Indebtedness

12 Months Ended

Dec. 31, 2021

Debt Disclosure [Abstract]

Indebtedness

12. Indebtedness

On September 30, 2019 (the Hercules Closing Date), the Company entered into a Loan and Security Agreement (the Loan Agreement) with Hercules pursuant to which a term loan in an aggregate principal amount of up to $75.0 million (the Term Loan Facility) was available to the Company in four tranches, subject to certain terms and conditions. Ten million of the first tranche was advanced to the Company on the Hercules Closing Date, and an additional $15.0 million under the first tranche was drawn down on July 24, 2020. Under the Loan Agreement, there were three additional tranches available to the Company of $10.0 million (tranche two), $10.0 million (tranche three), and $30.0 million (tranche four). As of December 31, 2021, tranche two and three had expired. The total principal available under the Term Loan Facility as of December 31, 2021 was $85.0 million.

Upon issuance, the initial advance under the first tranche was recorded as a liability with an initial carrying value of $9.5 million, net of debt issuance costs. The July 24, 2020, advance under the first tranche was recorded as a liability with an initial carrying value of $15.0 million. The initial carrying value of all outstanding advances is 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 loan.

Effective September 17, 2021, or the Second Hercules Closing Date, the Company amended the Loan Agreement with Hercules (the Amended Loan Agreement), increasing aggregate principal amount available from $75.0 million under the Term Loan Facility to $85.0 million (the Amended Term Loan Facility).

Under the Amended Term Loan Facility, a new tranche three of $10.0 million was established and is available immediately at the Company’s option through December 15, 2021. As of December 31, 2021 this tranche has expired. Tranche four was amended such that the $30.0 million available is now available through the interest only period, subject to future lender investment committee approval. Tranche five of up to $20.0 million was established under the Amended Loan Agreement and is available through September 30, 2023, upon satisfaction of certain clinical milestones. Tranche five is only available in minimum draws of $5.0 million.

Advances under the Amended Term Loan Facility bear interest at a rate equal to the greater of (i) 8.25% plus the Prime Rate (as reported in The Wall Street Journal) less 3.25%, and (ii) 8.25%. The interest only period under the Term Loan Facility was extended from November 1, 2022 to October 1, 2023 under the Amended Term Loan Facility and is further extendable to October 1, 2024 upon achievement of certain clinical milestones. Under the Amended Term Loan Facility, following the interest only period, the Company will repay the principal balance and interest on the advances in equal monthly installments through October 1, 2025, compared to October 1, 2024 under the Term Loan Facility.

The Company may prepay advances under the Amended Loan Agreement, in whole or in part, at any time subject to a prepayment charge (Prepayment Premium) equal to: (i) 2.0% of amounts so prepaid, if such prepayment occurs during the first year following the Second Hercules Closing Date, (ii) 1.5% of the amount so prepaid, if such prepayment occurs during the second year following the Second Hercules Closing Date, or (iii) 1.0% of the amount so prepaid, if such prepayment occurs after the second year following the Second Hercules Closing Date.

Upon prepayment or repayment of all or any of the term loans under the Term Loan Facility, the Company will pay (in addition to any Prepayment Premium) an end of term charge of 5.5% of the aggregate funded amount under the Term Loan Facility. With respect to the first tranche, an end of term charge of $1.4 million will be payable upon any prepayment or repayment.

The end of term charge of $1.4 million, or 5.5% of the $25.0 million of principal advanced under the Term Loan Facility, remains payable at the maturity date under the original term Loan Facility of October 1, 2024. To the extent that the Company is provided with additional advances under the Amended Term Loan Facility, the 5.5% end of term charge will be applied to any such additional amounts, payable on October 1, 2025, the amended maturity date of the Amended Term Loan Facility.

The Company evaluated the Amended Loan Agreement and Amended Term Loan Facility with Hercules, in accordance with the provisions of ASC 470. The Company concluded that terms under the Amended Loan Agreement were not substantially different from those under the original Loan Agreement and the Amended Loan Agreement should be accounted for prospectively.

The Amended Term Loan Facility remains secured by a lien on substantially all of the Company’s assets, other than the Company’s intellectual property. The Company has agreed not to pledge or grant a security interest on the Company’s intellectual property to any third party. The Amended Term Loan Facility also contains customary covenants and representations, including a liquidity covenant, whereby the Company is obligated to maintain, in an account covered by Hercules’ account control agreement, an amount equal to the lesser of: (i) 110% of the amount of the Company’s obligations under the Amended Term Loan Facility, or (ii) the Company’s then-existing cash and cash equivalents, financial reporting covenant and limitations on dividends, indebtedness, collateral, investments, distributions, transfers, mergers or acquisitions, taxes, corporate changes, deposit accounts, and subsidiaries.

The events of default under the Amended Loan Agreement include, without limitation, and subject to customary grace periods, the following: (i) any failure by the Company to make any payments of principal or interest under the Amended Loan Agreement, (ii) any breach or default in the performance of any covenant under the Amended Loan Agreement, (iii) the occurrence of a material adverse effect, (iv) any making of false or misleading representations or warranties in any material respect, (v) the Company’s insolvency or bankruptcy, (vi) certain attachments or judgments on the assets of the Company, or (vii) the occurrence of any material default under certain agreements or obligations of the Company’s involving indebtedness. If an event of default occurs, Hercules is entitled to take enforcement action, including acceleration of amounts due under the Amended Loan Agreement.

As of December 31, 2021 and December 31, 2020, the carrying value of the term loan was $25.4 million and $25.0 million, respectively, which is classified as a long-term liability on the Company’s condensed consolidated balance sheets as of each respective period. The fair value of debt is classified as Level 2 for the periods presented and approximates its carrying value.

The future principal payments under the Loan Agreement are as follows as of December 31, 2021 (in thousands):

Fiscal Year	PRINCIPAL
2022	$	-
2023		2,773
2024		11,680
2025		10,547
	$	25,000

During the years ended December 31, 2021 and 2020, the Company recognized $2.7 million and $1.9 million of interest expense related to the Loan Agreement, respectively, which is reflected as interest expense on the accompanying consolidated statements of operations and comprehensive loss.