Quarterly report pursuant to Section 13 or 15(d)

Borrowing Arrangements

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Borrowing Arrangements
9 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
Borrowing Arrangements

NOTE 8 — BORROWING ARRANGEMENTS

Perceptive Credit Facility

 

On February 27, 2018, the Company entered into a term loan facility with Perceptive Credit Holdings II, LP (“Perceptive”) in the amount of $10.0 million (the “Perceptive Credit Facility”). The Perceptive Credit Facility consisted of a $5.0 million term loan, which was drawn on the effective date of the Perceptive Credit Facility, and an additional $5.0 million term loan which the Company did not draw down. The principal on the facility accrued interest at an annual rate equal to a three-month LIBOR plus the Applicable Margin. The Applicable Margin was 11.00%. Upon the occurrence, and during the continuance, of an event of default, the Applicable Margin, defined above, would be increased by 4.00% per annum. Payments for the first 24 months were interest only and paid quarterly. After the second anniversary of the closing date of the Perceptive Credit Facility, principal payments of $0.2 million were due each calendar quarter. The Company incurred $0.5 million in deferred finance costs and issued the debt net of a $1.5 million discount.

 

The Company repaid the Perceptive Credit Facility on May 21, 2020, from the proceeds of the K2 Loan and Security Agreement discussed below. Upon the termination of the Perceptive Credit Facility, the Company paid $4.9 million in principal and interest and $0.1 million in exit fees and prepayment penalties. The Company recognized a total loss on extinguishment of debt in the amount of $1.2 million related to the Perceptive Credit Facility during the nine months ended September 30, 2020.

In connection with the Perceptive Credit Facility, on February 27, 2018 the Company issued Perceptive a warrant to purchase 190,000 shares of the Company’s common stock. The warrant is exercisable for a period of seven years from the date of issuance at an exercise price per share of $9.5792, subject to certain adjustments as specified in the Warrant. For more information refer to Note 11, “Stockholders Equity” included in the Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 13, 2020. The fair value of the warrant of $1.5 million was recorded as a debt discount at issuance and was included in the loss on extinguishment.

 

K2 Health Ventures Loan and Security Agreement

 

On May 21, 2020, the Company entered into a Loan and Security Agreement with K2 HealthVentures LLC in the amount of $45.0 million (“K2 Loan and Security Agreement”). The K2 Loan and Security Agreement consists of three tranches, the first of which was drawn on the closing date in the amount of $15.0 million. The second tranche of $20.0 million may be drawn between March 1, 2021 and June 30, 2021 at the Company’s option and subject to the achievement of certain clinical milestones. A third tranche of $10.0 million may be drawn after the Company’s second tranche draw, but prior to December 31, 2021. The principal accrues interest at an annual rate  equal to the greater of 8.45% or the sum of the Prime Rate plus 5.2% and commenced on July 1, 2020. The interest rate at September 30, 2020 was 8.45%. Payments are interest only until July 1, 2022, provided, however, that if no event of default has occurred and the second tranche has been fully funded payments will be interest only until July 1, 2023. After the second anniversary of the closing date of the K2 Loan and Security Agreement, principal payments are due monthly. The loan matures on June 1, 2024 and includes both financial and non-financial covenants including a minimum cash balance requirement. The Company expects to be compliant with the debt covenants for the next 12 months. The Company recorded the debt net of $1.1 million comprised of deferred financing costs, debt discount and associated exit fee which are being accreted to interest expense over the term of the K2 Loan and Security Agreement using the effective interest method. Additionally, the Company incurred $0.2 million in facilities fee related to the second tranche which will be classified as a prepaid asset until drawn upon.

 

As of September 30, 2020 and December 31, 2019, the Perceptive Credit Facility principal balance was $0.0 million and $5.0 million, respectively.

 

As of September 30, 2020 and December 31, 2019, the K2 Loan principal balance was $15.0 million and $0.0 million, respectively.

 

As of September 30, 2020 and December 31, 2019, the carrying value of the long-term debt was $14.8 million and $3.7 million, respectively.

 

Future required principal and final payments on the K2 Loan were as follows at September 30, 2020 ($ in thousands):

 

2020

 

 

 

2021

 

 

 

2022

 

 

3,507

 

2023

 

 

7,483

 

2024

 

 

4,010

 

Total Principal Amounts

 

 

15,000

 

Final Fee Due at Maturity

 

 

839

 

Unamortized discount, deferred costs and final fee

 

 

(1,017

)

Total Long-Term Debt, net

 

 

14,822