UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31,September 30, 2021
or
☐ | TRANSITION REPORT PURSUANT TO SECTION |
For the transition period from | to |
Commission File Number:
F-STAR THERAPEUTICS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware | 52-2386345 | ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||
Eddeva B920 Babraham Research Campus Cambridge, United Kingdom | CB22 3AT | ||
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:44-1223-497400
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | Name of each exchange | ||
Common Stock, $0.0001 par value per share | FSTX | The Nasdaq Stock Market (Nasdaq Capital Market) |
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YESYes ☒ NO ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of(§ (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). YESYes ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated | ☒ | Smaller reporting company | ☒ | |||
Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the Registrant is a shell company (as defined in
The number of shares of Registrant’s Common Stock outstanding as of May 12,November 8, 2021
F-star
INDEX
PART I. FINANCIAL INFORMATION
Page | |||||||
Item 1. | 2 | ||||||
2 | |||||||
3 | |||||||
4 | |||||||
6 | |||||||
7 | |||||||
Item 2. | 24 | ||||||
Item 3. | 40 | ||||||
Item 4. | 40 | ||||||
PART II. OTHER INFORMATION | |||||||
Item 1. | 42 | ||||||
Item 1A. | 42 | ||||||
Item 2 | 43 | ||||||
Item 3 | 44 | ||||||
Item 4 | 44 | ||||||
Item 5 | 44 | ||||||
Item | 44 | ||||||
45 | |||||||
46 |
i
10-K
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
F-star
Condensed Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Amounts)
March 31, | December 31 | |||||||
2021 | 2020 | |||||||
Unaudited | ||||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 3,680 | $ | 18,526 | ||||
Accounts receivable | 2,799 | 0 | ||||||
Prepaid expenses and other current assets | 3,308 | 3,976 | ||||||
Tax incentive receivable | 4,017 | 3,563 | ||||||
Total current assets | 13,804 | 26,065 | ||||||
Property and equipment, net | 1,063 | 789 | ||||||
Right of use asset | 3,978 | 2,782 | ||||||
Goodwill | 14,980 | 14,926 | ||||||
In-process research and development | 19,157 | 18,986 | ||||||
Other long-term assets | 454 | 61 | ||||||
Total assets | $ | 53,436 | $ | 63,609 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 4,084 | $ | 4,597 | ||||
Accrued expenses and other current liabilities | 7,062 | 9,461 | ||||||
Contingent value rights | 2,200 | 2,080 | ||||||
Lease obligations, current | 969 | 539 | ||||||
Deferred revenue | 0 | 300 | ||||||
Total current liabilities | 14,315 | 16,977 | ||||||
Lease obligations | 3,385 | 2,622 | ||||||
Contingent value rights | 320 | 440 | ||||||
Deferred tax liability | 576 | 576 | ||||||
Total liabilities | 18,596 | 20,615 | ||||||
Commitments and contingencies | 0 | 0 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.0001 par value; authorized, 10,000,000 shares at March 31, 2021 and December 31, 2020; 0 shares issued or outstanding at March 31, 2021 and December 31, 2020 | 0 | 0 | ||||||
Common Stock, $0.0001 par value; authorized 200,000,000 shares at March 31, 2021 and December 31, 2020; 9,100,320 and 9,100,117 shares issued and outstanding at March 31, 2021 and December 31, 2020 | 1 | 1 | ||||||
Additional paid-in capital | 93,418 | 91,238 | ||||||
Accumulated other comprehensive loss | (1,542 | ) | (1,077 | ) | ||||
Accumulated deficit | (57,037 | ) | (47,168 | ) | ||||
Total stockholders’ equity | 34,840 | 42,994 | ||||||
Total liabilities and stockholders’ equity | $ | 53,436 | $ | 63,609 | ||||
|
| September 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
| Unaudited |
|
|
|
| ||
Assets |
|
|
|
|
|
| ||
Current Assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 71,050 |
|
| $ | 18,526 |
|
Other receivables |
|
| 436 |
|
|
| 0 |
|
Prepaid expenses and other current assets |
|
| 3,173 |
|
|
| 3,976 |
|
Tax incentive receivable |
|
| 1,502 |
|
|
| 3,563 |
|
Total current assets |
|
| 76,161 |
|
|
| 26,065 |
|
Property and equipment, net |
|
| 1,011 |
|
|
| 789 |
|
Right of use asset |
|
| 3,501 |
|
|
| 2,782 |
|
Goodwill |
|
| 14,885 |
|
|
| 14,926 |
|
In-process research and development and intangible assets, net |
|
| 18,790 |
|
|
| 18,986 |
|
Other long-term assets |
|
| 450 |
|
|
| 61 |
|
Total assets |
| $ | 114,798 |
|
| $ | 63,609 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
| ||
Current Liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 1,569 |
|
| $ | 4,597 |
|
Accrued expenses and other current liabilities |
|
| 5,642 |
|
|
| 9,461 |
|
Contingent value rights |
|
| 648 |
|
|
| 2,080 |
|
Lease obligations, current |
|
| 976 |
|
|
| 539 |
|
Deferred revenue |
|
| 0 |
|
|
| 300 |
|
Total current liabilities |
|
| 8,835 |
|
|
| 16,977 |
|
Long term Liabilities: |
|
|
|
|
|
| ||
Term debt |
|
| 9,535 |
|
|
| 0 |
|
Lease obligations |
|
| 2,875 |
|
|
| 2,622 |
|
Contingent value rights |
|
| 2,899 |
|
|
| 440 |
|
Deferred tax liability |
|
| 576 |
|
|
| 576 |
|
Total liabilities |
|
| 24,720 |
|
|
| 20,615 |
|
Commitments and contingencies |
|
|
|
|
|
| ||
Stockholders’ equity: |
|
|
|
|
|
| ||
Preferred stock, $0.0001 par value; authorized, 10,000,000 shares at |
|
| 0 |
|
|
| 0 |
|
Common Stock, $0.0001 par value; authorized 200,000,000 shares at |
|
| 2 |
|
|
| 1 |
|
Additional paid-in capital |
|
| 174,410 |
|
|
| 91,238 |
|
Accumulated other comprehensive loss |
|
| (1,142 | ) |
|
| (1,077 | ) |
Accumulated deficit |
|
| (83,192 | ) |
|
| (47,168 | ) |
Total stockholders’ equity |
|
| 90,078 |
|
|
| 42,994 |
|
Total liabilities and stockholders’ equity |
| $ | 114,798 |
|
| $ | 63,609 |
|
See accompanying notes to consolidated financial statements.
2
F-star
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(In thousands,Thousands, Except Share and Per Share Amounts)
For the Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
License revenue | $ | 2,917 | 1,355 | |||||
Operating expenses: | ||||||||
Research and development | 7,267 | 3,400 | ||||||
General and administrative | 6,429 | 3,189 | ||||||
Total operating expenses | 13,696 | 6,589 | ||||||
Loss from operations | (10,779 | ) | (5,234 | ) | ||||
Other non-operating (expense) income : | ||||||||
Other inc (expense)ome | 1,018 | (1,527 | ) | |||||
Change in fair-value of convertible debt | 0 | (386 | ) | |||||
Loss before income taxes | (9,761 | ) | (7,147 | ) | ||||
Income tax expense | (108 | ) | (12 | ) | ||||
Net loss | $ | (9,869 | ) | $ | (7,159 | ) | ||
Net loss attributable to common stockholders | $ | (9,869 | ) | $ | (7,159 | ) | ||
Basic and diluted adjusted net loss per common shares | $ | (1.08 | ) | $ | (3.92 | ) | ||
Weighted-average number of shares outstanding, basic and diluted | 9,100,273 | 1,826,070 | ||||||
Other comprehensive loss: | ||||||||
Net loss | $ | (9,869 | ) | (7,159 | ) | |||
Other comprehensive gain (loss): | ||||||||
Foreign currency translation | (465 | ) | 23 | |||||
Total comprehensive loss | $ | (10,334 | ) | $ | (7,136 | ) | ||
|
| For the Three Months |
|
| For the Nine Months |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
License revenue |
| $ | 751 |
|
| $ | 9,195 |
|
| $ | 3,668 |
|
| $ | 11,093 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development |
|
| 5,113 |
|
|
| 5,321 |
|
|
| 20,536 |
|
|
| 10,695 |
|
General and administrative |
|
| 5,239 |
|
|
| 7,261 |
|
|
| 18,169 |
|
|
| 13,805 |
|
Total operating expenses |
|
| 10,352 |
|
|
| 12,582 |
|
|
| 38,705 |
|
|
| 24,500 |
|
Loss from operations |
|
| (9,601 | ) |
|
| (3,387 | ) |
|
| (35,037 | ) |
|
| (13,407 | ) |
Other non-operating (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other income (expense) |
|
| (746 | ) |
|
| 506 |
|
|
| 230 |
|
|
| (1,164 | ) |
Change in fair value of convertible debt |
|
| 0 |
|
|
| (446 | ) |
|
| 0 |
|
|
| (2,330 | ) |
Change in fair value of contingent value |
|
| (444 | ) |
|
| 0 |
|
|
| (1,027 | ) |
|
| 0 |
|
Loss before income taxes |
|
| (10,791 | ) |
|
| (3,327 | ) |
|
| (35,834 | ) |
|
| (16,901 | ) |
Income tax expense |
|
| 0 |
|
|
| (124 | ) |
|
| (190 | ) |
|
| (171 | ) |
Net loss |
| $ | (10,791 | ) |
| $ | (3,451 | ) |
| $ | (36,024 | ) |
| $ | (17,072 | ) |
Net loss attributable to common stockholders |
| $ | (10,791 | ) |
| $ | (3,451 | ) |
| $ | (36,024 | ) |
| $ | (17,072 | ) |
Basic and diluted adjusted net loss per common |
| $ | (0.52 | ) |
| $ | (1.88 | ) |
| $ | (2.35 | ) |
| $ | (9.34 | ) |
Weighted-average number of shares |
|
| 20,617,822 |
|
|
| 1,832,194 |
|
|
| 15,300,433 |
|
|
| 1,828,597 |
|
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss |
| $ | (10,791 | ) |
| $ | (3,451 | ) |
| $ | (36,024 | ) |
| $ | (17,072 | ) |
Other comprehensive (loss) gain : |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation |
|
| 117 |
|
|
| 14 |
|
|
| (65 | ) |
|
| 424 |
|
Total comprehensive loss |
| $ | (10,674 | ) |
| $ | (3,437 | ) |
| $ | (36,089 | ) |
| $ | (16,648 | ) |
See accompanying notes to consolidated financial statements.
3
F-star
Condensed Consolidated Statements of Cash Flows Stockholders’ Equity
For the three months ended September 30, 2021 and 2020
(Unaudited)
(In Thousands)
For the Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (9,869 | ) | (7,159 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Share based compensation expense | 2,180 | 534 | ||||||
Foreign currency loss (gain) | (670 | ) | 1,294 | |||||
Loss on disposal of fixed assets | (9 | ) | (1 | ) | ||||
Depreciation | 144 | 180 | ||||||
Interest expense | 77 | 256 | ||||||
Fair-value adjustment of convertible term loan | 386 | |||||||
Operating right of use asset expense | 278 | 136 | ||||||
Changes in operating assets and liabilities: | ||||||||
Trade receivables | (2,805 | ) | 0 | |||||
Prepaid expenses and other current assets | 701 | 1,389 | ||||||
Tax incentive receivable | (413 | ) | 1,184 | |||||
Accounts payable | (548 | ) | 1,497 | |||||
Accrued expenses and other current liabilities | (2,473 | ) | (1,427 | ) | ||||
Deferred revenue | (304 | ) | 368 | |||||
Operating lease liability | (272 | ) | (161 | ) | ||||
Other long-term asset | (395 | ) | 0 | |||||
Net cash used in by operating activities | (14,378 | ) | (1,524 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of property, plant and equipment | (267 | ) | 0 | |||||
Proceeds from sale of property, plant and equipment | 15 | 0 | ||||||
Purchase of intangible assets | 0 | (62 | ) | |||||
Net cash used in investing activities | (252 | ) | (62 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of convertible notes | 0 | 500 | ||||||
Net cash provided by financing activities | 0 | 500 | ||||||
Net decrease in cash and cash equivalents | (14,630 | ) | (1,086 | ) | ||||
Effect of exchange rate changes on cash | (216 | ) | (267 | ) | ||||
Cash and cash equivalents at beginning of period | 18,526 | 4,901 | ||||||
Cash and cash equivalents at end of period | $ | 3,680 | $ | 3,548 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for income taxes | $ | 0 | $ | 17 | ||||
Purchases of property and equipment included in accounts payable and accrued expenses | $ | 97 | $ | 0 | ||||
Non-cash investing and financing activities: | ||||||||
Additions to ROU assets obtained from new operating lease liabilities | $ | 1,468 | $ | 0 |
|
| Stockholders’ Equity |
| |||||||||||||||||||||
|
| Common Shares |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
For the Three Months Ended September 30, 2021 |
| Number of |
|
| Value |
|
| Capital in Excess |
|
| Accumulated Other |
|
| Accumulated |
|
| Total Stockholders’ |
| ||||||
Balance at June 30, 2021 as originally stated |
|
| 20,586,562 |
|
| $ | 2 |
|
| $ | 172,895 |
|
| $ | (1,218 | ) |
| $ | (72,686 | ) |
| $ | 98,993 |
|
Adjustment (see note 1) |
|
| — |
|
|
| — |
|
|
| — |
|
| $ | (41 | ) |
| $ | 285 |
|
| $ | 244 |
|
Revised balance at June 30, 2021 |
|
| 20,586,562 |
|
| $ | 2 |
|
| $ | 172,895 |
|
| $ | (1,259 | ) |
| $ | (72,401 | ) |
| $ | 99,237 |
|
Equity adjustment from foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 117 |
|
|
| — |
|
|
| 117 |
|
RSU vesting and stock option exercises |
|
| 36,479 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 1,515 |
|
|
| — |
|
|
| — |
|
|
| 1,515 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10,791 | ) |
|
| (10,791 | ) |
Balance at September 30, 2021 |
|
| 20,623,041 |
|
| $ | 2 |
|
| $ | 174,410 |
|
| $ | (1,142 | ) |
| $ | (83,192 | ) |
| $ | 90,078 |
|
|
| Stockholders’ Equity |
| |||||||||||||||||||||||||||||
|
| Seed |
|
| Series A |
|
| Common Shares |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
For the Three Months Ended September 30, 2020 |
| Number of |
|
| Number of |
|
| Number of |
|
| Value |
|
| Capital in Excess |
|
| Accumulated Other |
|
| Accumulated |
|
| Total Stockholders’ |
| ||||||||
Balance at July 1, 2020 |
|
| 103,611 |
|
|
| 1,441,418 |
|
|
| 4,312,137 |
|
| $ | 1 |
|
| $ | 32,723 |
|
| $ | (1,224 | ) |
| $ | (35,170 | ) |
| $ | (3,670 | ) |
Equity adjustment from foreign |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14 |
|
|
| — |
|
|
| 14 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,194 |
|
|
| — |
|
|
| — |
|
|
| 1,194 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,451 | ) |
|
| (3,451 | ) |
Balance at September 30, 2020 |
|
| 103,611 |
|
|
| 1,441,418 |
|
|
| 4,312,137 |
|
| $ | 1 |
|
| $ | 33,917 |
|
| $ | (1,210 | ) |
| $ | (38,621 | ) |
| $ | (5,913 | ) |
See accompanying notes to consolidated financial statements.
4
F-star
Condensed Consolidated Statements of Stockholders’ Equity
For the Three Months Ended March 31,nine months ended September 30, 2021 and 2020
(Unaudited)
(In thousands, except share amounts)
Shareholders’ Equity | ||||||||||||||||||||||||
For the Three Months E n ded | Common Shares | Capital in Excess of par Value | Accumulated Other Comprehensive Loss | Accumulated deficit | Total Stockholders’ Equity | |||||||||||||||||||
March 31, 2021 | Number | Value | ||||||||||||||||||||||
Balance at December 31, 2020 | 9,100,117 | $ | 1 | $ | 91,238 | $ | (1,077 | ) | $ | (47,168 | ) | $ | 42,994 | |||||||||||
Equity adjustment from foreign currency | (465 | ) | (465 | ) | ||||||||||||||||||||
Stock option exercises | 203 | — | — | — | ||||||||||||||||||||
Share-based compensation | 2,180 | 2,180 | ||||||||||||||||||||||
Net loss | (9,869 | ) | (9,869 | ) | ||||||||||||||||||||
Balance at March 31, 2021 | 9,100,320 | $ | 1 | $ | 93,418 | $ | (1,542 | ) | $ | (57,037 | ) | $ | 34,840 | |||||||||||
Shareholders’ Equity | ||||||||||||||||||||||||||||||||
For the Three Months Ended | Seed preferred shares | Series A preferred shares | Common Shares | Capital in Excess of par Value | Accumulated Other Comprehensive Loss | Accumulated deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||
March 31, 2020 | Number | Number | Number | Value | ||||||||||||||||||||||||||||
Balance at December 31, 2019 | 103,611 | 1,441,418 | 4,128,441 | $ | 1 | $ | 31,718 | $ | (1,634 | ) | $ | (21,549 | ) | $ | 8,536 | |||||||||||||||||
Issuance of common stock for services rendered | 6,720 | — | ||||||||||||||||||||||||||||||
Issuance of common stock in connection with at-the-market issuance costs | 10,450 | — | ||||||||||||||||||||||||||||||
Equity adjustment from foreign currency translation | 23 | 23 | ||||||||||||||||||||||||||||||
Share-based compensation | 534 | 534 | ||||||||||||||||||||||||||||||
Net loss | (7,159 | ) | (7,159 | ) | ||||||||||||||||||||||||||||
Balance at March 31, 2020 | 103,611 | 1,441,418 | 4,145,611 | $ | 1 | $ | 32,252 | $ | (1,611 | ) | $ | (28,708 | ) | $ | 1,934 | |||||||||||||||||
|
| Stockholders’ Equity |
| |||||||||||||||||||||
|
| Common Shares |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
For the Nine Months Ended September 30, 2021 |
| Number of |
|
| Value |
|
| Capital in Excess |
|
| Accumulated Other |
|
| Accumulated |
|
| Total Stockholders’ |
| ||||||
Balance at December 31, 2020 |
|
| 9,100,117 |
|
| $ | 1 |
|
| $ | 91,238 |
|
| $ | (1,077 | ) |
| $ | (47,168 | ) |
| $ | 42,994 |
|
Issuance of warrants in connection with term loan |
|
| — |
|
|
| — |
|
|
| 326 |
|
|
| — |
|
|
| — |
|
|
| 326 |
|
Issuance of common stock in connection with |
|
| 979,843 |
|
|
| — |
|
|
| 9,115 |
|
|
| — |
|
|
| — |
|
|
| 9,115 |
|
Issuance of common stock in connection with |
|
| 10,439,347 |
|
|
| 1 |
|
|
| 68,177 |
|
|
| — |
|
|
| — |
|
|
| 68,178 |
|
Equity adjustment from foreign currency translation |
|
|
|
|
| — |
|
|
| — |
|
|
| (65 | ) |
|
| — |
|
|
| (65 | ) | |
RSU vesting and stock option exercises |
|
| 103,734 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| 5,554 |
|
|
| — |
|
|
| — |
|
|
| 5,554 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (36,024 | ) |
|
| (36,024 | ) |
Balance at September 30, 2021 |
|
| 20,623,041 |
|
| $ | 2 |
|
| $ | 174,410 |
|
| $ | (1,142 | ) |
| $ | (83,192 | ) |
| $ | 90,078 |
|
|
| Stockholders’ Equity |
| |||||||||||||||||||||||||||||
|
| Seed |
|
| Series A |
|
| Common Shares |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
For the Nine Months Ended September 30, 2020 |
| Number of |
|
| Number of |
|
| Number of |
|
| Value |
|
| Capital in Excess |
|
| Accumulated Other |
|
| Accumulated |
|
| Total Stockholders’ |
| ||||||||
Balance at December 31, 2019 |
|
| 103,611 |
|
|
| 1,441,418 |
|
|
| 4,128,441 |
|
| $ | 1 |
|
| $ | 31,718 |
|
| $ | (1,634 | ) |
| $ | (21,549 | ) |
| $ | 8,536 |
|
Issuance of common stock for |
|
| — |
|
|
| — |
|
|
| 10,972 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Issuance of common stock in connection |
|
| — |
|
|
| — |
|
|
| 172,724 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Equity adjustment from foreign |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 424 |
|
|
| — |
|
|
| 424 |
|
Share-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,199 |
|
|
| — |
|
|
| — |
|
|
| 2,199 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (17,072 | ) |
|
| (17,072 | ) |
Balance at September 30, 2020 |
|
| 103,611 |
|
|
| 1,441,418 |
|
|
| 4,312,137 |
|
| $ | 1 |
|
| $ | 33,917 |
|
| $ | (1,210 | ) |
| $ | (38,621 | ) |
| $ | (5,913 | ) |
See accompanying notes to consolidated financial statements.
5
(In Thousands)
|
| For the Nine Months Ended September 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (36,024 | ) |
| $ | (17,072 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
| ||
Share based compensation expense |
|
| 5,554 |
|
|
| 2,199 |
|
Foreign currency (gain) loss |
|
| (66 | ) |
|
| 968 |
|
(Gain) loss on disposal of property, plant and equipment |
|
| (9 | ) |
|
| 7 |
|
Depreciation |
|
| 435 |
|
|
| 887 |
|
Amortization of intangible assets |
|
| 65 |
|
|
| 0 |
|
Non-cash interest |
|
| 42 |
|
|
| 815 |
|
Interest expense |
|
| 69 |
|
|
| 0 |
|
Fair value adjustments |
|
| 1,027 |
|
|
| 2,330 |
|
Operating right of use amortization |
|
| 749 |
|
|
| 0 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Other receivables |
|
| (444 | ) |
|
| 0 |
|
Prepaid expenses and other current assets |
|
| 800 |
|
|
| 1,254 |
|
Tax incentive receivable |
|
| 2,083 |
|
|
| 8,403 |
|
Accounts payable |
|
| (3,050 | ) |
|
| 677 |
|
Accrued expenses and other current liabilities |
|
| (3,796 | ) |
|
| 233 |
|
Deferred revenue |
|
| (305 | ) |
|
| (352 | ) |
Operating lease liability |
|
| (400 | ) |
|
| (467 | ) |
Other long term asset |
|
| (778 | ) |
|
| 0 |
|
Net cash used in operating activities |
|
| (34,048 | ) |
|
| (118 | ) |
Cash flows from investing activities: |
|
|
|
|
|
| ||
Purchase of property, plant and equipment |
|
| (658 | ) |
|
| 0 |
|
Proceeds from sale of property, plant and equipment |
|
| 15 |
|
|
| 0 |
|
Purchase of intangible assets |
|
| 0 |
|
|
| (50 | ) |
Net cash used in investing activities |
|
| (643 | ) |
|
| (50 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Proceeds from issuance of convertible notes |
|
| 0 |
|
|
| 850 |
|
Net proceeds from issuance of common stock |
|
| 77,295 |
|
|
| 0 |
|
Net proceeds from term debt |
|
| 9,845 |
|
|
| 0 |
|
Payment of debt issuance costs |
|
| (92 | ) |
|
| 0 |
|
Net cash provided by financing activities |
|
| 87,048 |
|
|
| 850 |
|
Net increase in cash and cash equivalents |
|
| 52,357 |
|
|
| 682 |
|
Effect of exchange rate changes on cash |
|
| 167 |
|
|
| (56 | ) |
Cash and cash equivalents at beginning of period |
|
| 18,526 |
|
|
| 4,901 |
|
Cash and cash equivalents at end of period |
| $ | 71,050 |
|
| $ | 5,527 |
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
| ||
Cash paid for income taxes |
| $ | 36 |
|
| $ | 42 |
|
Cash paid for interest |
| $ | 296 |
|
| $ | 0 |
|
|
|
|
|
|
|
| ||
Non-cash investing and financing activities: |
|
|
|
|
|
| ||
Additions to ROU assets obtained from new operating lease liabilities |
| $ | 1,468 |
|
| $ | 0 |
|
Issuance of warrants |
| $ | 326 |
|
| $ | 0 |
|
See accompanying notes to consolidated financial statements.
6
F-star
Notes to Condensed Consolidated Financial Statements
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business
F-star
Share Exchange Agreement
On November 20, 2020,
Liquidity
On March 30, 2021, the Company entered into a Sales Agreement (the “2021 Sales“Sales Agreement”) with SVB Leerink LLC (“SVB Leerink”) with respect to an“at-the-market”$0.0001$0.0001 per share, having an aggregate offering price of up to $50.0$50.0 million through SVB Leerink as its sales agent. As of May 6, 2021, the Company had issued and sold 979,843 shares of common stock for gross proceeds of $9.5$9.5 million, resulting in net proceeds of $9.2$9.1 million after deducting sales commissions and offering expenses. On May 6, 2021, the Company terminated the Sales Agreement.
On August 13, 2021, the Company entered into a Sales Agreement (the “2021 Sales Agreement”) with SVB Leerink with respect to an at-the-market offering program under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock, having an aggregate offering price of up to $50.0 million through
7
SVB Leerink as its sales agent. As of September 30, 2021 Company had 0t offered or sold any common stock under the 2021 Sales Agreement.
On May 6, 2021, the Company entered into an underwriting agreement with SVB Leerink, as representative of the underwriters, relating to an underwritten public offering (the “Underwritten Public Offering”) of approximately 9.310.4 million shares of the Company’s common stock, par value $0.0001$0.0001 per share. The underwritten public offering resulted in gross proceeds of $65.0$73.1 million. The Company incurred $3.9$4.4 million in issuance costs and $0.5 million of professional fees associated with the underwritten public offering, resulting in net proceeds to the Company of $61.1$68.2 million.
On April 1, 2021, the Company, as borrower, entered into a Venture Loan and Security Agreement (the “Loan and Security Agreement”) with Horizon Technology Finance Corporation (“Horizon”), as lender and collateral agent for itself. The Loan and Security Agreement provides for 4 (4) separate and independent $to be delivered by Horizon to the Company prior toby April 1, 2021, (ii) Loan B was required to be delivered by Horizon to the Company prior toby April 1, 2021, (iii) Loan C is required to bewas delivered by Horizon to the Company prior toby June 30, 2021, and (iv) Loan D is required to bewas delivered by Horizon to the Company prior toby June 30, 2021. The Company may only use the proceeds of the Term Loans for working capital or general corporate purposes as contemplated by the Loan and Security Agreement. On April 1, 2021, the Company drew down $
The Company has incurred significant losses and has an accumulated deficit of
The Company may continue to seek additional funding through public equity, private equity, debt financing, collaboration partnerships, or other sources. There are no assurances, however, that the Company will be successful in raising additional working capital, or if it is able to raise additional working capital, it may be unable to do so on commercially favorable terms. The Company’s failure to raise future capital or enter into other such arrangements if and when needed would have a negative impact on its business, results of operations and financial condition and its ability to develop its product candidates.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”).
The accompanying interim condensed consolidated financial statements as of March 31,September 30, 2021, and for the three and nine months ended March 31,September 30, 2021 and 2020, and related interim information contained within the notes to thethese condensed consolidated financial statements, are unaudited. In management’s opinion, theThese unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s audited annual financial statements and includein management's opinion contain all adjustmentsadjustrevisionments (including normal recurring adjustments) necessary for the fair presentation of the Company’s financial position as of March 31,September 30, 2021, results of operations for the three and nine months ended March 31,September 30, 2021 and 2020, statement of stockholders’ equity for the three and nine months ended March 31,September 30, 2021 and 2020 and its cash flows for the threenine months ended March 31,September 30, 2021 and 2020. These interim condensed consolidated financial statements should be read in conjunction with the Company’s annual audited financial statements and accompanying notes containedthereto included in the Company’s Annual Report filed on SEC Form 10-K for the year ended December 31, 2020. The results for the three and nine months ended March 31,September 30, 2021, are not necessarily indicative of the results expected for the full fiscal year or any interim period.
8
Revision of Previously Issued Financial Statements
In September 2021, the Company identified an error in its accounting treatment for research and development expenses. This error resulted in an overstatement of research and development expenses for the first six months of 2021 and accrued expenses and other current liabilities as of March 31, 2021 and June 30, 2021. The Company assessed the materiality of this error on prior period financial statements in accordance with the SEC Staff Accounting Bulletin Number 99, Materiality, and ASC 250-10, Accounting Changes and Error Corrections. The Company determined that this error was not material to the financial statements of any prior interim period. To correct the immaterial misstatement, the Company decreased accumulated deficit by $0.3 million as of June 30, 2021.
Principles of Consolidation
The Company’s interim condensed consolidated financial statements have been prepared in conformity with U.S. GAAP. Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the ASC and Accounting Standards Updates (“ASU”) of the FASB. The accompanying condensed consolidated financial statements include the accounts of F-star Therapeutics, Inc. and its wholly owned subsidiaries. All intercompanyinter-company balances and transactions between the consolidated companies have been eliminated in consolidation.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting years. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the fair value of the assets and liabilities acquired in the transaction between Spring Bank and
Concentrations of credit risk and of significant suppliers
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains its cash and cash equivalents in financial institutions in amounts that could exceed government-insured limits. The Company does not believe it is subject to additional credit risks beyond those normally associated with commercial banking relationships.
The Company is dependent on contract research organizations to provide its clinical trials and third-party manufacturers to supply products for research and development activities in its programs. In particular, the Company relies and expects to continue to rely on a small number of manufacturers to supply its requirements for
9
supplies and raw materials related to these programs. These programs could be adversely affected by a significant interruption in these manufacturing services or the availability of raw materials.
Property, plant and equipment
Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation expense is recognized using the straight-line method over the estimated useful lives of the respective assets as follows:
Estimated Useful Economic Life | ||
Leasehold property improvements, right of use assets | Lesser of lease term or useful life | |
Laboratory equipment | 5 years | |
Furniture and office equipment | 3 years |
Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included in
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. This is the rate the Company would have to pay if borrowing on a collateralized basis over a similar term to each lease. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Impairment of Long-Lived Assets
Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If the undiscounted cash flows are insufficient to recover the carrying value, an impairment loss is recorded for the difference between the carrying value and fair value of the asset. As of March 31,September 30, 2021, 0
License and collaboration arrangements and revenue recognition
The Company’s revenues are generated primarily through license and collaboration agreements with pharmaceutical and biotechnology companies. The terms of these arrangements may include (i) the grant of intellectual property rights (IP licenses) to therapeutic drug candidates against specified targets, developed using the Company’s proprietary mAb2mAb2 bispecific antibody platform, (ii) performing research and development services to optimize drug candidates, and (iii) the grant of options to obtain additional research and development services or licenses for additional targets, or to optimize product candidates, upon the payment of option fees.
The terms of these arrangements typically include payment to the Company of one or more of the following:
non-refundable,
The Company has adopted FASB ASC Topic 606,(“ (“ASC 606”). This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. To date, the Company has entered into License and Collaboration Agreements with Denali andTherapeutics, Inc. (“Denali”), Ares (anTrading S.A. (“Ares,”)
10
an affiliate of Merck KGaA, Darmstadt, Germany) and in July 2021 with AstraZeneca AB ("AstraZeneca"), which were determined to be within the scope of ASC 606.
Research and development costs
Research and development costs are expensed as incurred. Research and development expenses are comprised of costs incurred in performing research and development activities, including compensation expense, share-based compensation and benefits, facilities costs and laboratory supplies, depreciation, amortization and impairment expense, manufacturing expenses and external costs of outside vendors engaged to conduct preclinical development activities and clinical trials as well as the cost of licensing technology. Typically, upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred, except for payments relating forto intellectual property rights with future alternative use which will be expensed when the intellectual property is in use. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.
Warrants
The Company accounts for warrants within stockholders equity or as liabilities based on the characteristics and provisions of each instrument. The Company evaluates outstanding warrants in accordance with ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging.Hedging. If none of the criteria in the evaluation in these standards are met, the warrants are classified as a component of stockholders’ equity and initially recorded at their grant date fair value without subsequent remeasurement. Warrants that meet the criteria are classified as liabilities and remeasured to their fair value at the end of each reporting period.
Stock-Based Compensation
The Company accounts for share-based compensation in accordance with ASC 718, “Compensation – Stock Compensation”(“ASC 718”). ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service period in the Company’s consolidated statements of operations and comprehensive loss.
Fair value measurements of financial instruments
The Company’s financial instruments consist of cash, accounts payable, CVRs and liability classified warrants. The carrying amounts of cash and accounts payable approximate their fair value due to the short-term nature of those financial instruments. The fair value of CVRs and the liability classified warrants are remeasured to fair value each reporting period.
Net loss per share
The Company computes net loss per share in accordance with ASC Topic 260,(“ (“ASC 260”) and related guidance, which requires two calculations of net (loss) income attributable to the Company’s shareholders per share to be disclosed: basic and diluted. Convertible preferred shares are considered participating securities and are included in the calculation of basic and diluted net (loss) income per share using the
Diluted net (loss) income per share is the same as basic net (loss) income per share for the periods in which the Company had a net loss because the inclusion of outstanding common stock equivalents would be anti-dilutive.
Income taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the
11
consolidated financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined on the basis of the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential forThe potential recovery of deferred tax assets is evaluated by estimating the potential for future taxable profits, expectedif any.
Research and considering prudent and feasibledevelopment tax planning strategies.
As the consolidated financial statements by applying atwo-stepprocess to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemedmore-likely-than-notto be sustained, the tax position is then assessed to determine the amount of benefit to recognizeentities located in the consolidated financial statements.United Kingdom carry out extensive research and development activities, they seek to benefit from the UK research and development tax credit cash rebate regime known as the Small and Medium-sized Enterprises R&D Tax Credit Program (the “SME Program”). Qualifying expenditures largely comprise employment costs for research staff, consumables expenses incurred under agreements with third parties that conduct research and development, preclinical activities, clinical activities and manufacturing on the Company’s behalf and certain internal overhead costs incurred as part of research projects. The amounttax credit received in the United Kingdom pursuant to the SME Program permits companies to deduct an extra 130% of the benefit that may be recognized is the largest amount that will more likely than not be realized upon ultimate settlement. Any provision for income taxes includes the effects of any resulting tax reserves,their qualifying costs from their yearly profit or unrecognized tax benefits, that are considered appropriateloss, as well as the related net interestnormal 100% deduction, to make a total 230% deduction. If the company is incurring losses, it is entitled to claim a tax credit worth up to 14.5% of the surrenderable loss. To qualify for relief under the SME Program, companies are required to employ fewer than 500 staff and penalties.
Research and development tax credits received in the United Kingdom are recorded as a reduction toin research and development expenses. The U.K.UK research and development tax credit is payable to the Companycompanies after surrendering tax losses and is not dependent on current or future taxable income. As a result, it is not reflected as part of the income tax provision If, inprovision.
During the future, any UKnine months ended September 30, 2021 the Company received $3.4 millionin research and development tax credits generated are utilizedrelated to offset a corporate income tax liability in the United Kingdom, that portion would be recorded as a benefit within the income tax provision and any refundable portion not dependent on taxable income would continue to be recorded as a reduction to research and development expenses.
Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recordedrecorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential loss range is probable and reasonably estimable under the provisions of the authoritative guidelines that address accounting for contingencies. The Company expenses costs as incurred in relation to such legal proceedings as general and administrative expense within the consolidated statements of operations and comprehensive loss.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU No.
12
2. Business Combination
As described in Note 1, on November 20, 2020,$21.5$21.5 million, which was determined based on the number of shares of common stock issued in connection with the Transaction, and (ii) the portion of the fair value attributable to
The purchase price is allocated to the fair value of assets and liabilities acquired as follows in the table below (in thousands, except shares of common stock and fair value per share):
Purchase Price Allocation |
| |||
Number of full common shares |
|
| 4,449,559 |
|
Multiplied by fair value per share of common stock |
| $ | 4.84 |
|
Purchase price |
| $ | 21,536 |
|
Cash and cash equivalents |
| $ | 9,779 |
|
Marketable securities |
|
| 5,000 |
|
Prepaid expenses and other assets |
|
| 935 |
|
Operating lease right of use asset |
|
| 2,784 |
|
Intangible assets |
|
| 4,720 |
|
Goodwill |
|
| 10,451 |
|
Accounts payable, accrued expenses and other |
|
| (5,453 | ) |
Contingent value rights |
|
| (2,520 | ) |
Liability and equity based warrants |
|
| (422 | ) |
Deferred tax liability |
|
| (576 | ) |
Operating lease liability |
|
| (3,162 | ) |
Fair value of net assets acquired |
| $ | 21,536 |
|
Number of shares of common stock | 4,449,559 | |||
Multiplied by fair value per share of common stock | $ | 4.84 | ||
Purchase price | $ | 21,536 | ||
Cash and cash equivalents | $ | 9,779 | ||
Marketable securities | 5,000 | |||
Prepaid expenses and other assets | 935 | |||
Operating lease right of use asset | 2,784 | |||
Intangible assets | 4,720 | |||
Goodwill | 10,451 | |||
Accounts payable, accrued expenses and other liabilities | (5,453 | ) | ||
CVRs | (2,520 | ) | ||
Liability and equity based warrants | (422 | ) | ||
Deferred tax liability | (576 | ) | ||
Operating lease liability | (3,162 | ) | ||
Fair value of net assets acquired | $ | 21,536 |
3. Net Loss Per Share
The following table summarizespresents the computationcalculation of basic and diluted net loss per share applicable to common stockholders of the Company for such periods (in thousands, except share and per share data):
Net Loss Per Share |
| |||||||||||||||
|
| For the Three Months |
|
| For the Nine Months |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net loss |
| $ | (10,791 | ) |
| $ | (3,451 | ) |
| $ | (36,024 | ) |
| $ | (17,072 | ) |
Weighted average number shares |
|
| 20,617,822 |
|
|
| 1,832,194 |
|
|
| 15,300,433 |
|
|
| 1,828,597 |
|
Net loss income per common, basic |
| $ | (0.52 | ) |
| $ | (1.88 | ) |
| $ | (2.35 | ) |
| $ | (9.34 | ) |
For the Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Net loss | $ | (9,869 | ) | $ | (7,159 | ) | ||
Weighted average number shares outstanding, basic and diluted | 9,100,273 | 1,826,070 | ||||||
Net loss income per common, basic and diluted | $ | (1.08 | ) | $ | (3.92 | ) |
Diluted net loss per share of common stock is the same as basic net loss per share of common stock for all periods presented.
Potential Dilutive Shares |
| |||||||
|
| For the Three and Nine Months |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Convertible debt shares |
|
| 0 |
|
|
| 185,732 |
|
Common stock warrants |
|
| 124,729 |
|
|
| 481,781 |
|
Stock options and RSUs |
|
| 528,871 |
|
|
| 1,660,906 |
|
13
4. In process R&D and intangible assets, net
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||||||||||||||||||
|
| In-process R&D |
|
| Intangible assets |
|
| Total |
|
| In-process R&D |
|
| Intangible assets |
|
| Total |
| ||||||
Cost |
| $ | 18,912 |
|
| $ | 4,469 |
|
| $ | 23,381 |
|
| $ | 23,554 |
|
| $ | — |
|
| $ | 23,554 |
|
Less: accumulated amortization |
|
| 0 |
|
|
| 65 |
|
|
| 65 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Less: impairments |
|
| 4,526 |
|
|
| 0 |
|
|
| 4,526 |
|
|
| 4,568 |
|
|
| — |
|
|
| 4,568 |
|
|
| $ | 14,386 |
|
| $ | 4,404 |
|
| $ | 18,790 |
|
| $ | 18,986 |
|
| $ | — |
|
| $ | 18,986 |
|
During the three months ended September 30, 2021, $4.5 million of diluted weighted-average shares outstanding, because such securitiesin-process R&D assets were reclassified to intangible assets as management determined that these assets had an antidilutive impact due tobeen brought into use and were no longer in-process. The appropriate useful life of the losses reported:
For the Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Convertible debt | — | 179,404 | ||||||
Common stock warrants | 93,330 | — | ||||||
Stock options, and RSUs | 1,241,435 | 257,599 |
5. Property, plantPlant and equipment,Equipment, net
Property, plant and equipment, net consisted of the following (in thousands):
Property, Plant and Equipment, net |
| |||||||
|
| September 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Leasehold improvements |
| $ | 203 |
|
| $ | 15 |
|
Laboratory equipment |
|
| 2,211 |
|
|
| 1,788 |
|
Furniture and office equipment |
|
| 161 |
|
|
| 169 |
|
|
|
| 2,575 |
|
|
| 1,972 |
|
Less: Accumulated depreciation |
|
| 1,564 |
|
|
| 1,183 |
|
|
| $ | 1,011 |
|
| $ | 789 |
|
March 31, | December 31 | |||||||
2021 | 2020 | |||||||
Leasehold improvements | $ | 160 | $ | 15 | ||||
Laboratory equipment | 1,865 | 1,788 | ||||||
Furniture and office equipment | 165 | 169 | ||||||
2,190 | 1,972 | |||||||
Less: Accumulated depreciation | 1,127 | 1,183 | ||||||
$ | 1,063 | $ | 789 | |||||
Depreciation expense for the threenine months ended March 31,September 30, 2021 and 2020 was $0.1$0.4 million and $0.2$0.9 million, respectively.
6. Fair Value Measurements
The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):
|
| Fair Value Measurements as of September 30, 2021 Using: |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Contingent value rights |
| $ | — |
|
| $ | — |
|
| $ | 3,547 |
|
| $ | 3,547 |
|
Warrants |
|
| — |
|
|
| — |
|
|
| 11 |
|
|
| 11 |
|
|
| $ | — |
|
| $ | — |
|
| $ | 3,558 |
|
| $ | 3,558 |
|
|
| Fair Value Measurements as of December 31, 2020 Using: |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Contingent value rights |
| $ | — |
|
| $ | — |
|
| $ | 2,520 |
|
| $ | 2,520 |
|
Warrants |
|
| — |
|
|
| — |
|
|
| 37 |
|
|
| 37 |
|
|
| $ | — |
|
| $ | — |
|
| $ | 2,557 |
|
| $ | 2,557 |
|
14
Fair Value Measurements as of March 31, 2021 Using: | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Liabilities: | ||||||||||||||||
Contingent value rights | $ | — | $ | — | $ | 2,520 | $ | 2,520 | ||||||||
Warrants | — | — | 11 | 11 | ||||||||||||
$ | — | $ | — | $ | 2,531 | $ | 2,531 | |||||||||
Fair Value Measurements as of December 31, 2020 Using: | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Liabilities: | ||||||||||||||||
Contingent value rights | $ | — | $ | — | $ | 2,520 | $ | 2,520 | ||||||||
Warrants | — | — | 37 | 37 | ||||||||||||
$ | — | $ | — | $ | 2,557 | $ | 2,557 | |||||||||
The following table reflects the change in the Company’s Level 3 liabilities, which consists of warrants, for the periodnine months ended March 31,September 30, 2021 (in thousands):
Change in Level 3 Liabilities |
| |||||||
|
| November 2016 Private |
|
| Contingent Value |
| ||
Balance at December 31, 2020 |
| $ | 37 |
|
| $ | 2,520 |
|
Warrants exercised |
|
| (26 | ) |
|
| 0 |
|
Change in fair value of CVR |
|
| 0 |
|
|
| 1,027 |
|
Balance at September 30, 2021 |
| $ | 11 |
|
| $ | 3,547 |
|
November 2016 Private | ||||
Placement Warrants | ||||
Balance at December 31, 2020 | $ | 37 | ||
Warrants exercised | 26 | |||
Balance at March 31, 2021 | $ | 11 |
7. Accrued Expenses and other Current Liabilities
Accrued expenses as of March 31,September 30, 2021 and December 31, 2020, consisted of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Clinical Trial Costs |
| $ | 2,764 |
|
| $ | 3,394 |
|
Severance |
|
| 6 |
|
|
| 1,953 |
|
Compensation and Benefits |
|
| 1,440 |
|
|
| 1,361 |
|
Professional Fees |
|
| 735 |
|
|
| 1,593 |
|
Other |
|
| 697 |
|
|
| 1,160 |
|
|
| $ | 5,642 |
|
| $ | 9,461 |
|
March 31, | December 31 | |||||||
2021 | 2020 | |||||||
Clinical Trial Costs | $ | 2,482 | $ | 3,394 | ||||
Severance | 1,692 | 1,953 | ||||||
Compensation and Benefits | 1,147 | 1,361 | ||||||
Professional Fees | 1,418 | 1,593 | ||||||
Other | 323 | 1,160 | ||||||
$ | 7,062 | $ | 9,461 | |||||
March 31, | December 31 | |||||
2021 | 2020 | |||||
Risk-free interest rate | 0.36 | % | 0.17%-0.42% | |||
Expected volatility | 87.8 | % | 82.8%-98.3% | |||
Expected dividend yield | 0 | % | 0% | |||
Expected life (in years) | 5.1 | 5.1 |
Number of Shares | Weighted Average Exercise Price | Weighted Average Contractual Term | Aggregate Intrinsic Value | |||||||||||||
(in years) | (in thousands) | |||||||||||||||
Outstanding as of December 31, 2020 | 533,559 | $ | 3.33 | 9.30 | $ | 8,494 | ||||||||||
Granted | 444,186 | 7.93 | — | — | ||||||||||||
Exercised | (203 | ) | 0.12 | — | — | |||||||||||
Forfeited | (14,188 | ) | 0.12 | — | — | |||||||||||
Outstanding as of March 31, 2021 | 963,354 | $ | 5.50 | 9.19 | $ | 6,863 | ||||||||||
Options exercisable at March 31, 2021 | 139,916 | $ | 8.29 | 7.35 | $ | 1,648 | ||||||||||
Weighted- Average | ||||||||
Restricted | Grant Date | |||||||
Stock Units | Fair Value | |||||||
Total nonvested units at December 31, 2020 | 69,749 | $ | 11.73 | |||||
Granted | 310,385 | 8.57 | ||||||
Total nonvested units at March 31, 2021 | 380,134 | $ | 9.27 | |||||
March 31, | March 31, | |||||||
2021 | 2020 | |||||||
Research and development expenses | $ | 414 | $ | 124 | ||||
General and administrative expenses | 1,766 | 410 | ||||||
$ | 2,180 | $ | 534 | |||||
8. Significant agreements
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Revenue by collaboration partner | ||||||||
Ares | $ | 2,800 | $ | 895 | ||||
Denali | 117 | 460 | ||||||
Total | $ | 2,917 | $ | 1,355 | ||||
Three Months Ended March 31, 2021 | Balance at December | Recognized | Impact of exchange rates | Balance at March | ||||||||||||
Contract liabilities: | ||||||||||||||||
Ares collaboration | $ | 37 | $ | (37 | ) | $ | 0 | $ | 0 | |||||||
Denali collaboration | 263 | (117 | ) | (146 | ) | 0 | ||||||||||
Total deferred revenue | $ | 300 | $ | (154 | ) | $ | (146 | ) | $ | 0 | ||||||
Periods | ||||
For the period April 1, 2021 to December 31, 2021 | $ | 801 | ||
2022 | 843 | |||
2023 | 854 | |||
2024 | 474 | |||
2025 | 486 | |||
Thereafter | 1,444 | |||
Total lease payments | $ | 4,902 | ||
Period | ||||
For the period April 1, 2021 to December 31, 2021 | $ | 56 | ||
2022 | 462 | |||
2023 | 474 | |||
2024 | 486 | |||
2025 | 498 | |||
Thereafter | 1,481 | |||
Total sublease receipts | $ | 3,457 | ||
On April 1, 2021, the Company, as borrower, entered into the Loan and Security Agreement with Horizon, Technology Finance Corporation as lender and collateral agent for itself. The Loan and Security Agreement provides
The term note matures on the48-monthdate.date, therefore $5 million plus an additional fee of $0.2 million becomes due on April 1, 2025, and $5 million plus an additional fee of $0.2 million will become due on June 22, 2025. The principal balance the Term Loan bears a floating interest. The interest rate is calculated initially and, thereafter, each calendar month as the sum of (a) the per annum rate of interest from time to time published in The Wall Street Journal as contemplated by the Loan and Security Agreement, or any successor publication thereto, as the “prime rate” then in effect, plus (b) 6.25%6.25%; provided that, in the event such rate of interest is less than 3.25%3.25%, such rate shall be deemed to be 3.25%3.25% for purposes of calculating the interest rate. Interest is payable on a monthly basis based on each Term Loan principal amount outstanding the preceding month.
The Company may, at its option upon at least five business days’ written notice to Horizon, prepay all or any portion of the outstanding Term Loan by simultaneously paying to Horizon an amount equal to (i) any accrued and unpaid interest on the outstanding principal balance of the Term Loan so prepaid; plus (ii) an amount equal to (A) if such Term Loan is prepaid on or before the Loan Amortization Date (as defined in the Loan and Security Agreement) applicable to such Term Loan, three percent of the then outstanding principal balance of such Term Loan, (B) if such Term Loan is prepaid after the Loan Amortization Date applicable to such Term Loan, but on or before the date
15
that is 12 months after such Loan Amortization Date, two percent of the then outstanding principal balance of such Term Loan, or (C) if such Term Loan is prepaid more than 12) months after the Loan Amortization Date applicable to such Term Loan, one percent of the then outstanding principal balance of such Term Loan; plus (iii) the outstanding principal balance of such Term Loan; plus (iv) all other sums, if any, that had become due and payable under the Loan and Security Agreement.
The Company’s debt obligation consisted of the following (in thousands)
Term Debt |
| |||||||
|
| September 30, |
|
| December 31, |
| ||
Term Loan A and B due April 2025 |
| $ | 5,000 |
|
| $ | 0 |
|
Term Loan C and D due June 2025 |
|
| 5,000 |
|
|
| 0 |
|
Term debt |
|
| 10,000 |
|
|
| 0 |
|
Less: Unamortized deferred issuance costs |
|
| (216 | ) |
|
| 0 |
|
Less: Warrant discount and interest |
|
| (249 | ) |
|
| 0 |
|
Total debt obligations- long term |
| $ | 9,535 |
|
| $ | 0 |
|
9. Stockholders’ Equity
Common Stock
On March 30, 2021, the Company entered into a Sales Agreement with SVB Leerink with respect to an "at-the-market” (“ATM”) offering program under which the Company could offer and sell, from time to time at its sole discretion, shares of its common stock, par value $0.0001 per share, having an aggregate offering price of up to $50.0 million (the “Placement Shares”) through SVB Leerink as its sales agent.
Upon delivery of a placement notice in April 2021, and subject to the terms and conditions of the Sales Agreement, SVB Leerink began to sell the Placement Shares. Under the Sales Agreement, the Company agreed to pay SVB Leerink a commission equal to three percent of the gross sales proceeds of any Placement Shares, and also provided SVB Leerink with customary indemnification and contribution rights. For the three months ended June 30, 2021, the Company issued and sold 979,843 shares, for gross proceeds of $9.5 million, resulting in net proceeds of $9.2 million after deducting sales commissions. On May 6, 2021, the Company terminated the Sales Agreement.
On August 13, 2021, the Company entered into a new Sales Agreement (the “2021 Sales Agreement”) with SVB Leerink with respect to an at-the-market offering program under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $50.0 million through SVB Leerink as its sales agent. As of September 30, 2021, Company had not offered or sold any common stock under the 2021 Sales Agreement.
On May 6, 2021, the Company entered into an underwriting agreement with SVB Leerink, as representative of the underwriters, relating to an underwritten public offering of 10.4 million shares of the Company’s common stock. The underwritten public offering resulted in gross proceeds of $73.1 million. The Company incurred $4.4 million in issuance costs and $0.5 million of professional fees associated with the underwritten public offering, resulting in net proceeds to the Company of $68.2 million.
Warrants
In connection with the entry into the Loan and Security Agreement (refer to Note 8), the Company has issued to Horizon warrants (each, individually, a “Warrant” and, collectively, the “Warrants”) to purchase an aggregate number of shares of the Company’s common stock in an amount equal to $100,000$100,000 divided by the exercise price for each respective Warrant.warrant. If at any time the Company files a registration statement relating to an offering for its own account, or the account of others, of any of its equity securities, the Company has agreed to include such number of shares underlying the Warrantswarrants in such registration statement as requested by the holder.
16
into, subject to certain adjustments as specified in the Warrant.
A summary of the warrant activity for the nine months ended September 30, 2021, is as follows:
Warrants | ||||
Outstanding at December 31, 2020 | 144,384 | |||
Exercises | (51,054 | ) | ||
Issued | 42,236 | |||
Expired | (10,837 | ) | ||
Outstanding at September 30, 2021 | 124,729 |
10. Stock Option Plans
Incentive Plans
The Company maintains two equity incentive plans (the "Plans") that provide for the granting of stock options, share appreciation rights, restricted shares, restricted share units, performance share units and certain other share based awards as provided in the Plans to certain employees, members of the board of directors, consultants or other service providers of the Company, with a prescribed contractual term not to exceed ten years. As of September 30, 2021, there were 196,910 shares of common stock available for grant under the Plans. Awards granted under the Plans generally vest over a four-year period with 25% or 28% of the award vesting on the first anniversary of the commencement date and the balance vesting monthly over the remaining three years. Grants are generally awarded with a contractual terms of 10 years from the date of the grant. For certain senior members of management and directors, the board of directors approved an alternative vesting schedule. The share reserve under one of the Plans automatically increases on January 1st each year, in an amount equal to 4% of the total number of shares outstanding as of December 31 of the preceding year.
Stock option valuation
The fair value of stock option grants is estimated using the Black-Scholes option-pricing model with the following assumptions:
|
| Black-Scholes Option- |
| |||||
|
| September 30, |
|
| December 31, |
| ||
Risk-free interest rate |
| 0.76%-0.86% |
|
| 0.17% – 0.42% |
| ||
Expected volatility |
|
| 92.9 | % |
| 82.8%-98.3% |
| |
Expected dividend yield |
|
| 0 | % |
|
| 0 | % |
Expected life (in years) |
|
| 5.1 |
|
|
| 5.1 |
|
The table below summarizes stock option activity under the Company’s stock option plans:
Stock Option Activity |
| |||||||||||||||
|
| Number of |
|
| Weighted |
|
| Weighted |
|
| Aggregate |
| ||||
|
|
|
|
|
|
|
| (in years) |
|
| (in thousands) |
| ||||
Outstanding as of December 31, 2020 |
|
| 533,559 |
|
| $ | 3.33 |
|
|
| 9.30 |
|
| $ | 8,494 |
|
Granted |
|
| 624,986 |
|
|
| 7.76 |
|
|
| 8.99 |
|
|
| (1,008 | ) |
Exercised |
|
| (19,805 | ) |
|
| 0.12 |
|
|
| 8.15 |
|
|
| 500 |
|
Forfeited and expired |
|
| (55,550 | ) |
|
| 5.98 |
|
|
| 9.38 |
|
|
| 157 |
|
Outstanding as of September 30, 2021 |
|
| 1,083,190 |
|
|
| 5.80 |
|
|
| 8.98 |
|
|
| 6,011 |
|
Options exercisable at September, 2021 |
|
| 232,626 |
|
|
| 5.86 |
|
|
| 8.26 |
|
|
| 2,801 |
|
17
The weighted average grant date fair value of options granted during the nine months ended September 30, 2021 and 2020 was $6.15 and $1.65 per share, respectively. The total fair value of options vested during the nine months ended September 30, 2021 and 2020 was $4.2 million and $4.4 million, respectively.
Restricted Stock Units
Time-Based Restricted Stock Units (RSU)
In February 2021, the Company issued 310,385 time-based RSUs to employees and directors under the Amended and Restated 2015 Plan. The weighted average grant date fair value of the time-based RSUs was $8.57 for the nine months ended September 30, 2021. The vesting for the time-based RSUs occurs either immediately, after one year or after four years. For the three and nine months ended September 30, 2021, the Company recognized approximately $0.4 million and $1.8 million in expenses related to the time-based RSUs.
The table below is a rollforward of all RSU activity under the Stock Incentive Plans The table below summarizes activity relating to RSUs for the nine months ended September 30, 2021:
RSU Activity |
| |||||||
|
| Restricted |
|
| Weighted- |
| ||
Total nonvested units at December 31, 2020 |
|
| 69,749 |
|
| $ | 11.73 |
|
Granted |
|
| 310,385 |
|
|
| 8.57 |
|
Vested |
|
| (83,889 | ) |
|
| 9.34 |
|
Total nonvested units at September 30, 2021 |
|
| 296,245 |
|
| $ | 9.10 |
|
Share-based Compensation
The Company recorded share-based compensation expense in the following expense categories for the three and nine months ended September 30, 2021 and 2020 of its consolidated statements of operations and comprehensive loss (in thousands):
Share-Based Compensation |
| |||||||||||||||
|
| For the Three Months |
|
| For the Nine Months |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Research and development expenses |
| $ | 1,115 |
|
| $ | 1,135 |
|
| $ | 4,197 |
|
| $ | 1,682 |
|
General and administrative expenses |
|
| 400 |
|
|
| 59 |
|
|
| 1,357 |
|
|
| 517 |
|
|
| $ | 1,515 |
|
| $ | 1,194 |
|
| $ | 5,554 |
|
| $ | 2,199 |
|
At September 30, 2021, there was $4.4 million of unrecognized stock-based compensation expense relating to stock options granted pursuant to the Stock Incentive Plans, which will be recognized over the weighted-average remaining vesting period of 2.7 years.
At September 30, 2021, there was $1.5 million of unrecognized stock-based compensation expense relating to the time-based RSUs granted pursuant to the Stock Incentive Plans, which will be recognized over the weighted-average remaining vesting period of 3.0 years.
18
11. Significant Agreements
License and Collaboration agreements
For the nine months ended September 30, 2021 and 2020, the Company had License and Collaboration agreements (“LCAs”) with Denali, Ares and AstraZeneca. The following table summarizes the revenue recognized in the Company’s consolidated statements of operations and comprehensive loss from these arrangements (in thousands):
Revenue by Collaboration Partner |
| |||||||||||||||
|
| For the Three Months |
|
| For the Nine Months |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Ares |
| $ | 0 |
|
|
| 8,691 |
|
|
| 2,800 |
|
|
| 9,945 |
|
Denali |
|
| 0 |
|
|
| 504 |
|
|
| 117 |
|
|
| 1,148 |
|
AstraZeneca |
|
| 500 |
|
| $ | 0 |
|
|
| 500 |
|
| $ | 0 |
|
Other |
|
| 251 |
|
| $ | 0 |
|
|
| 251 |
|
| $ | 0 |
|
Total |
| $ | 751 |
|
| $ | 9,195 |
|
| $ | 3,668 |
|
| $ | 11,093 |
|
2019 License and collaboration agreement with Ares Trading S.A.
Summary
On May 13, 2019, the Company entered into a licensing and collaboration agreement ("2019 LCA") with Ares, pursuant to which the Company granted the option to enter into a worldwide, exclusive license to certain patents and know-how to develop, manufacture and commercialize two separate mAb2 antibody products that each contain a specific Fcab and a Fab target pair (each a licensed product).
For the exclusive rights granted in relation to the first molecule, an option fee of $11.1 million was paid by Ares to the Company. Following receipt of the option fee, Ares became responsible for the development of the molecule and development, regulatory and sales-based royalties become payable to Company upon achievement of specified events.
On July 15, 2020, a deed of amendment (the “2020 Amendment”) was entered into in respect of the 2019 LCA. The 2020 Amendment had two main purposes (i) to grant additional options to acquire intellectual property rights for a third and fourth molecule; and (ii) to allow Ares to exercise its option early to acquire intellectual property rights to the second molecule included in the 2019 LCA as well as to terminate the R&D services. An option fee of $8.5 million was paid by Ares to the Company on exercise of the option to acquire rights to the second molecule.
During March 2021 Ares paid an option fee of $2.7 million to acquire the rights to the third molecule.
As a result of the 2020 Amendment, the maximum amount payable by Ares on the achievement of certain development and regulatory milestones in the aggregate was increased to $473.9 million, and the maximum amount payable on the achievement of certain commercial milestones was increased to $292.3 million. In addition, to the extent that any product candidates covered by the exclusive licenses granted to Ares are commercialized, the Company will be entitled to receive a single digit royalty based on a percentage of net sales on a country-by-country basis.
Revenue recognition
Management has considered the performance obligations identified in the Ares LCA and concluded that the option for the grant of intellectual property rights is not distinct from the provision of R&D services, as the R&D services would significantly modify the early-stage intellectual property. As a result, the option for the grant of intellectual property rights and the provision of R&D services has been combined into a single performance obligation for each individual molecule included in the 2019 LCA. The Company recognized revenue using the cost-to-cost method, which it believes best depicted the transfer of control of the services to the customer. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation.
19
The total transaction price for the 2019 LCA, was initially determined to be $15.4 million, consisting of the upfront payment for the first molecule and research and development funding for the research term for the second molecule. Variable consideration to be paid to the company upon reaching certain milestones had been excluded from the calculation, as at the inception of the contract, it was not probable that a significant reversal of revenue recognized would not occur in a subsequent reporting period.
There were two components identified in the 2020 Amendment, each of which was accounted for as a separate performance obligation. The first component, the grant of the additional options to acquire intellectual property rights for the third and fourth molecule, was deemed to be distinct, as the customer can benefit from it on its own, and it is independent of the delivery of other performance obligations in the 2019 LCA. Additionally, as the amount of consideration reflects a standalone selling price, the Company determined that the second component is accounted for as a separate contract.
The second component, which allowed the customer to exercise its option to acquire intellectual property rights to the second molecule early, is considered to be a modification of the 2019 LCA. This is because the option is not independent of the R&D services provided under the 2019 LCA, and therefore the goods and services are not distinct. The Company updated the transaction price and measure of progress for the performance obligation relating to this molecule.
For the three and nine months ended September 30, 2020, $0.2 million and $1.5 million was recognized in relation to the first antibody included in the 2020 Amendment.
During the nine months ended September 30, 2021, Ares provided notice of its intention to exercise its option granted under the 2020 Amendment to acquire the intellectual property rights for an additional molecule and $2.7 million was recognized at a point in time in respect of the option exercise.
License and collaboration agreement with Denali Therapeutics, Inc.
Summary
In August 2016 the Company entered into an exclusive license and collaboration agreement (the “Denali LCA”) with Denali. Under the terms of the Denali LCA, Denali was granted the right to nominate up to three Fcab targets for approval (“Accepted Fcab Targets”), within the first three years of the date of the agreement. Upon entering into the Denali LCA, Denali had selected Transferrin receptor as the first Accepted Fcab Target and paid an upfront fee of $5.5 million to the Company. In May 2018, Denali exercised its right to nominate two additional Fcab targets and identified a second Accepted Fcab Target. Denali made a one-time payment to the F-star group for the two additional Accepted Fcab Targets of $6.0 million and extended the time period for its selection of the third Accepted Fcab Target until August 2020.
Under the terms of the agreement the Company is entitled to receive contingent payments that relate to certain defined preclinical, clinical, regulatory, and commercial milestones with a maximum value of $49.5 million.
Revenue recognition
The Company has considered the performance obligations identified in the contracts and concluded that the grant of intellectual property rights is not distinct from the provision of R&D services, as the R&D services are expected to significantly modify the early-stage intellectual property. As a result, the grant of intellectual property rights and the provision of R&D services has been combined into a single performance obligation for this contract.
The initial transaction price for first Accepted Fcab Target was deemed to be $7.1 million consisting of $5.0 million for the grant of intellectual property rights and $2.1 million for R&D services. The initial transaction price for the second Accepted Fcab target was $5.1 million, consisting of $3.0 million for the grant of intellectual property rights and $2.1 million for R&D services. During the year ended December 31, 2019, the transaction price for the first Accepted Fcab was increased to $6.6 million due to achievement of a $1.5 million milestone that on initial recognition of the Denali LCA was not included in the transaction price, as it was not deemed probable that a reversal would not occur in a future reporting period.
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All performance obligations were deemed to have been fully satisfied during the year ended December 31, 2019 in respect of the first Accepted Fcab Target, and during the three months ended March 30, 2021 in respect of the second Accepted Fcab Target. As a result, 0 revenue was recognized in respect of these targets for the three months ended September 30, 2021. In respect of the second Accepted Fcab Target, for the nine months ended September 30, 2021 and 2020, the Company recognized $0.1 million and $1.1 million, respectively, and for the three months ended September 30, 2020, the Company recognized $0.5 million.
2021 Agreement with AstraZeneca
Summary
On July 7, 2021 the Company entered into the 2021 Salesa License Agreement with SVB Leerink with respect to an”at-the-market”(“ATM”) offering program under whichAstraZeneca AB. Under the terms of the agreement the Company could offerhas granted an exclusive license to certain patents and sell,know-how to develop, manufacture and commercialize STING inhibitor compounds. AstraZeneca will be responsible for all future research, development and commercialization activities.
For the exclusive rights granted, an initial upfront fee of $0.5 million was paid by AstraZeneca to the Company during the three months ended September 2021. The Company is entitled to receive additional contingent near-term preclinical milestones of $11.5 million, plus maximum contingent payments that relate to certain defined development and regulatory milestones of $96.5 million and commercial milestones of $221.3 million, as well as royalty payments based upon a single digit percentage on net sales of products developed. Pursuant to the STING Antagonist CVR Agreement, 80% of net proceeds received the Company under the License Agreement with AstraZeneca will be payable, pursuant to the Exchange Agreement, to common stockholders of Spring Bank as of November 19, 2020, immediately prior to the Closing of the transaction.
Revenue recognition
Management has identified a single performance obligation in the contract, which is the grant of intellectual property rights.
The total transaction price was initially determined to be $0.5 million, consisting only of the upfront payment. Variable consideration to be paid to the company upon reaching certain milestones has been excluded from the calculation, as at the inception of the contract, it is not probable that a significant reversal of revenue recognized would not occur in a subsequent reporting period. The transaction price was allocated to the single performance obligation, which was deemed to be fully satisfied on the grant of intellectual property rights, and therefore the initial upfront fee was recognized at a point in time.
In the three and nine months ended September 30, 2021, the Company recorded revenue of $0.5 million in respect of this contract.
Summary of Contract Assets and Liabilities
Up-front payments and fees are recorded as deferred revenue upon receipt or when due until such time as the Company satisfies its performance obligations under these arrangements. A contract asset is a conditional right to time atconsideration in exchange for goods or services that the Company has transferred to a customer. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional.
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The following table presents changes in the balances of the Company’s contract liabilities (in thousands):
|
| Deferred |
|
| Additions |
|
| Revenue |
|
| Impact of |
|
| Deferred |
| |||||
Deferred revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Ares collaboration |
| $ | 37 |
|
| $ | 0 |
|
| $ | (37 | ) |
| $ | 0 |
|
| $ | 0 |
|
Denali collaboration |
|
| 263 |
|
|
| 0 |
|
|
| (117 | ) |
|
| (146 | ) |
|
| 0 |
|
Total deferred revenue |
| $ | 300 |
|
| $ | 0 |
|
| $ | (154 | ) |
| $ | (146 | ) |
| $ | 0 |
|
During the nine months ended September 30, 2021, all revenue recognized by the Company as a result of changes in the contract liability balances in the respective periods was based on proportional performance.
12. Commitments and Contingencies
Lease Obligations
On January 27, 2021, the Company signed an operating lease for three years for its sole discretion, sharescorporate headquarters in Cambridge, United Kingdom, which has approximately 2.3 years remaining. The Company also has leases for the former Spring Bank headquarters and laboratory space in Hopkinton, Massachusetts, which are being subleased. The Company’s leases have remaining lease terms of approximately 7.1 years for its common stock, par value
Operating lease costs under the leases for the nine months ended September 30, 2021, Sales Agreement, SVB Leerink began to sellwere approximately $0.8 million.
The following table summarizes the Placement Shares. UnderCompany’s maturities of operating lease liabilities as of September 30, 2021 (in thousands):
Maturities of Operating Lease Liabilities |
| |||
Periods |
|
|
| |
For the period October 1, 2021 to December 31, 2021 |
| $ | 242 |
|
2022 |
|
| 978 |
|
2023 |
|
| 990 |
|
2024 |
|
| 474 |
|
2025 |
|
| 486 |
|
Thereafter |
|
| 1,444 |
|
Total lease payments |
| $ | 4,614 |
|
Sublease
The Company subleases the former Spring Bank offices in Hopkinton, Massachusetts. Operating sublease income under operating lease agreements for the nine months ended September 30, 2021, Sales Agreement, the Company agreed to pay SVB Leerinkwas $0.4 million. This sublease
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has a commission equal to three percentremaining lease terms of the gross sales proceeds7.1 years. Future expected cash receipts from our sublease as of any Placement Shares, and also provided SVB Leerink with customary indemnification and contribution rights. September 30, 2021, are as follows (in thousands):
Future Expected Cash Receipts From Sublease |
| |||
Period |
|
|
| |
For the period October 1, 2021 to December 31, 2021 |
| $ | 56 |
|
2022 |
|
| 462 |
|
2023 |
|
| 474 |
|
2024 |
|
| 486 |
|
2025 |
|
| 498 |
|
Thereafter |
|
| 1,481 |
|
Total sublease receipts |
| $ | 3,457 |
|
Service Agreements
As of May 6,September 30, 2021, the Company had issuedcontractual commitments of $2.6 million with a contract manufacturing organization (“CMO”) for activities that are ongoing or are scheduled to start between three and sold 979,843 shares, for gross proceedsnine months of $9.5 million, resulting in net proceedsthe date of $9.2 million after deducting sales commissions.
Contingent value rights
The acquisition-date fair value of the Contingent Value Rights ("CVR") liability represents the future payments that are contingent upon the achievement of sale or licensing for the STING product candidates. The fair value of the contingent value rights is based on the Company’s probability-weighted discounted cash flow assessment that considers probability and timing of future payments. The fair value measurement is based on significant Level 3 unobservable inputs such as the probability of achieving a sale or licensing agreement, anticipated timelines, and discount rate. The current liability of the CVR was $0.6 million and $2.1 million at September 30, 2021 Sales Agreement.and December 31, 2020, respectively. The long term liability of the CVR was $2.9 million and $0.4 million at September 30, 2021 and December 31, 2020, respectively. Changes in the fair value of the liability will be recognized in the consolidated statement of operations and comprehensive loss until settlement.
13. Subsequent Events
On May 6,October 19, 2021, the Company entered into an underwriting agreementa License and Collaboration Agreement with SVB Leerink, as representativeJanssen Biotech, Inc., one of the underwriters, relating to an underwritten public offeringJanssen Pharmaceutical Companies of approximately 9.3 million sharesJohnson & Johnson. The agreement was facilitated by Johnson & Johnson Innovation. Under the terms of the Company’s common stock, par value $0.0001 per share. The underwritten public offering resulted in gross proceedsagreement, F-star has granted Janssen a worldwide, exclusive royalty-bearing license to research, develop, and commercialize up to five novel bispecific antibodies directed to Janssen therapeutic targets using F-star’s proprietary Fcab™ and mAb2™ platforms. Janssen will be responsible for all research, development and commercialization activities under the agreement. Under the terms of $65.0 million. The Company incurred $3.9the agreement F-star is entitled to receive upfront fees of $17.5 million in issuance costs associated with the underwritten public offering, resulting intotal potential income of up to $1.35 billion. F-star is also eligible to receive potential tiered mid-single digit royalties on annual net proceeds to the Companysales.
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Item 2. Management’s Discussion and Analysis of $61.1 million.
The following information should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form
Our actual results and the timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements due to various important factors, risks and uncertainties, including, but not limited to, those set forth under “Forward-Looking Statements” included elsewhere in this Quarterly Report on Form
We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.
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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, projected costs, prospects, plans and objectives of management, are forward-looking statements. In some cases, you can identify forward-looking statements by terms including, but not limited to, “may,” “likely,” “will,” “should,” “would,” “design,” “expect,” “seek,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions.
These forward-looking statements include, but are not limited to, statements about:
Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Factors that could cause actual results or events to differ materially from the forward-looking statements that we make include, but are not limited to, the following:
You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be
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materially different from what we expect. You should also read carefully the factors described in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2021, to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. You are advised, however, to consult any further disclosures we make on related subjects in our subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, press releases, and our website. Any forward-looking statements that we make in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events.
Overview
F-star
Our Programs
F-star’s
F-star’s
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F-star’s
SB 11285, whichF-staris conducting an open-label, dose-escalation Phase 1 clinical trial with SB 11285 as an IV administered monotherapy,appeared to be well tolerated both alone and in combination with ananti-PD-L1antibody,atezolizumab across all dose levels tested to-date, including five dose levels as monotherapy and three dose levels as a combination. Initial analysis showed that pharmacokinetics (PK) were in-line with the predicted profile for rapid cellular uptake, a characteristic of second generation STING agonists. F-star is continuing with further dose-escalation and in patients with advanced solid tumors.F-starexpectsparallel pursuing strategic business development opportunities for SB 11285. We expect to report an update on this study inmid-2021.
Share Exchange Agreement
On November 20, 2020,F-starTherapeutics, Inc., the Company, formerly known as Spring Bank, Pharmaceuticals, Inc., completed a business combination (the “Transaction”) with
Under the terms of the Exchange Agreement, at the Closing, Spring Bank issued an aggregate of 4,620,618 shares of its common stock to
Pursuant to the Exchange Agreement, immediately prior to the Closing, certain investors in“Pre-Closing
Pursuant to the Exchange Agreement, all outstanding options to purchase Spring Bank common stock were accelerated immediately prior to the Closing and each outstanding option with an exercise price greater than the closing price of the stock on the Closing Date was exercised in full and all other outstanding options to purchase Company common stock were cancelled effective as of the Closing Date.
Immediately following the Reverse Stock Split and the Closing, there were approximately 4,449,559 shares of Spring Bank common stock outstanding. Following the Closing, the
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stockholders of
In addition, at the Closing, Spring Bank,
The CVR payment obligation expires on the later of 18 months following the Closing or the
At the Closing, Spring Bank,
The STING Antagonist CVRs are not transferable, except in certain limited circumstances, are not certificated or evidenced by any instrument, do not accrue interest, and are not registered with the SEC or listed for trading on any exchange. Until the STING Antagonist CVR Expiration Date, subject to certain exceptions, the Company is required to use commercially reasonable efforts to (a) consummate the Approved Development Agreement, (b) to perform the terms of the Approved Development Agreement and (c) pursue CVR Transactions. The STING Antagonist CVR Agreement became effective upon the Closing and, unless terminated earlier in accordance with its terms, will continue in effect until the STING Antagonist CVR Expiration Date or all CVR payment amounts are paid pursuant to their terms.
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rights agreement (CVR 2), under which 80% will be payable to stockholders of F-star that were previously stockholders of Spring Bank prior to the business combination between F-star and Spring Bank.
The acquisition-date fair value of the CVR liability represents the future payments that are contingent upon the achievement of sale or licensing for the product candidates. The fair value of the contingent consideration acquired of $2.5 million as of December 31, 2020, and $3.5 million as of March 31, 2021]September 30, 2021, is based on the Company’s probability-weighted discounted cash flow assessment that considers probability and timing of future payments. The fair value measurement is based on significant Level 3 unobservable inputs such as the probability of achieving a sale or licensing agreement, anticipated timelines, and discount rate. Changes in the fair value of the liability will be recognized in the consolidated statement of operations and comprehensive loss until settlement.
All issued and outstanding (the “2019 Plan”) were replaced by options and awards on the same terms (including vesting), of the combined company’s common stock, based on the Exchange Ratio.
The Company’s common stock, which wasis listed on the Nasdaq Capital Market, traded through the close of business on Friday, November 20, 2020, under the ticker symbol “SBPH” and continued trading on the Nasdaq Capital Market, on a post-Reverse Stock Split adjusted basis, under the ticker symbol “FSTX” beginning on Monday, November 23, 2020. Commencing on November 23, 2020, the Company’s common stock was represented by a new CUSIP number, 30315R 107. After the Closing of the Transaction, the Company had approximately $30 million in cash. The combined company is now headquartered out ofF-starLtd existing facilities in Cambridge, United Kingdom and office in Cambridge, MA.
The Transaction was accounted for as a business combination using the acquisition method of accounting under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805,(“ (“ASC 805”). The Transaction was accounted for as a reverse acquisition withdate (see Note 4 of the financial statements).
F-star
We continue to closely monitor the impact of theof theon our business, including how it willthe pandemic continues to impact operationsour employees, clinical trials, development programs, manufacturing supply, and the operationsother aspects of customers, vendors, and business partners. Management took action in April 2020 to temporarily furlough some of its workforce and took advantage of the U.K. Government Coronavirus Job Retention Scheme that provided funding to businesses with furloughed staff. The grant funding available covered 80% of furloughed employees’ wages plus employer National Insurance and pension contributions up to a maximum of £2,500 per month per furloughed employee. From December 2020 to April 2021, the U.K. government imposed a third national “lockdown”, severely impacting onday-to-dayactivities. The onset ofour operations. Overall, the global pandemic and consequent government-imposed restrictions have resulted in a three totrialstrial staffing at certain study sites combined with some investigative sites inability to support remote site monitoring. While the COVID-19 pandemic did not have a material adverse effect on our reported results for FS118, FS120, FS222 and SB 11285.the nine months ended September 30, 2021, we are unable to predict the ultimate impact that the pandemic may have on our business, future results of operations, financial position, or cash flows. The extent to whichCOVID-19impacts our future business, results of operation and financial conditionoperations may be impacted by the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, with confidence at this time, such as the continued duration of the outbreak,including new information thatwhich may emerge concerning the severity or other strains ofCOVID-19or the effectiveness of actions to containCOVID-19or treat its impact, among others. If the Company or any of the third parties with which we engage, however, were to experience shutdowns or other business disruptions,outbreak, including the ability to conduct business inemergence and spread of variants of COVID-19, such as the mannerdelta variant, and on the timelines presently planned could be materially and negatively affected, which could have a material adverse impact on our business, results of operation and financial condition. The estimates of the impact on the Company’s business may change based on new information that may emerge concerningCOVID-19and the actions by government authorities to contain it or treat its impact and the economic impact on local, regional, national, and international markets.
29
Recent Developments
Subsequent Events
On April 1,October 19, 2021, the Company entered into a Venture LoanLicense and SecurityCollaboration Agreement (the “Loan and Security Agreement”) with Horizon Technology Finance Corporation (“Horizon”) as lender and collateral agent for itself. The Loan and Security Agreement provides for four (4) separate and independent $2.5 million term loans (“Loan A”Janssen Biotech, Inc., “Loan B”, “Loan C”, and “Loan D”) (with each of Loan A, Loan B, Loan C and Loan D, individually a “Term Loan” and, collectively, the “Term Loans”), whereby upon the satisfaction of all the conditions to the fundingone of the Term Loans, each Term Loan would be deliveredJanssen Pharmaceutical Companies of Johnson & Johnson (“Janssen”). The agreement was facilitated by Horizon toJohnson & Johnson Innovation. Under the Company in the following manner: (i) Loan A was to be delivered by Horizon to the Company prior to April 1, 2021, (ii) Loan B was required to be delivered by Horizon to the Company prior to April 1, 2021, (iii) Loan C is required to be delivered by Horizon to the Company prior to June 30, 2021, and (iv) Loan D is required to be delivered by Horizon to the Company prior to June 30, 2021. The Company may only use the proceedsterms of the Term Loansagreement, F-star has granted Janssen a worldwide, exclusive royalty-bearing license to research, develop, and commercialize up to five novel bispecific antibodies directed to Janssen therapeutic targets using F-star’s proprietary Fcab™ and mAb2™ platforms. Janssen will be responsible for working capital or general corporate purposes as contemplated byall research, development and commercialization activities under the Loan and Security Agreement. The Company drew down $5 million on April 1, 2021.
Components of a placement notice in April 2021, and subject to the terms and conditions of the 2021 Sales Agreement, SVB Leerink began to sell the Placement Shares. The Company agreed to pay SVB Leerink a commission equal to three percent of the gross sales proceeds of any Placement Shares sold through SVB Leerink under the 2021 Sales Agreement, and also provided SVB Leerink with customary indemnification and contribution rights. As of May 6, 2021, the Company had issued and sold 979,843 shares, for gross proceeds of $9.5 million, resulting in net proceeds of $9.2 million after deducting sales commissions. On May 6, 2021, the Company terminated the 2021 Sales Agreement.
License revenue
To date, we have not generated any revenue from product sales, and we do not expect to generate any revenue from product sales for the foreseeable future. Our revenue consists of collaboration revenue under our license and collaboration agreements with Ares Trading S.A. (“Ares”) and, Denali Therapeutics, Inc. (“Denali”), and AstraZeneca, including amounts that are recognized related to upfront payments, milestone payments, option exercise payments, and amounts due to us for research and development services. In the future, revenue may include new collaboration agreements, additional milestone payments, option exercise payments, and royalties on any net product sales under our collaborations. We expect that any revenue we generate will fluctuate from period to period as a result of the timing and amount of license, research and development services, and milestone and other payments.
Operating Expenses
Research and development costs
Research and development costs are expensed as incurred. Research and development expenses are comprised of costs incurred in performing research and development activities, including salaries, share-based compensation and benefits, facilities costs and laboratory supplies, depreciation, amortization and impairment expense, manufacturing expenses and external costs of outside vendors engaged to conduct preclinical development activities and clinical trials as well as the cost of licensing technology. Typically, upfront payments and
Those expenses associated with R&D and clinical costs primarily include:
30
The Company recognizes external R&D costs based on an evaluation of the progress to completion of specific tasks using information provided to it by its internal program managers and service providers.
Research and development activities are central to the Company’s business models. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later stage clinical trials. As a result, the Company expects that research and development expenses will increase over the next several years as the Company increases personnel costs, initiate and conduct additional clinical trials and prepare regulatory filings related to the various product candidates.
The successful development of our product candidates is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of these product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from our product candidates. This is due to the numerous risks and uncertainties associated with developing products, including the uncertainty of:
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, the U.S. Food and Drug Administration, European Medicines Agency or another regulatory authority may require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or we may experience significant trial delays due to patient enrolment or other reasons, in which case we would be required to expend significant additional financial resources and time on the completion of clinical development. In addition, we may obtain unexpected results from our clinical trials, and we may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and
31
uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success.
In September 2021, the Company identified an error in its accounting treatment for research and development expenses. This error resulted in an overstatement of research and development expenses for the first six months of 2021 and accrued expenses and other current liabilities as of March 31, 2021 and June 30, 2021. The Company assessed the materiality of this error on prior period financial statements in accordance with the SEC Staff Accounting Bulletin Number 99, Materiality, and ASC 250-10, Accounting Changes and Error Corrections. The Company determined that this error was not material to the financial statements of any prior interim period. To correct the immaterial misstatement, the Company decreased accumulated deficit by $0.3 million as of June 30, 2021.
General and administrative expenses
General and administrative expenses consist primarily of salaries, related benefits, travel, and share-based compensation expense for personnel in executive, finance, legal and administrative functions. General and administrative expenses also include facility-related costs, patent filing and prosecution costs, insurance and marketing costs and professional fees for legal, consulting, accounting, audit, tax services and costs associated with being a public company. Other expense also includes foreign currency transaction losses. The Company expects that general and administrative expenses will increase in the future as the Company expands its operating activities and incurs costs of being a US public company.
Other income and expenses, net
Other income and expenses, net, is primarily rent received from subletting an office in the United States and interest received on overdue trade receivable balances, bank interest received, and interest expense, which is primarily bank interest payable and similar charges, the interest liability on leased assets and convertible debt notes, changes in the fair value of CVR and foreign exchange losses incurred. Foreign exchange gain (loss) is foreign exchange gains or losses due to the fluctuation of the GBP, U.S. dollar and/or the Euro. Change in the fair value of convertible debt is the fair value adjustment of the convertible notes as measured using level 3 inputs which was converted on November 20, 2020, with the transaction with Spring Bank.
Income tax
The Company wasis subject to corporate taxation in the United States, United Kingdom and Austria.
Our U.K.-establishedUK established entities have generated losses and some profits in the United Kingdom since inception and have therefore not paid significant U.K.UK corporation tax.F-starBiotechnologischeForschungs-undEntwicklungsges.m.b.H Our Austrian subsidiary has historical losses in Austria with more recent profits, which has resulted in payment of Austrian corporation tax in the years ended December 31, 2020, and 2019. The corporation tax benefit (tax) presented in the Company’s statements of comprehensive income (loss) represents the tax impact from its operating activities in the United States, United Kingdom and Austria, which have generated taxable income in certain periods. As the entities located in the United Kingdom carry out extensive research and development activities, they seek to benefit from the U.K.UK research and development tax credit cash rebate regime known as the Small and No research and development activities are carried out in Austria, so the Company is not able to utilize the research and development premium available under the Austrian corporation tax regime.
The tax credit received in the United Kingdom pursuant to the SME Program permits companies to deduct an extra 130% of their qualifying costs from their yearly profit or loss, as well as the normal 100% deduction, to make a total 230% deduction. If the company is incurring losses, it is entitled to claim a tax credit worth up to 14.5% of the surrenderable loss. To qualify for relief under the SME Program, companies are required to employ fewer than 500 staff and have a turnover of under €100.0 million or a balance sheet total of less than €86.0 million.
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Research and development tax credits received in the United Kingdom are recorded as a reduction in research and development expenses. The U.K.UK research and development tax credit is payable to companies after surrendering tax losses and is not dependent on current or future taxable income. As a result, it is not reflected as part of the income tax provision. If, in
During the future, any U.K.nine months ended September 30, 2021 the Company received $3.4 million in research and development tax credits generated are utilizedrelated to offset a corporate income tax liability in the United Kingdom, that portion would be recorded as a benefit within the income tax provision, and any refundable portion not dependent on taxable income would continue to be recorded as a reduction to research and development expenses.
Income tax expense was relatively flat compared tonot material for the three and nine months ended March 31, 2020.
Accrued Research and Development Expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a predetermined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to:
We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed, enrollment of patients, number of sites activated and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or amount of prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period. To date, we have not made any material adjustments to our prior estimates of accrued research and development expenses.
Contingent value rights
The acquisition-date fair value of the CVR liability represents the future payments that are contingent upon the achievement of sale or licensing for the STING product candidates. The fair value of the contingent value rights is based on the Company’s probability-weighted discounted cash flow assessment that considers probability and timing of future payments. The fair value measurement is based on significant Level 3 unobservable inputs such as the probability of achieving a sale or licensing agreement, anticipated timelines, and discount rate. Changes in the fair value of the liability will be recognized in the consolidated statement of operations and comprehensive loss until settlement.
33
Share-based compensation
The Company accounts for share-based compensation in accordance with ASC 718, “Compensation – Stock Compensation” (“ASC 718”). ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service period in the Company’s consolidated statements of operations and comprehensive loss.
The Company records the expense for option awards using a graded vesting method. The Company accounts for forfeitures as they occur. For share-based awards granted to
The fair value of stock options (“options”) on the grant date is estimated usingdetermined utilizing the Black-Scholes option-pricing model using the single-option approach. The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions, including an option’s expected term and the price volatility of the underlying stock, to determine the fair value of the award.
The Company classifies share-based compensation expense in its consolidated statements of operations and comprehensive loss Income in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.
Results of Operations
Comparison of the Three Months Ended March 31,three months ended September 30, 2021 and 2020
The following table below summarizes our results of operations for the three months ended March 31,September 30, 2021 and 2020 (in thousands):
Three Months Ended March 31, | ||||||||||||
2021 | 2020 | Change | ||||||||||
(in thousands) | ||||||||||||
Statements of Comprehensive Loss | ||||||||||||
License revenue | $ | 2,917 | $ | 1,355 | $ | 1,562 | ||||||
Operating expenses: | ||||||||||||
Research and development | 7,267 | 3,400 | 3,867 | |||||||||
General and administrative | 6,429 | 3,189 | 3,240 | |||||||||
Total operating expenses | 13,696 | 6,589 | 7,107 | |||||||||
Loss from operations | (10,779 | ) | (5,234 | ) | (5,545 | ) | ||||||
Other non-operating income (expense): | ||||||||||||
Other income (expense) | 1,018 | (1,527 | ) | 2,545 | ||||||||
Change in fair value of convertible notes | — | (386 | ) | 386 | ||||||||
Loss before income taxes | (9,761 | ) | (7,147 | ) | (2,614 | ) | ||||||
Provision for income taxes | (108 | ) | (12 | ) | (96 | ) | ||||||
Net loss | $ | (9,869 | ) | $ | (7,159 | ) | $ | (2,710 | ) | |||
|
| Three Months Ended September 30, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| Change |
| |||
|
| (in thousands) |
| |||||||||
Statements of Comprehensive Income |
|
|
|
|
|
|
|
|
| |||
License revenue |
| $ | 751 |
|
| $ | 9,195 |
|
| $ | (8,444 | ) |
Operating expenses: |
|
|
|
|
|
|
|
|
| |||
Research and development |
|
| 5,113 |
|
|
| 5,321 |
|
|
| (208 | ) |
General and administrative |
|
| 5,239 |
|
|
| 7,261 |
|
|
| (2,022 | ) |
Total operating expenses |
| $ | 10,352 |
|
| $ | 12,582 |
|
| $ | (2,230 | ) |
Loss from operations |
|
| (9,601 | ) |
|
| (3,387 | ) |
|
| (6,214 | ) |
Other non-operating income (expense): |
|
|
|
|
|
|
|
|
| |||
Other income (expense) |
|
| (746 | ) |
|
| 506 |
|
|
| (1,252 | ) |
Change in fair value of convertible notes |
|
| — |
|
|
| (446 | ) |
|
| 446 |
|
Change in fair value of liability |
|
| (444 | ) |
|
| — |
|
|
| (444 | ) |
Loss before income taxes |
|
| (10,791 | ) |
|
| (3,327 | ) |
|
| (7,464 | ) |
(Loss) benefit for income taxes |
|
| — |
|
|
| (124 | ) |
|
| 124 |
|
Net loss |
| $ | (10,791 | ) |
| $ | (3,451 | ) |
| $ | (7,340 | ) |
Licensing and Research & Development Services Revenue
Revenue for the three months ended March 31,September 30, 2021 was $2.9$0.8 million compared with $1.4to $9.2 million for the three months ended March 31,September 30, 2020, a decrease of approximately $1.6$8.4 million.
Research and Denali).
Total Research and development expenses were $5.1 million for the three months ended March 31,September 30, 2021, increased by $1.9as compared to $5.3 million fromfor the prior year's third quarter. This $0.2 million decrease for the three months ended March 31, 2020September 30, 2021, was due to an increase in clinical CRO costs of $1.6 million, due to a full quarter of Phase 1
34
clinical trial costs for FS120 and FS222 and SB11285 in 2021, a $0.9 million increase in R&D staff related costs, and $0.3 million in lab consumables, all offset by a $2.3 million reduction in the UK R&D tax credit, and decreases in manufacturing costs of $0.4 million and other allocated costs of $0.3 million.
General and administrative expense
General and administrative expense for the three months ended September 30, 2021, decreased by approximately $2.0 million over the prior comparable quarter, primarily due to a decrease in legal and professional costs of $2.6 million, due to costs incurred in the comparative period in preparation for the share exchange transaction with Spring Bank, and a decrease in staff costs of $0.6 million, offset by increases in insurance costs of $0.5 million, rent and repairs of $0.5 million, primarily due to the paymentleased buildings acquired in the Spring Bank transaction, and other administrative costs of an option fee$0.2 million.
Other income (expenses)
Other income (expense) for the three months ended September 30, 2021, consisted primarily of $2.7rental income of $0.2 million to acquire intellectual property rights, which was offset by a reduction in R&D service revenuesforeign exchange losses of $0.8$0.6 million and interest expense on the term debt of $0.3 million. In addition, there was a decreaseloss of $0.4 million for the change in overall revenuefair value of the CVR liability.
For the three months ended September 30, 2020, the total expense of $0.5 million consisted of other income of $0.8 million of foreign currency gains offset by $0.3 million of interest related to the convertible notes.
A gain of $0.4 million was recorded in relation to a fair value adjustment for the convertible notes.
Comparison of the nine months ended September 30, 2021 and 2020
The table below summarizes our results of operations for the nine months ended September 30, 2021 and 2020 :
|
| Nine Months Ended September 30, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| Change |
| |||
|
| (in thousands) |
| |||||||||
Statements of Comprehensive Income |
|
|
|
|
|
|
|
|
| |||
License revenue |
| $ | 3,668 |
|
| $ | 11,093 |
|
| $ | (7,425 | ) |
Operating expenses: |
|
|
|
|
|
|
|
|
| |||
Research and development |
|
| 20,536 |
|
|
| 10,695 |
|
|
| 9,841 |
|
General and administrative |
|
| 18,169 |
|
|
| 13,805 |
|
|
| 4,364 |
|
Total operating expenses |
| $ | 38,705 |
|
| $ | 24,500 |
|
| $ | 14,205 |
|
Loss from operations |
|
| (35,037 | ) |
|
| (13,407 | ) |
|
| (21,630 | ) |
Other non-operating income (expense): |
|
|
|
|
|
|
|
|
| |||
Other income (expense) |
|
| 230 |
|
|
| (1,164 | ) |
|
| 1,394 |
|
Change in fair value of convertible notes |
|
| — |
|
|
| (2,330 | ) |
|
| 2,330 |
|
Change in fair value of liability |
|
| (1,027 | ) |
|
| — |
|
|
| (1,027 | ) |
Loss before income taxes |
|
| (35,834 | ) |
|
| (16,901 | ) |
|
| (18,933 | ) |
(Loss) benefit for income taxes |
|
| (190 | ) |
|
| (171 | ) |
|
| (19 | ) |
Net loss |
| $ | (36,024 | ) |
| $ | (17,072 | ) |
| $ | (18,952 | ) |
Licensing and Research & Development Services Revenue
Revenue for the nine months ended September 30, 2021, was $3.7 million compared with $11.1 million for the nine months ended September 30, 2020, a decrease of $7.4 million.
Revenue from contracts with Ares decreased by $7.1 million due to a reduction in licensing revenue and R&D services revenue.
35
In addition, there was a $1.0 million decrease relating to licensing and R&D services for the second molecule in the Company’s License and Collaboration Agreementrevenue with Denali. All performance obligations relating to this moleculeDenali contract were satisfied in February 2021.
These were offset by $0.5 million in revenue related to the license agreement with AstraZeneca executed in July 2021 which resultedand $0.2 million in portion of revenue recognized during the three months ended March 31, 2021.
Research and development costs
Costs related to research and development for the threenine months ended March 31,September 30, 2021 increased bywas $20.5 million, an increase of approximately $3.9$9.8 million, compared to $7.3 million from $3.4$10.7 million for the threenine months ended March 31,September 30, 2020.
This $3.9$9.8 million increase for the nine months ended September 30, 2021, was primarily due to a $1.0 million increase in manufacturing costs, mainly due to an FS118 manufacturing batch in the first quarter of 2021, an increaseincreases in clinical CRO and clinical assay costs of $1.1$4.7 million, and $0.3 million respectively, due to the firsta full quarternine months of Phase 1 clinical trial costs for FS120 and FS222 and SB11285, a $3.0 million increase in manufacturing costs, $0.9 million in R&D staff costs, $0.8 million in share-based compensation expense, $0.5 million in laboratory consumables, and a $0.4 million decrease in the UK R&D tax incentive credit (which is recorded as a credit against R&D expenditure), offset by a decrease of $0.3 million in allocated costs and a decrease in other R&D costs of $0.1$0.2 million, due to the timing of other project-related activities. The remaining increase of $1.0 million is due to a $1.4 million decrease in the U.K. R&D tax incentive, which is allocated across all programs, offset by a $0.4 million increase in R&D staff costs.
General and administrative expense
General and administrative expense for the threenine months ended March 31,September 30, 2021 increased by approximately $3.2was $18.2 million, as compared to the three months ended March 31, 2020, to $6.4 million due to an increase of $1.4approximately $4.4 million, compared to $13.8 million for the nine months ended September 30, 2020.This increase was primarily due to $2.5 million in share-based compensation expense, $1.5 million in professional fees, insurance and other costs associated withof being a public company, $0.4 million in legal and professional fees, $0.3 million in otherIT costs and $0.6 million in rent and repairs, primarily duerelated to additional rent for the leased buildings acquired within the Spring Bank transaction.
Other income and expenses, net
Other income and expenses, net, for the three-month periodnine months ended March 31,September 30, 2021 of $1.0$0.2 million compared with net consisted of $0.5 million of other expenses of $1.5 million for the three month period ended March 31, 2020, was dueincome relating to sub-lease rental income, a gains of $2.2 million on foreign exchange transactions, a decreasegain of $0.3$0.2 million, inoffset by interest expense relating topayable on the convertible notes that were outstanding at March 31, 2020, and an increaseterm debt facility of $0.1 million of rental income. $0.5 million.
In addition, there was a chargean expense of $0.4$1.0 million for the change in fair value of the CVR.
For the nine months ended September 30, 2020, other expense of $1.2 million consisted of foreign currency losses of $0.9 million, interest expense of $0.8 million in relation to the convertible debt, offset by other income of $0.5 million from the UK government Coronavirus Job Retention Scheme, for staff that were furloughed in the for three months ended March 31,first half of 2020.
In addition, a fair value adjustment in respect of the convertible debt of $2.3 million was recorded.
Liquidity and Capital Resources
Sources of liquidity
From our inception through March 31,September 30, 2021, we have not generated any revenue from product sales, and we have incurred significant operating losses and negative cash flows from our operations. We do not expect to generate significant revenue from sales of any products for several years, if at all.
As of March 31,September 30, 2021, the Company had an accumulated deficit of $57.0$83.2 million, cash of $3.7$71.1 million and accounts payable and accrued expensesworking capital of $11.1$67.3 million. The future success of the Company is dependent on its ability to successfully obtain additional working capital, obtain regulatory approval for and successfully launch and commercialize its product candidates and to ultimately attain profitable operations.
36
cash equivalents on hand will be sufficient to fund its current operating plan and planned capital expenditures for at least the next 12 months.
Historically, we have financed our operations primarily with proceeds from the sale and issuance of equity securities, proceeds from the issuance of ordinarynotes payable and convertible preferred shares, proceeds from issuances in connection with a convertible note facility, proceeds received from upfront payments and development milestone payments in connection with our collaboration arrangements and payments received for providing research and development services. We expect this historical financing trend to continue if and until we are able obtain regulatory approval for and successfully commercialize one or more of our drug candidates, although there can be no assurance that we will obtain regulatory approval or successfully commercialize any of our current or planned future product candidates.
On March 30, 2021, the Company entered into a 2021 Sales Agreement with SVB Leerink LLC ("SVB Leerink") with respect to annetnet proceeds of $9.2 million after deducting sales commissions. On May 6, 2021, the Company terminated the Sales Agreement.
On August 13, 2021, the Company entered into a new Sales Agreement (the “2021 Sales Agreement”) with SVB Leerink with respect to an at-the-market offering program under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $50.0 million through SVB Leerink as its sales agent. As of September 30, 2021 Company had not offered or sold any common stock under the 2021 Sales Agreement.
On May 6, 2021, the Company entered into an underwriting agreement with SVB Leerink, as representative of the underwriters, relating to an underwritten public offering of approximately 9.310.4 million shares of the Company’s common stock, par value $0.0001 per share. The underwritten public offering resulted in gross proceeds of $65.0$73.1 million. The Company incurred $3.9$4.4 million in issuance costs and $0.5 million of professional fees associated with the underwritten public offering, resulting in net proceeds to the Company of $61.1$68.2 million.
On April 1, 2021, the Company, as borrower, entered into the Loan and Security Agreement with Horizon, Technology Finance Corporation, as lender and collateral agent for itself. The Loan and Security Agreement provides for four (4) separate and independent $2.5 million term loans (“Loan A”, “Loan B”, “Loan C”, and “Loan D”) (with each of Loan(Loan A, Loan B, Loan C, and Loan D, individually a “Term Loan” and, collectively, the “Term Loans”)D), whereby, upon the satisfaction of all the conditions to the funding of the Term Loans, each Term Loan wouldwill be delivered by Horizon to the Company in the following manner: (i) Loan A was to be delivered by Horizon to the Company prior toby April 1, 2021, (ii) Loan B was required to be delivered by Horizon to the Company prior toby April 1, 2021, (iii) Loan C is required to bewas delivered by Horizon to the Company prior toby June 30, 2021, and (iv) Loan D is required to bewas delivered by Horizon to the Company prior toby June 30, 2021. The Company may only use the proceeds of the Term Loans for working capital or general corporate purposes as contemplated by the Loan and Security Agreement. TheOn April 1, 2021, the Company drew down $5 million. On June 22, 2021, the Company drew down another $5 million on April 1, 2021.
Cash Flows
The following table summarizes our cash flows for each of the periods presented:
Three Months Ended March 31, | ||||||||||||
2021 | 2020 | Change | ||||||||||
(in thousands) | ||||||||||||
Net cash used in operating activities | $ | (14,378 | ) | $ | (1,524 | ) | $ | (12,854 | ) | |||
Net cash used in investing activities | (252 | ) | (62 | ) | 190 | |||||||
Net cash provided by financing activities | — | 500 | (500 | ) | ||||||||
Effect of exchange rate changes on cash | (216 | ) | (267 | ) | 51 | |||||||
Net increase in cash | $ | (14,846 | ) | $ | (1,353 | ) | $ | (13,493 | ) | |||
Summarized cash flow information |
| |||||||||||
|
| Nine Months Ended September 30, |
| |||||||||
|
| 2021 |
|
| 2020 |
|
| Change |
| |||
|
| (in thousands) |
| |||||||||
Net cash used in operating activities |
| $ | (34,048 | ) |
|
| (118 | ) |
| $ | (33,930 | ) |
Net cash used in investing activities |
|
| (643 | ) |
|
| (50 | ) |
|
| (593 | ) |
Net cash provided by financing activities |
|
| 87,048 |
|
|
| 850 |
|
|
| 86,198 |
|
Effect of exchange rate changes on cash |
|
| 167 |
|
|
| (56 | ) |
|
| 223 |
|
Net increase in cash |
| $ | 52,524 |
|
| $ | 626 |
|
| $ | 51,898 |
|
37
Operating activities
Net cash used of $14.4$34.0 million in operating activities for the threenine months ended March 31,September 30, 2021, consisted of the net loss of $9.9$36.0 million adjusted for changes in operating assets and liabilities of $6.2$5.1 million and offset by$1.7$7.1 million, primarily for share-based compensation expense of $2.2$5.6 million, fair value adjustment of the CVR liability of $1.0 million, depreciation and amortization of $0.5 million, non-cash interest expense of $0.1 million, depreciation of $0.1 million, and the deduction ofoffset by foreign exchange gains of $0.7$0.1 million.
Net cash used of $1.5$0.1 million in operating activities for the threenine months ended March 31,September 30, 2020, was primarily due to a net loss of $7.2$17.1 million offset by $2.6changes in operating assets and liabilities of $9.8 million and non-cash charges ofitems which charges included share-based compensation of $0.5$2.2 million, foreign exchange losses of $1.3$1.0 million, depreciation of $0.2$0.9 million, non-cash interest expense of $0.3$0.8 million relating to the convertible notes and changes in fair value of convertible notes of $0.4$2.3 million. There was also an adjustment for changes in operating assets and liabilities of $3.0 million.
Investing activities
For the threenine months ended March 31,September 30, 2021 and 2020, net cash used in investing activities was $0.3$0.6 million and $0.1 million, respectively. Company acquiredIn both periods this related to the purchase of capital equipment of $0.3 million inequipment.
Financing activities
For the threenine months ended March 31, 2021 and $0.1 million in the three months ended March, 31, 2020.
For the threenine months ended March 31,September 30, 2020, net cash provided by financing activities was $0.5$0.9 million, which was due togenerated from the issuance of convertible notes.
Future Funding Requirements
The Company has incurred significant losses and has an accumulated deficit of $57.0$83.2 million as of March 31,September 30, 2021.and clinical trial activities.activities. As of May 17,November 10, 2021 the date of issuance of the consolidated financial statements, after proceeds from Sales AgreementCompany’s cash and drawdown of the Term Loans, the Company’s cash of approximately $76.3 millionequivalents on hand will be sufficient to fund its current operating plan and planned capital expenditures for at least the next 12 months.
The Company may continue to seek additional fundingworking capital through publicthe sale and issuance of equity private equity,securities, debt financing, collaboration partnerships,arrangements or other sources. There are no assurances, however, that the Company will be successful in raising additional working capital, or if it is able to raise additional working capital, it may be unable to do so on commercially favorable terms. The Company’s failure to raise additional capital or enter into other suchfinancing arrangements if and when needed would have a negativean adverse impact on its business, results of operations and financial condition and its ability to develop its product candidates
Our future capital requirements will depend on many factors, including:
38
Critical Accounting Policies and Significant Judgments and Estimates
Our condensed consolidated financial statements are prepared in accordance with United States generally accepted accounting principles.U.S. GAAP and the rules and regulations of the SEC for interim financial statements. The preparation of our condensed consolidated financial statements and related disclosures requires our management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue, costs and expenses and related disclosures. We believe that the estimates and assumptions underlying the accounting policies described therein may have the greatest potential impact on our consolidated financial statements and, therefore, consider these to be our critical accounting policies. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these current estimates based on different assumptions and under different conditions. There have been no material changes to the Company’s critical accounting policies and estimates as discusseddisclosed in the Company’s Annual Report filed on SEC Form
Contractual Obligations and Commitments
We enter into contracts in the normal course of business with third-party service providers for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes. We have not included our payment obligations under these contracts in the table as these contracts generally provide for termination upon notice, and therefore, we believe that our
Off-Balance
We did not have during the periods presented, and we do not currently have, any
Emerging Growth Company and Smaller Reporting Company Status
We are an emerging growth company, (“EGC”) as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). We will remain an EGC until the earlier of (1) the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering (December 31, 2021), (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule
39
which we have issued more than $1.0 billion in
We are also a smaller reporting company as defined under the Exchange Act. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) our voting and
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company, as defined in Securities Exchange Act of 1934, as amended, for this reporting period and are not required to provide the information required under this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of March 31,September 30, 2021, our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rulesduedetermined the material weaknesses in our internal controls as previously disclosed in our Annual Report on Form 10-k10-K for the year ended December 31, 20220,2020, as described below, our disclosure controls and procedures were not effective as of March 31,September 30, 2021.
Management’s Annual Report on Internal Control over Financial Reporting
We have performed an evaluation of the effectiveness of our internal control over financial reporting, based on criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in its 2013 Internal Control-Integrated Framework. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our internal control over financial reporting was not effective as of March 31,September 30, 2021, due to material weaknesses in internal control over financial reporting, associated with (i) the lack of formal policies and procedures and sufficient complement of personnel to implement effective segregation of duties and (ii) the lack of sufficient formality and evidence of controls over key reports, contracts and spreadsheets.
40
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future years are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As an EGC under the JOBS Act, we are exempt from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002.
Remediation Plans
As discussed above, the material weaknesses over effective controls on the financial statement close and reporting process as well as lack of an effective control environment with formal processes and procedures and not having sufficient formality and evidence of controls as of December 31, 2020, were not fully remediated as of March 31,September 30, 2021. We have commenced measures to remediate these material weaknesses and have hired additional finance and accounting personnel during the fourth quarter of 2020 with appropriate expertise to perform specific functions which we believe will allow for proper segregation of duties, design key controls and implement improved processes and internal controls. We will continue to assess our finance and accounting staffing needs to ensure remediation of these material weaknesses. The material weaknesses will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in RulesMarch 31,September 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
41
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any material litigation.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the SEC on March 30, 2021, which could materially affect our business, financial condition, or results of operations. ThereExcept as disclosed below, there have been no material changes to the risk factors described in our Annual Report on Form2021.
Intellectual property rights of third parties could adversely affect our ability to commercialize our product candidates, such that we could be required to litigate or obtain licenses from third parties in order to develop or market our product candidates. Such litigation is costly and any required licenses may not be available on commercially reasonable terms.
Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts. Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. However, our research, development and commercialization activities may be subject to claims that we infringe or otherwise violate patents or other intellectual property rights owned or controlled by third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, derivation proceedings, oppositions and inter partes reexamination proceedings before the USPTO, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates.
In particular, we are aware of a “method of use” patent issued in 2021 in the United States to E.R. Squibb & Sons, L.L.C. that expires in 2029, subject to the timely payment of maintenance fees and absent any patent term extension, and which includes claims directed to a method for treating cancer in a subject comprising administering to the subject an anti-LAG-3 antibody and an anti-PD-L1 antibody, which antibodies are specified in a subclaim as being in a bispecific molecule. We believe, based on our review of this U.S. patent, that the patent claims are impermissibly broad and that there would be strong arguments available to us should we decide to challenge its validity in court or USPTO post-grant proceedings, based on prior art and lack of written description and enablement for the entire scope of the claims. If we succeed in developing and obtaining regulatory approval to market our product candidate FS118 in the future, this patent, prior to its expiration, could impact our commercial plans for FS118 in the United States. We do not expect the patent to have any impact on commercialization of FS118 outside of the United States, and we do not expect the patent to impact our pre-commercial development of FS118 inside or outside of the United States. We are also aware of a “second medical use” patent issued in 2021 in Europe to Bristol-Myers Squibb Company, which includes claims protecting until 2036 (subject to the timely payment of annual renewal fees and absent any supplementary protection certificates based on the patent) an anti-PD-1 or anti-PD-L1 antibody that inhibits PD-1 activity for use in a method for treating a subject identified as HPV positive and afflicted with a tumor derived from a HPV positive squamous cell carcinoma head and neck cancer, the method comprising administering to the subject a therapeutically effective amount of the antibody. Multiple parties, including Regeneron Pharmaceuticals, Inc. and Merck Sharp and Dohme Corp, have filed oppositions at the European Patent Office challenging the validity of this European patent. We believe, based on our review of this European patent and the oppositions that have been filed, that there are strong grounds to argue that the patent is invalid due to lack of novelty and inventive step based on prior art as well as impermissible added matter and lack of sufficiency. If not revoked or amended to a form that poses no or a sufficiently reduced risk to our business, this patent, prior to its expiration, could impact our commercial plans for FS118 and FS222 in Europe, but we do not
42
expect the patent to impact our pre-commercial development efforts. Patent litigation is costly and time-consuming and there is no assurance that we would prevail, should we initiate or defend such litigation. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that we may be subject to claims of infringement of the patent rights of third parties.
Our competitive position may suffer if patents issued to third parties or other third-party intellectual property rights cover our products or product candidates or elements thereof, our manufacture or uses relevant to our development plans, the targets of our mAb2 product candidates, or other attributes of our mAb2 product candidates or our mAb2 technology. In such cases, we may not be in a position to develop or commercialize products or product candidates unless we successfully pursue litigation to nullify or invalidate the third-party intellectual property right concerned or enter into a license agreement with the intellectual property right holder, if available on commercially reasonable terms or at all.
It is also possible that we fail to identify relevant patents or patent applications. For example, certain U.S. applications filed after November 29, 2000 that will not be filed outside the United States may remain confidential until issuance of a patent. In general, patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications relating to our products or platform technology could have been filed by others without our knowledge. Furthermore, we operate in a highly competitive field, and given our limited resources, it is unreasonable to monitor all patent applications purporting to gain broad coverage in the areas in which we are active. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our platform technologies, our products or the use of our products.
Parties making claims of infringement against us or defending against our invalidity actions may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. If we fail in any such dispute, in addition to being forced to pay damages, we or our licensees may be temporarily or permanently prohibited from commercializing any of our product candidates that are held to be infringing. We might, if possible, also be forced to redesign product candidates so that we no longer infringe the third-party intellectual property rights. We may be required to seek a license to any such technology that we are found to infringe, which license may not be available on commercially reasonable terms, or at all. Even if we or our collaboration partners obtain a license, it may be non-exclusive; thereby giving our competitors access to the same technologies licensed to us or our licensors or collaboration partners. Moreover, such a license may require us to pay royalties to the licensor; thus, reducing our expected revenues. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent in the United States. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business.
In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, they could have a substantial adverse effect on our share price. Such litigation or proceedings could substantially increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
In addition, if the breadth or strength of protection provided by our or our collaboration partners’ patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
The exhibits filed as part of this Quarterly Report on
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EXHIBIT INDEX
* | Filed herewith. |
± | Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[***]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
F-star | |||||||||
Date: | By: | /s/ Eliot R. Forster | |||||||
Eliot R. Forster, Ph.D. | |||||||||
President and Chief Executive Officer |
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