Indebtedness

6 Months Ended

Jun. 30, 2022

Debt Disclosure [Abstract]

Indebtedness

8. 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. On the Hercules Closing Date, $10.0 million of the first tranche was advanced to the Company 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 June 30, 2022, tranches two, three and four had expired.

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 (the "Amended 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 was available through December 15, 2021. Tranche four was amended such that $30.0 million 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 the 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.

Prepayments on Amended Loan Agreement, in whole or in part, at any time are 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 Amended Closing Date, (ii) 1.5% of the amount so prepaid, if such prepayment occurs during the second year following the Amended Closing Date, or (iii) 1.0% of the amount so prepaid, if such prepayment occurs after the second year following the Amended Closing Date.

Additionally, upon prepayment or repayment of all or any of the term loans under the Amended Term Loan Facility, the Company will pay an end of term charge of 5.5% of the aggregate funded amount under the Term Loan Facility. The end of term charge of $1.4 million, or 5.6% 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.

The terms under the Amended Loan Agreement were not substantially different from those under the original Loan Agreement and the Amended Loan Agreement will 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 June 30, 2022 and December 31, 2021, the carrying value of the Term Loan Facility was $25.6 million and $25.4 million, respectively, which was classified as a long-term liability. The fair value of debt was classified as Level 2 for the periods presented and approximates its carrying value due to the variable interest rate.

The future principal payments under the Amended Loan Agreement are as follows as of June 30, 2022 (in thousands):

Fiscal Year	PRINCIPAL
2022	$	—
2023		2,733
2024		11,620
2025		10,647
	$	25,000

During the three months ended June 30, 2022 and 2021, the Company recognized $0.6 million and $0.7 million of interest expense related to the Amended Loan Agreement, respectively. During the six months ended June 30, 2022 and 2021, the Company recognized $1.3 and $1.4 million of interest expense related to the Amended Loan Agreement, respectively.