DEBT

3 Months Ended

Mar. 31, 2024

Debt Disclosure [Abstract]

DEBT

DEBT

On November 10, 2023, the Company entered into a Loan and Security Agreement with K2 HealthVentures LLC (the “Loan Agreement”). The Loan Agreement provided the Company with a term loan facility (the “Term Loan”), in the aggregate principal amount of $50 million, of which the Company borrowed $30 million in the first tranche upon closing. The remaining $20 million is available for borrowing upon the Company’s request based on review of certain information and discretionary approval from the lenders. The Loan Agreement bears interest per annum at the greater of (i) 9.65% or (ii) the sum of the prime rate last quoted in The Wall Street Journal plus 1.15% for such interest period and the principal amount of the Term Loan outstanding under the Loan Agreement. The Term Loan matures on November 1, 2027, and can be extended to November 1, 2028, if the Company achieves certain financing milestones. The Loan Agreement provides for a final payment fee of an additional $1.6 million (the “Final Payment”) due upon repayment of the Term Loan.

The principal and interest of the Term Loan are to be repaid in equal monthly installments beginning on July 1, 2026 through the maturity of the Loan Agreement. The Loan Agreement allows prepayment of the entire Term Loan or a portion

of the Term Loan of more than $5 million, provided that any partial prepayment will leave outstanding borrowings of at least $15 million.

The lenders can elect to convert up to $2.5 million of the Term Loan (the “Conversion Amount”) into the Company’s common stock at a conversion price of $2.53 (the “Conversion Option”). If the lenders elect to convert the Conversion Amount upon the Next Qualified Financing, as defined in the Loan Agreement whereby the Company receives aggregate gross proceeds of at least $20 million, the conversion price will equal the lowest effective cash price per share of securities issued in such Qualified Financing (the “Share-Settled Redemption”). The Conversion Option and Share-Settled Redemption within the Loan Agreement are required to be bifurcated as a single compound embedded derivative (the “Embedded Derivatives”) at fair value, with subsequent changes in fair value recognized in the statements of operations and comprehensive loss.

In accordance with the Loan Agreement, the Company issued an equity-classified warrant to purchase 730,769 shares of common stock (the “Loan Warrant”), with an initial allocated fair value of $1.1 million. See additional discussion in Note 8. Stockholders’ Equity.

The initial recognition of the direct fees of $0.5 million, the Final Payment of $1.6 million, the initial fair value of the Embedded Derivatives of $1.2 million and the fair value of the Loan Warrant of $1.1 million for the Loan Agreement resulted in a discount of $4.4 million, which is being amortized to interest expense over the term of the Loan Agreement using the effective interest method.

Outstanding debt consisted of the following (in thousands):

	March 31, 2024		December 31, 2023
Principal value of Term Loan, including Final Payment of $1,635	$	31,635	$	31,635
Fair value of bifurcated embedded derivatives	2,610		2,560
Unamortized debt discount	(4,036)		(4,298)
Total debt, long-term	$	30,209	$	29,897

The following table provides the components of interest expense (in thousands):

	Three Months Ended March 31, 2024
Interest expense based on the coupon interest rate of the outstanding debt	$	732
Accretion of debt discount	262
Total interest expense related to debt	$	994

For the three months ended March 31, 2024, the effective interest rate for the Term Loan was 13.4%.

As of March 31, 2024, the aggregate principal payments due for the Term Loan by year are as follows (in thousands):

Year ended December 31, 2026	$	10,104
Year ended December 31, 2027	21,531
Total principal payments due for Term Loan	$	31,635

The obligations of the Company under the Loan Agreement are secured by substantially all of the assets of the Company, excluding the Company’s intellectual property.