Promissory Note |
6 Months Ended | |||||||||||||||||||||||||||||||||||
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Jun. 30, 2026 | ||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||
| Promissory Note | 5. Promissory Note On February 28, 2025 (the “Closing Date”), the Company executed the Loan Agreement with the Lender and Collateral Agent, for growth capital loans in an aggregate principal amount of up to $32,500,000 (the “Loan”), with (i) $10,000,000 funded on the Closing Date (“Tranche 1”), (ii) up to $7,500,000 to be made available to the Company between September 1, 2025 and March 31, 2026, which was subject to, among other things, the Company’s achievement of certain milestones with respect to certain of its ongoing clinical trials (“Tranche 2”) and (iii) up to $15,000,000 to be made available to the Company between October 1, 2025 and March 31, 2026, which was subject to, among other things, (a) the Company’s achievement of additional milestones with respect to certain of its ongoing clinical trials and (b) the mutual written agreement of the Company and the Lender (upon its investment committee approval). At the closing date, up to $1,000,000 of the principal outstanding may be converted into shares of the Company’s unrestricted, freely tradable common stock at a price equal to 20% premium to the exercise price of the warrants (see Note 6 for further description of the warrants) at the Lender’s option. In connection with the pause in enrollment in the KOURAGE trial, Tranche 2 and Tranche 3 are no longer available to the Company. As for the initial term of the Loan before the loan amendment described below, the Company will make interest only payments until the 18 month anniversary of the Closing Date. The Loan is evidenced by a promissory note and bears interest at an annual rate equal to the greater of (a) the sum of 5.00% plus the prime rate as reported in The Wall Street Journal and (b) 12.75%. The Loan is secured by a lien upon and security interest in all of the Company’s assets, including intellectual property, subject to agreed exceptions. Before the loan amendment described below, the maturity date of the Loan was September 1, 2028 (the “Maturity Date”). The Company determined the promissory note was eligible for the fair value election, and the Company elected to account for the promissory note at fair value. The Company allocated the gross proceeds on a relative fair value basis. The initial fair value of the promissory notes was $8.9 million. The valuation methodology was a scenario-based analysis utilizing a discounted cash flow framework to value the “straight debt” portion of the promissory note and Black-Scholes to value the conversion feature associated with the promissory note. Major inputs/assumptions associated with the fair value of the promissory note include: a) Calibrated Discount Rate of 13.7%, b) Scenario Weighting for Repayment through Maturity of 80%, c) Scenario Weighting for Repayment through Milestone of 20%, d) Timing of Milestone of 12/31/25, and e) Volatility used in Black-Scholes to value conversion feature of 100%. The fair value of the Lender Warrants was estimated using Black-Scholes (see Note 6). First Amendment to Loan Agreement On June 23, 2026, the Company entered into a First Amendment to the Loan and Security Agreement and related loan documents with Avenue Venture Opportunities Fund II, L.P. (the "Lender") and Avenue Capital Management II, L.P., as administrative agent and collateral agent. The amendment modified the terms of the Company's existing $10.0 million term loan. Pursuant to the amendment, (a) the interest-only period was extended from September 30, 2026 to September 30, 2027, with principal amortization beginning on October 1, 2027, (b) the maturity date was extended from September 1, 2028 to September 1, 2029, (c) the final payment fee payable upon repayment or maturity was increased by $200,000, (d) the Lender's existing right to convert up to $1.0 million of outstanding principal into common stock was replaced with the right, at the Lender's option, to convert up to an aggregate of $3.0 million of outstanding principal into either shares of the Company's common stock or pre-funded warrants, at a conversion price of $1.00 per share (or $0.9999 per underlying share for pre-funded warrants, reflecting the $0.0001 exercise price), (e) and the Company obtained a conditional right to require the Lender to convert outstanding principal into common stock or pre-funded warrants, subject to specified trading-price, trading-volume and beneficial ownership limitations. As of June 30, 2026, future promissory note payments are as follows (in thousands):
In connection with the amendment, the Company also (a) amended the existing lender warrant issued on February 28, 2025 by reducing its exercise price from $2.32 per share to $1.00 per share and adding a beneficial ownership limitation, (b) and issued to the Lender a new warrant to purchase 1,000,000 shares of the Company's common stock at an exercise price of $1.00 per share, exercisable through June 23, 2031, with customary anti-dilution provisions and cashless exercise features. The amended conversion option, put option, amended warrant and new warrant are recorded at fair value because of the existing fair value accounting for the loan and lender warrants, however, the June 23 amendment changed the valuation assumptions and the instruments were remeasured as of June 30, 2026. As of the balance sheet date of June 30, 2026, the value of the promissory note was $9.2 million, with an increase in fair value of $2.5 million and a decrease in fair value of $0.5 million for the three and six months ended June 30, 2026, respectively, being recorded in the unaudited condensed consolidated statements of operations in other income/(expense). |
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