Debt

3 Months Ended

Mar. 31, 2025

Debt Disclosure [Abstract]

Debt

7. Debt

K2 HealthVentures Loan and Security Agreement

In July 2022, the Company entered into a loan and security agreement (as amended, the “Loan Agreement”) with K2 HealthVentures LLC (together with its affiliates, “K2HV”, and together with any other lender from time to time party thereto, the “Lenders”), as administrative agent for the Lenders, and Ankura Trust Company, LLC, as collateral agent for the Lenders. The Loan Agreement provides up to $50.0 million principal in term loans (the “Term Loan”) consisting of a first tranche of $30.0 million funded at closing and a subsequent second tranche of up to $20.0 million upon the Company’s request before March 1, 2025, subject to review by the Lenders of certain information from the Company and discretionary approval by the Lenders.

In connection with entering into the Loan Agreement, the Company also issued to K2HV a warrant to purchase shares of common stock (see Note 8), which was an incremental cost to the Loan Agreement; thus, the allocated fair value of the warrant was recorded as part of the debt issuance cost.

In March 2024, the Company entered into an amendment to the Loan Agreement with K2HV (the “Loan Agreement Amendment”), pursuant to which: (i) the amortization date of the Term Loan provided under the Loan Agreement was amended from March 1, 2025 to June 1, 2026; (ii) the Company issued to K2HV an additional warrant to purchase shares of common stock (the “Amendment Warrant”) (see Note 8); (iii) upon the Lenders’ Conversion Election (as defined below), designated holders could have also received the Conversion Warrant (as defined below); and (iv) the Company paid an amendment fee of $0.2 million.

The Term Loan’s maturity date was August 1, 2026, with interest-only payments until June 1, 2026, and thereafter interest and principal payments for the remaining three months. Its variable interest rate equaled the greater of (i) 7.95% and (ii) the sum of (A) the prime rate last quoted in The Wall Street Journal (or a comparable replacement rate, as determined by the Lenders, if The Wall Street Journal ceases to quote such rate) and (B) 3.20%. Upon the final payment under the Loan Agreement Amendment, the Lenders were entitled to an end of term charge equal to 6.45% of the aggregate original principal amount of the Term Loan made pursuant to the Loan Agreement Amendment. The final payment fee was accreted and amortized into interest expense using the effective interest rate method over the term of the loan.

The Company had, at its option, the right to prepay all, but not less than all, of the outstanding principal balance and all accrued and unpaid interest with respect to the principal balance being prepaid of the Term Loan, subject to a prepayment premium as follows: 3% of the loan amounts prepaid if such prepayment occurred in the first year after funding; 2% if such prepayment occurred in the second year after funding; 1% if such prepayment occurred in the third year after funding; and 0% thereafter. The Company prepaid the outstanding principal balance of the Term Loan in May 2025 (see Note 14).

The Lenders could have elected at any time following the closing and prior to the full repayment of the Term Loan to convert any portion of the principal amount of the Term Loan then outstanding, up to an aggregate of $3.25 million in principal amount, into shares of the Company’s common stock, $0.0001 par value per share, and a warrant to purchase an equal number of shares of the Company’s common stock (the “Conversion Warrant”), at a conversion price of $2.25, subject to customary 19.99% Nasdaq beneficial ownership limitations (the “Conversion Election”). The Company also granted registration rights to the Lenders with respect to shares received upon such conversion.

Further, the Lenders could have elected to invest up to $5.0 million in future equity financings of the Company, provided such investment was limited to no more than 10% of the total amount raised in such equity financing.

The Loan Agreement contained customary representations and warranties, events of default and affirmative and negative covenants, including covenants that limited or restricted the Company’s ability to, among other things, dispose of assets, make changes to the Company’s business, management, ownership or business locations, merge or consolidate, incur additional indebtedness, pay dividends or other distributions or repurchase equity, make investments, and enter into certain transactions with affiliates, in each case subject to certain exceptions. The Loan Agreement also contained covenants requiring that the Company maintain cash, cash equivalents and marketable securities balance of at least $25.0 million so long as the Company’s total market capitalization is less than $250.0 million.

As security for its obligations under the Loan Agreement, the Company granted the Lenders a first priority security interest on substantially all of the Company’s assets (other than intellectual property), subject to certain exceptions.

The Company analyzed the Loan Agreement Amendment under ASC 470-50 to determine if extinguishment accounting was applicable. Under ASC 470-50-40-10, debt instruments are considered to be substantially different if a modification or an exchange affects the terms of a conversion option, from which the change in the fair value of the conversion option is at least 10% of the carrying amount of the original debt instrument immediately before the modification or exchange. Since the change of the fair value of the conversion option exceeded 10% upon the execution of the Loan Agreement Amendment, the Company determined the modification to be substantive, and extinguishment accounting was applicable. In accordance with the extinguishment accounting guidance, the Company recorded $0.9 million as loss on extinguishment of debt, which represents unamortized debt issuance costs of the original loan as of the amendment date (including the

unamortized allocated fair value of the warrant issued to K2HV in connection with entering into the Loan Agreement), new lender fees, and the fair value of the Amendment Warrant upon issuance.

As of March 31, 2025, the effective interest rate is 11.83% for the first tranche of the Term Loan.

The book value of debt approximates its fair value given the variable interest rate. Long-term debt and the unamortized discount balances are as follows (in thousands):

	March 31, 2025		December 31, 2024
Outstanding principal amount	$	30,000	$	30,000
Add: accreted liability of final payment fee		1,253		1,134
Long-term debt, net of discount	$	31,253	$	31,134

The Company’s total interest expenses were $0.9 million and $1.0 million for the three months ended March 31, 2025 and 2024, respectively. Interest expense is recorded in the Interest income, net line item in the condensed consolidated statements of operations and comprehensive loss. The following summarizes the components of total interest expense (in thousands):

	Three months ended March 31,
	2025		2024
Interest paid or accrued	$	803	$	887
Non-cash amortization of debt discount (including warrants)		—		38
Non-cash accrued back-end fee		119		123
	$	922	$	1,048

Scheduled future principal payment on total outstanding debt as of March 31, 2025, are as follows (in thousands):

Year Ending December 31,
2025 (remainder of the year)	$	—
2026		30,000
	$	30,000