loan advances under tranche two will be made in increments of $5.0 million. The third tranche of up to $15.0 million will be available for draw on or prior to June 15, 2023, subject to the terms of the Amended Loan Agreement and the tranche three draw test, defined as the achievement by the Company of net product revenue of at least $250.0 million, measured on a trailing twelve-month basis as of the Company’s most recent financial statements provided to the lenders. Loan advances under the third tranche will be made in increments of $5.0 million. The fourth tranche of up to $15.0 million will be available for draw on or prior to March 15, 2024, subject to the terms and conditions of the Amended Loan Agreement and approval by the investment committees of each of the lenders.

The Term Loans will mature on February 1, 2026 and bear interest at an annual rate the greater of 5.50% plus the prime rate (as reported in the Wall Street Journal) and 8.75%. As of June 30, 2022, the interest rate was 10.25%. For the three and six months ended June 30, 2022, the Company recorded $0.9 million and $1.4 million, respectively, of interest expense related to the Term Loans, which included $0.2 million and $0.3 million, respectively, of non-cash interest related to the amortization of the loan discount. The Term Loans are interest only, paid monthly, up to September 1, 2024, after which the interest-only period may be extended, provided there has been no event of default or a continuing event of default and the Company has submitted sufficient evidence, satisfactory to the lenders, that the Company has achieved the tranche three draw test. After the interest only period, monthly principal and interest payments are required over the remaining term of the loans to the maturity date. The Company may prepay all or a portion of the outstanding term loan advances including principal and accrued and unpaid interest, subject to a prepayment fee of 3% of the principal advance being prepaid if within 12 months of the initial advance closing date, 2% if within 24 months of the advance closing date and 1% if within 36 months of the advance closing date. An end of term charge of 5.25% of the Term Loans advanced will be due upon prepayment or repayment.

The Amended Loan Agreement contains customary events of default, representations and warranties and covenants, including financial covenants requiring the Company to maintain certain minimum cash and revenue levels upon the occurrence of specified events. As of June 30, 2022, the Company was in compliance with the financial covenants of the Amended Loan Agreement. Lenders have participation and notice rights in an amount up to $5.0 million for the future sale and issuance of the Company’s capital stock that is broadly marketed to multiple investors.

The Company has granted a senior security interest in all of the Company’s right, title, and interest in, to and under substantially all of Company’s personal property and other assets, excluding intellectual property. Notwithstanding the foregoing, the Company’s intellectual property will automatically be included within the assets securing the Term Loans to the extent necessary to permit perfection of the Lender’s security interests for rights to payment and proceeds from the sale, licensing or disposition of the Company’s intellectual property (the “Rights to Payment”) if a judicial authority holds that a security interest in the Rights to Payment requires a security interest in the underlying intellectual property.

In connection with entering into the Loan Agreement, the Company issued warrants to Hercules (the “Hercules Warrant”) and to SVB (the “SVB Warrant” and together with the Hercules Warrant, the “Warrants”). The number of shares of the Company’s common stock subject to the Hercules Warrant is equal to the quotient derived by dividing the amount equal to 1.00% times the aggregate principal amount of term loan advances made and funded under the Loan Agreement by the exercise price of $5.03 per share. The number of shares of the Company’s common stock subject to the SVB Warrant is equal to 1.00% multiplied by the aggregate amount of the term loan advances made and funded under the Loan Agreement divided by the $5.03 per share. In conjunction with the first tranche advance of $30.0 million, SVB and Hercules each hold Warrants to purchase 59,642 shares of the Company’s common stock. Each warrant is exercisable for a period of seven years from issuance at a per-share exercise price equal to $5.03. The Warrants, which met equity classification, were recognized as a component of permanent stockholders’ equity within additional paid-in-capital on the condensed balance sheets and were recorded at the issuance date using a relative fair value allocation method. The Company valued the Warrants at issuance, which resulted in a discount on the Term Loan, and allocated the proceeds from the loan proportionately to the Term Loan and to the Warrants, of which $0.5 million was allocated to the Warrants.

The Company determined the fair value of the Warrants as of February 4, 2022 using the Black-Scholes option pricing model and applying the following assumptions:


Fair value of common stock	$	5.15
Expected term (in years)		7.0
Risk-free interest rate		1.9	%
Dividend yield		—
Volatility		92.6	%

Because the Company does not have sufficient trading price history of its common stock, the volatility was based on historical trading price of a select peer group of publicly traded companies.

In connection with entering into the Loan Agreement, the Company incurred $1.2 million of debt issuance costs, including commitment and legal fees in connection with the Loan Agreement, fees paid directly to the lenders and other direct third-party costs. Total issuance costs also include the fair value allocated to the Warrants and the end of term fee of $1.6 million, for $3.3 million of issuance costs. The Company allocated $2.7 million of the total issuance costs to the first term loan advance and recorded the issuance costs as unamortized discount, which is being amortized to non-cash interest expense over the term of the loan using the effective interest method. The remaining $0.6 million of issuance costs associated with unfunded loan advances are recorded as other assets on the condensed balance sheets and will be allocated to debt discount as the future tranche is funded. If future available tranches are not funded, these debt issuance costs will be charged to interest expense in the period. The $1.6 million end of term fee is included in the contractual cash flows and is accreted to interest expense using the effective interest method over the term of the loan.

The effective interest rate on the Term Loans, including the discount and the accretion of the final end of term payment, was 12.51% as of June 30, 2022.

Balance sheet information related to the Term Loans is as follows:

(1) Balance includes $1.6 million final end of term fee, which represents 5.25% of the principal loan advance.

The Company has not elected to apply fair value accounting to the Term Loans as the Company believes the carrying value of the Term Loans approximates fair value based on the variable coupon rate, subject to adjustments to the prime rate as published by the Wall Street Journal. The Term Loans are considered a Level 2 in the fair value measurement hierarchy.

Interest expense, net of amounts capitalized is as follows:


	Three Months Ended June 30,					Six Months Ended June 30,
	2022			2021		2022			2021
Contractual coupon	$	716		$	—	$	1,127		$	—
Amortization of debt discount and issuance costs		191			—		308			—
Total interest expense on the Term Loan		907			—		1,435			—
Other interest expense		28			—		37			—
Capitalized interest		(109	)		—		(109	)		—
Interest expense, net	$	826		$	—	$	1,363		$	—

The Annual principal payments on the Term Loans are as follows:


Year ending December 31,
2022	$	—
2023		—
2024		7,059
2025		21,176
2026		3,340
Total principal payments	$	31,575

June 30, 2022

Tranche 1 of Term Loans (1)

Less: Unamortized debt discount and issuance costs

Carrying value of Term Loans, non-current