Debt

Convertible Promissory Notes

In 2017, the Company issued $14.7 million of convertible promissory notes (the “2017 Notes”) to holders of Series C-1 redeemable convertible preferred stock (“Series C-1”). The 2017 Notes bore interest at the rate of 8% per annum. Upon a subsequent equity financing of at least $10.0 million prior to the stated maturity date, the 2017 Notes plus accrued interest would automatically convert into shares of the stock issued by the Company in such financing at a price equal to 80% of the lowest issue price.

The 2017 Notes could have converted into a variable number of shares of preferred stock, and accordingly, the Company determined the conversion provision to be a redemption feature. The redemption feature was evaluated as an embedded derivative and bifurcated from the convertible promissory notes due to the substantial premium paid upon redemption and accounted for as a derivative instrument. Upon bifurcating the redemption feature, the Company recorded a debt discount of $3.0 million that was recognized in interest expense over the term of the 2017 Notes.

In connection with the 2017 Notes, the Company issued warrants to the noteholders to purchase 304,397 shares of Series C-1. The warrants were exercisable for $0.12 per share and expired upon the earlier of (1) the date of the initial closing of a liquidation event, as defined, (2) the closing of a firm commitment underwritten initial public offering, or (3) January 2024. All warrants were exercised in connection with the closing of the Company’s IPO. The Company recorded a debt discount of $1.7 million, which represented the estimated fair value of the warrants, upon issuance of the 2017 Notes, which was being amortized to interest expense over the term of the 2017 Notes using the effective-interest method.

In August 2018, the Company sold 1,842,959 shares of Series D redeemable preferred stock (“Series D”) to new and existing investors at a price of $9.659 per share for net proceeds of $17.7 million and issued warrants to purchase 368,582 shares of Series C-1 at an exercise price of $0.12 per share (the “Series D Financing”). Concurrent with the Series D Financing, all of the Company’s previously outstanding 2017 Notes, including accrued interest thereon, were converted into 2,080,209 shares of Series D.

Interest expense, including the debt discount related to the 2017 Notes, was $3.4 million for the year ended December 31, 2018.

Term Loans

October 2017 Loan Agreement with Silicon Valley Bank

In October 2017, the Company entered into a Loan and Security Agreement (“SVB Loan”) with Silicon Valley Bank (“SVB”), pursuant to which the Company could borrow up to $7.5 million, issuable in three separate tranches (“Growth Capital Advances”) of $3.5 million (“Tranche A”), $2.0 million (“Tranche B”) and $2.0 million (“Tranche C”). Each of the Growth Capital Advances were available upon the achievement of certain clinical and regulatory milestones. Under the terms of the SVB Loan, as amended, the Company was required to make interest-only payments through December 31, 2018, followed by an amortization period of 24 months of equal monthly payments of principal plus interest amounts until paid in full. The maturity date of the SVB Loan was December 31, 2020.

In connection with the SVB Loan, the Company issued to SVB a warrant to purchase 49,713 shares of Series C-1 at an exercise price of $9.659 per share, which became exercisable for common stock following the IPO. The warrant is immediately exercisable and expires on October 18, 2027. The Company was required to make a final payment equal to 7% of the original aggregate principal amount of the Growth Capital Advances at maturity. In November 2017, the Company drew $3.5 million from Tranche A.

The Company had the option to prepay all, but not less than all, of the borrowed amounts, provided that the Company would have been obligated to pay a prepayment fee equal to (a) 3.0% of the outstanding principal balance of the applicable Growth Capital Advances if prepayment was made prior to the first anniversary of the effective date of the SVB Loan, (b) 2.0% of the outstanding principal balance of the applicable Growth Capital Advances if prepayment was made by the second anniversary of the effective date of the SVB Loan or (c) 1.0% of the outstanding principal balance of the applicable Growth Capital Advances if prepayment was made after the second anniversary of the effective date of the SVB Loan.

The Company repaid the outstanding principal balance and accrued portion of the final payment under the SVB Loan in full using the first tranche from the new term loan entered into in March 2019 ("the 2019 Loan").

March 2019 Loan Agreement with Silicon Valley Bank and WestRiver Innovation Lending Fund VIII, L.P.

In March 2019, the Company entered into the 2019 Loan with SVB and WestRiver Innovation Lending Fund VIII, L.P. (“WestRiver”), pursuant to which the Company could borrow up to $15.0 million, issuable in three separate tranches (“Advances”), of $7.5 million (“Tranche 1”), which was issued upon execution of the 2019 Loan, $2.5 million, which was issued in May 2019 (“Tranche 2”) and $5.0 million, which was issued in October 2019 (“Tranche 3”), which the Company was required to draw upon the achievement of certain regulatory milestones (the “Tranche 3 Milestones”).

The maturity date of the 2019 Loan is March 1, 2023. Under the terms of the 2019 Loan, the Company is to make interest-only payments through June 30, 2020 with respect to Tranche 1, Tranche 2 and Tranche 3 at a rate equal to the greater of the Prime Rate plus 1.00%, as defined in the 2019 Loan, or 6.5%, followed by an amortization period of 33 months of equal monthly payments of principal plus interest until paid in full. In addition to and not in substitution for the Company’s regular monthly payments of principal plus accrued interest, the Company is required to make a final payment equal to 6% of the aggregate principal amount of the advances (“Final Payment”) on the maturity date.

Upon execution of the 2019 Loan and the draw of Tranche 1, the Company issued to SVB and WestRiver warrants to purchase an aggregate of 37,606 shares of common stock with an exercise price of $4.73 per share. In May 2019, upon the draw of Tranche 2, the Company issued to SVB and WestRiver warrants to purchase an aggregate of 12,130 shares of common stock with an exercise price of $10.86 per share. In October 2019, upon the draw of Tranche 3, the Company issued to SVB and WestRiver warrants to purchase an aggregate of 24,262 shares of common stock with an exercise price of $3.88 per share. All warrants are immediately exercisable and expire ten years from the date of issuance.

Upon execution of the 2019 Loan, the Company drew $7.5 million from Tranche 1 and repaid the outstanding principal balance and the accrued portion of the Final Payment of the SVB Loan.

The Company’s obligations under the 2019 Loan are secured by a first-priority security interest in substantially all of the Company’s current and future assets. The Company is also obligated to comply with various other customary covenants, including restrictions on the Company’s ability to encumber its intellectual property assets.

The Company recorded a debt discount of $0.4 million for the estimated fair value of warrants and debt issuance costs upon the borrowing of Tranches 1, 2 and 3, which is being amortized to interest expense over the term of the 2019 Loan using the effective-interest method. Interest expense, including amortization of debt discount related to the term debt, totaled $1.1 million and $0.6 million for the years ended December 31, 2019 and 2018, respectively. The balance of the Final Payment liability was $0.2 million as of December 31, 2019 and is included in other long-term liabilities on the balance sheet. The Company is in compliance with all covenants under the 2019 Loan as of December 31, 2019.

Based on a 39-month amortization of the outstanding principal amounts for the 2019 Loan, the following table sets forth by year the Company’s required future principal payments as of December 31, 2019 (in thousands):



Years Ending December 31,
2020	$	2,528
2021	5,316
2022	5,677
2023	1,479
Thereafter	—
Total principal payments	15,000
Less unamortized loan fees	(296		)
Total term loan borrowings	$	14,704