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Promissory Note
 9 Months Ended
Sep. 30, 2025
Debt Disclosure [Abstract]  
Promissory Note

5. Promissory Note

On February 28, 2025 (the “Closing Date”), the Company executed the Loan Agreement with Avenue Venture Opportunities Fund II, L.P. (“Lender”) and Avenue Capital Management II, L.P., as administrative agent 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, 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,

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. Upon drawing Tranche 2, $1,000,000 will be added to the conversion option for a total of $2,000,000. The Company will make interest only payments until the 18 month anniversary of the Closing Date, subject to a 6-month extension upon the Company’s achievement of certain milestones with respect to certain of its ongoing clinical trials and funding of the full amount under Tranche 2. 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. The maturity date of the Loan is September 1, 2028 (the “Maturity Date”).

As of September 30, 2025, future promissory note payments are as follows (in thousands):

 

 

 

 

 

2025

 

$

326

 

2026

 

 

2,515

 

2027

 

 

5,780

 

2028

 

 

4,286

 

Future promissory note payments

 

$

12,907

 

 

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 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 Notes and Black-Scholes to value the conversion feature associated with the Notes. Major inputs/assumptions associated with the fair value of the Notes 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).

As of the balance sheet date of September 30, 2025, the value of the promissory note was $8.9 million, with a change in fair value of $0.4 million and $23,000 for the three and nine months ended September 30, 2025, respectively, being recorded in the unaudited condensed consolidated statements of operations in other income/(expense).