☒ |
|
March 31,
2021☐ |
|
Spring Bank Pharmaceuticals, Inc.
|
| |
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 |
| N/A |
(Address of principal executive offices) | (Zip Code) | |
Title of Each Class |
|
| |||
Common Stock, $0.0001 par value per share |
FSTX | The Nasdaq Stock Market | (Nasdaq Capital Market) |
| Large accelerated filer |
| ☐ | Accelerated filer |
| ☐ | |
Non-accelerated filer |
| ☒ | Smaller reporting company | ☒ | ||
| Emerging growth company |
| ☒ | ||||
As
Item June 30, December 31, 2020 2019 ASSETS (unaudited) Current assets: Cash and cash equivalents $ 8,531 $ 28,709 Marketable securities 14,990 25,746 Prepaid expenses and other current assets 2,717 3,522 Total current assets 26,238 57,977 Property and equipment, net 2,043 2,234 Operating lease right-of-use assets 2,576 2,717 Restricted cash 234 234 Other assets — 35 Total $ 31,091 $ 63,197 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 2,530 $ 2,210 Accrued expenses and other current liabilities 2,239 2,438 Accrued interest payable — 403 Operating lease liabilities, current 364 355 Total current liabilities 5,133 5,406 Convertible term loan, net of unamortized discount — 19,070 Warrant liabilities 38 299 Operating lease liabilities, noncurrent 2,688 2,869 Other long-term liabilities — 27 Total liabilities 7,859 27,671 Commitments and contingencies (Note 11) Stockholders’ equity: Preferred stock, $0.0001 par value—authorized, 10,000,000 shares at June 30, 2020 and December 31, 2019; 0 shares issued or outstanding at June 30, 2020 and December 31, 2019 — — Common stock, $0.0001 par value—authorized, 200,000,000 shares at June 30, 2020 and December 31, 2019; 17,248,545 and 16,513,763 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively 2 2 Additional paid-in capital 164,118 161,924 Accumulated deficit (140,887 ) (126,165 ) Accumulated other comprehensive loss (1 ) (235 ) Total stockholders’ equity 23,232 35,526 Total $ 31,091 $ 63,197 For the Three Months Ended June 30, For the Six Months Ended June 30, 2020 2019 2020 2019 Operating expenses: Research and development $ 3,204 $ 7,275 $ 8,507 $ 12,842 General and administrative 2,164 2,490 5,043 5,300 Total operating expenses 5,368 9,765 13,550 18,142 Loss from operations (5,368 ) (9,765 ) (13,550 ) (18,142 ) Other income (expense): Interest income 44 325 285 686 Interest expense (35 ) — (511 ) — Loss on extinguishment of convertible term loan (1,207 ) — (1,207 ) — Change in fair value of warrant liabilities 22 4,885 261 7,706 Net loss (6,544 ) (4,555 ) (14,722 ) (9,750 ) Unrealized gain/(loss) on marketable securities 157 (97 ) 234 (213 ) Comprehensive loss $ (6,387 ) $ (4,652 ) $ (14,488 ) $ (9,963 ) Net loss per common share - basic and diluted $ (0.38 ) $ (0.28 ) $ (0.88 ) $ (0.59 ) Weighted-average number of shares outstanding - basic and diluted 17,052,088 16,443,379 16,787,919 16,440,192 For the Three Months Ended Common Stock Additional Paid-in Accumulated Other Comprehensive Total Stockholders’ June 30, 2020 Shares Amount Capital Deficit Income (Loss) Equity Balance at March 31, 2020 16,582,444 $ 2 $ 162,771 $ (134,343 ) $ (158 ) $ 28,272 Stock-based compensation — — 449 — — 449 Issuance of common stock for services rendered 17,006 — 25 — — 25 Issuance of common stock in connection with at-the-market offering, net of issuance costs 649,095 819 819 Convertible term loan warrant amendment 54 54 Net unrealized gain on marketable securities — — — — 157 157 Net loss — — — (6,544 ) — (6,544 ) Balance at June 30, 2020 17,248,545 $ 2 $ 164,118 $ (140,887 ) $ (1 ) $ 23,232 For the Three Months Ended Common Stock Additional Paid-in Accumulated Other Comprehensive Total Stockholders’ June 30, 2019 Shares Amount Capital Deficit Income (Loss) Equity Balance at March 31, 2019 16,442,532 $ 2 $ 158,928 $ (107,263 ) $ (121 ) $ 51,546 Stock-based compensation — — 982 — — 982 Issuance of common stock for services rendered 16,023 — 59 — — 59 Issuance of common stock in connection with at-the-market offering, net of issuance costs 600 6 6 Net unrealized loss on marketable securities — — — — (97 ) (97 ) Net loss — — — (4,555 ) — (4,555 ) Balance at June 30, 2019 16,459,155 $ 2 $ 159,975 $ (111,818 ) $ (218 ) $ 47,941 For the Six Months Ended Common Stock Additional Paid-in Accumulated Other Comprehensive Total Stockholders’ June 30, 2020 Shares Amount Capital Deficit Income (Loss) Equity Balance at December 31, 2019 16,513,763 $ 2 $ 161,924 $ (126,165 ) $ (235 ) $ 35,526 Stock-based compensation — — 1,241 — — 1,241 Issuance of common stock for services rendered 43,887 — 50 — — 50 Issuance of common stock in connection with at-the-market offering, net of issuance costs 690,895 849 849 Convertible term loan warrant amendment 54 54 Net unrealized gain on marketable securities — — — — 234 234 Net loss — — — (14,722 ) — (14,722 ) Balance at June 30, 2020 17,248,545 $ 2 $ 164,118 $ (140,887 ) $ (1 ) $ 23,232 For the Six Months Ended Common Stock Additional Paid-in Accumulated Other Comprehensive Total Stockholders’ June 30, 2019 Shares Amount Capital Deficit Income (Loss) Equity Balance at December 31, 2018 16,434,614 $ 2 $ 157,931 $ (102,068 ) $ (5 ) $ 55,860 Stock-based compensation — — 1,895 — — 1,895 Issuance of common stock for services rendered 23,941 — 143 — — 143 Issuance of common stock in connection with at-the-market offering, net of issuance costs 600 6 6 Net unrealized loss on marketable securities — — — — (213 ) (213 ) Net loss — — — (9,750 ) — (9,750 ) Balance at June 30, 2019 16,459,155 $ 2 $ 159,975 $ (111,818 ) $ (218 ) $ 47,941 For the Six Months Ended June 30, 2020 2019 Cash flows from operating activities: Net loss $ (14,722 ) $ (9,750 ) Adjustments for: Depreciation and amortization 191 171 Operating lease right-of-use asset amortization 141 130 Change in fair value of warrant liabilities (261 ) (7,706 ) Loss on extinguishment of convertible term loan 1,207 — Non-cash interest expense 77 — Non-cash investment income (expense) (244 ) 72 Non-cash stock-based compensation 1,291 2,013 Changes in operating assets and liabilities: Prepaid expenses and other current assets 805 (753 ) Other assets 35 132 Accounts payable 320 (155 ) Accrued expenses and other liabilities (629 ) 1,081 Operating lease liabilities (172 ) — Net cash used in operating activities (11,961 ) (14,765 ) Cash flows from investing activities: Proceeds from sale of marketable securities 32,234 16,787 Purchases of marketable securities (21,000 ) (6,000 ) Purchases of property and equipment — (205 ) Net cash provided by investing activities 11,234 10,582 Cash flows from financing activities: Payment of convertible term loan and prepayment fee (20,300 ) — Proceeds from issuance of common stock in connection with at-the-market offering, net of issuance costs 849 6 Cash (used in) provided by financing activities (19,451 ) 6 Net decrease in cash, cash equivalents and restricted cash (20,178 ) (4,177 ) Cash, cash equivalents and restricted cash, beginning of period 28,943 14,958 Cash, cash equivalents and restricted cash, end of period $ 8,765 $ 10,781 Supplemental disclosures of cash flow information: Cash paid for taxes $ 7 $ 17 Cash paid for interest, net $ 837 $ — Nature of Business raise additional working capital, it may be unable to do so on commercially favorable terms. The Company’s product candidates. FASB. The accompanying consolidated financial statements include the accounts of significant suppliers government-insured limits. The Company equipment been recorded. Services: The promises under the Company’s collaboration agreements may include research and development services to be performed by the Company on behalf of the partner. Payments or reimbursements resulting from the Company’s research and development efforts are recognized as the services are performed and presented on a gross basis because the Company is the principal for such efforts. The prepaid amounts are expensed as the related goods are delivered or the services are performed. For share-based awards granted to classified or in which the award recipient’s service payments are classified. for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820, following: liabilities. can be corroborated by observable market data. other current assets, research and development incentives receivable, accounts payable and accrued liabilities and other current liabilities approximate their fair values, due to their short-term nature. Company’s tax returns. Deferred tax assets and liabilities are determined realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. contingencies. The Company Business CombinationSpring Bank Pharmaceuticals,PART I.FINANCIAL INFORMATIONPage 2 Item 1. 3 3 4 575 6 87 Item 2. 2327 Item 3. 3440 Item 4. 3440 PART II.OTHER INFORMATIONItem 1.35Item 1A.356.3941 40Item 1A. 41 Item 2 41 Item 3 41 Item 4 41 Item 5 41 Item 6. 41 42 43 such asincluding, 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.•our proposed combination with F-star Therapeutics Limited (“F-star”);•our ongoing and planned preclinical studies and clinical trials;•preclinical study data and clinical trial data and the timing of results of our ongoing clinical studies and/or trials; and•our estimates regarding prospects, strategies, expenses, operating capital requirements, results of operations and needs for additional financing.We•Our proposed business combination with F-star is subject to a number of closing conditions, including a condition requiring our stockholders to approve the issuance of Spring Bank common stock at the closing of the proposed combination, and it may never occur. Even if this proposed combination is completed, the number of shares of our common stock to be issued to the holders of share capital of F-star will be based on an exchange ratio formula that is subject to adjustment based on, among other things, the amount of our net cash upon the closing of the business combination and the amount of proceeds from a concurrent private placement conducted by F-star. This exchange ratio is adjustable not based on the value of our shares of common stock or on the value of the share capital of F-star. The proposed combination also contemplates that our stockholders as of a date prior to the closing of the business combination will receive two separate contingent value rights related to our STING programs. There can be no assurance that our stockholders will ever receive payment pursuant to these rights, and these rights may expire valueless.•We are very early in our development efforts and our product candidates may not be successful in later stage clinical trials. Results obtained in our preclinical studies and clinical trials to date are not necessarily indicative of results to be obtained in future clinical trials. As a result, our product candidates may never be approved as marketable therapeutics.•We rely, and expect to continue to rely, on third parties to conduct our clinical trials and to manufacture our product candidates for preclinical and clinical testing. These third parties may not perform satisfactorily, which could delay our product development activities.•If we are unable to adequately protect our proprietary technology or obtain and maintain issued patents which are sufficient to protect our product candidates, others could compete against us more directly, which would have a material adverse impact on our business, results of operations, financial condition and prospects.•Business interruptions resulting from the coronavirus disease 2019 (COVID-19) outbreak or similar public health crises could cause a disruption of the development of our product candidates and adversely impact our business.risk factors described in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, as filed with the Securities and Exchange Commission (the “SEC”) on February 14, 2020 and May 7, 2020, respectively,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 onSPRING BANK PHARMACEUTICALS, INC.CONSOLIDATED BALANCE SHEETSData)Amounts) $ 3,680 $ 18,526 2,799 0 3,308 3,976 4,017 3,563 13,804 26,065 1,063 789 3,978 2,782 14,980 14,926 19,157 18,986 454 61 $ 53,436 $ 63,609 $ 4,084 $ 4,597 7,062 9,461 2,200 2,080 969 539 0 300 14,315 16,977 3,385 2,622 320 440 576 576 18,596 20,615 0 0 0 0 1 1 93,418 91,238 (1,542 ) (1,077 ) (57,037 ) (47,168 ) 34,840 42,994 $ 53,436 $ 63,609 SPRING BANK PHARMACEUTICALS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSSThousands,thousands, Except Share and Per Share Data)Amounts) $ 2,917 1,355 7,267 3,400 6,429 3,189 13,696 6,589 (10,779 ) (5,234 ) 1,018 (1,527 ) 0 (386 ) (9,761 ) (7,147 ) (108 ) (12 ) $ (9,869 ) $ (7,159 ) $ (9,869 ) $ (7,159 ) $ (1.08 ) $ (3.92 ) 9,100,273 1,826,070 $ (9,869 ) (7,159 ) (465 ) 23 $ (10,334 ) $ (7,136 ) SPRING BANK PHARMACEUTICALS, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYFOR THE THREE MONTHS ENDED JUNE 30, 2020 AND 2019Thousands, Except Share and Per Share Data)Thousands) $ (9,869 ) (7,159 ) 2,180 534 (670 ) 1,294 (9 ) (1 ) 144 180 77 256 386 278 136 (2,805 ) 0 701 1,389 (413 ) 1,184 (548 ) 1,497 (2,473 ) (1,427 ) (304 ) 368 (272 ) (161 ) (14,378 ) (1,524 ) (267 ) 0 15 0 0 (62 ) (252 ) (62 ) 0 500 0 500 (14,630 ) (1,086 ) (216 ) (267 ) 18,526 4,901 $ 3,680 $ 3,548 $ 0 $ 17 Purchases of property and equipment included in accounts payable and accrued expenses Non-cash investing and financing activities: Additions to ROU assets obtained from new operating lease liabilities SPRING BANK PHARMACEUTICALS, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYFOR THE SIX MONTHS ENDED JUNE 30, AND 2019Thousands, Except Share and Per Share Data)thousands, except share amounts)
Other
Loss
Stockholders’ (465 ) (465 ) 203 — — — 2,180 2,180 (9,869 ) (9,869 ) 9,100,320 $ 1 $ 93,418 $ (1,542 ) $ (57,037 ) $ 34,840
preferred shares
of par Value
stock for services rendered 6,720 —
stock in connection
with
issuance costs 10,450 — 23 23
compensation 534 534 (7,159 ) (7,159 )
2020 4,145,611 1 32,252 (1,611 ) (28,708 ) 1,934 SPRING BANK PHARMACEUTICALS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(In Thousands)See accompanying notes to consolidated financial statements.Spring Bank Pharmaceuticals,NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESSpring Bank Pharmaceuticals, and Summary of Significant Accounting Policies (theengageddedicated to developing next generation immunotherapies to transform the lives of patients with cancer.discoverychallenges facing current immuno-oncology therapies, due to the strong pharmacology enabled by tetravalent bispecific binding.developmentneck cancer patients. FS118 is a tetravalent mAb2 bispecific antibody targeting two receptors,novel therapeuticswhich are established pivotal targets in immuno- oncology. F-star’s second product candidate, FS120, aims to improve checkpoint inhibitor and chemotherapy outcomes and is a mAb2 bispecific antibody that is designed to bind to and stimulate OX40 and CD137, two proteins found on the surface of T cells that both function to enhance T cell activity. F-star’s third product candidate, FS222, aims to improve outcomes in low PD-L1 expressing tumors and is a mAb2 bispecific antibody that is designed to target both the costimulatory CD137 and the inhibitory PD-L1 receptors, which are co-expressed in a number of tumor types. SB 11285 which F-star acquired pursuant to a business combination with Spring Bank Pharmaceuticals, Inc. (“Spring Bank”), is a next generation cyclic dinucleotide STimulator of INterferon Gene (“STING”) agonist designed to improve checkpoint inhibition outcomes as an immunotherapeutic compound for the treatment of selected cancers.rangebusiness combination (the “Transaction”) withcancers and inflammatory diseases using its proprietary small molecule nucleotide platform. The Company designs its compounds to selectively target and modulate the activity of specific proteins implicated in various disease states. The Company’s internally-developed programs are primarily designed to stimulate and/or dampen immune responses. The Company is devoting its resources to advancing multiple programs in its STING (STimulator of INterferon Genes) product portfolio.Until January 2020, the Company was also developing inarigivir, an orally-administered investigational selective immunomodulator, as a potential treatment for chronic hepatitis B virus, or HBV. Inarigivir was being evaluated in multiple clinical trials, including the Company’s Phase 2b CATALYST trials, designed to evaluate both treatment-naïve and virally-suppressed non-cirrhotic patients with HBV under multiple dosing regimens. On January 29, 2020, the Company announced that it terminated all clinical development of inarigivir for the treatment of HBV due to the occurrence of unexpected serious adverse events, including one patient death, in the Company’s Phase 2b CATALYST trial.OnShare Exchange Agreement, dated July 29, 2020 the Company and F-star Therapeutics Limited (“F-star”) entered into a Share Exchange Agreement (the “Exchange Agreement”), by and among the Company,which, subject to the satisfaction or waiver of the conditionsexchange ratio formula set forth in the Exchange Agreement (the “Exchange Ratio”), rounded to the nearest whole share of Company common stock (after aggregating all fractional shares of Company common stock issuable to such Seller). Also, on November 20, 2020, in connection with, and prior to completion of, the Transaction, Spring Bank effected aacquire the entire issued sharebe successful in raising additional working capital, of F-star with F-star continuing as the combined company (the “Exchange”) (see Note 12).Since its inception in 2002 and prioror if it is able to its initial public offering (“IPO”) in May 2016, the Company built its technology platform and product candidate pipeline, supported by grants and through private financings. The Company has 3 wholly owned subsidiaries: Sperovie Biosciences, Inc. formed in September 2015, SBP Securities Corporation formed in December 2016 and SBP International Limited formed in May 2019.success is dependent uponfailure to raise future capital or enter into other such arrangements if and when needed would have a negative impact on its ability to successfully complete clinical development and obtain regulatory approval of its product candidates, successfully commercialize approved products, generate revenue, and, ultimately, attain profitable operations.The pandemic caused by an outbreak of a new strain of coronavirus, or the COVID-19 pandemic, that is affecting the U.S. and global economy and financial markets is also impacting the Company’s employees, patients, communities and business operations. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions takenits ability to contain it or treatdevelop its impact and the economic impact on local, regional, national and international markets. The Company is actively monitoring this situation and the possible effects on its financial condition, liquidity, operations, suppliers, industry, and workforce. and Liquidity(“U.S.”) generally accepted accounting principles (“U.S. GAAP”).June 30, 2020March 31, 2021 and for the three and six months ended June 30,March 31, 2021 and 2020, and 2019, and related interim information contained within the notes to the financial statements, are unaudited. In management’s opinion, the unaudited interim consolidated financial statements have been prepared on the same basis as the Company’s audited financial statements and include all adjustments (including normal recurring adjustments) necessary for the fair presentation of the Company’s financial position as of June 30, 2020,March 31, 2021, results of operations for the three and six months ended June 30,March 31, 2021 and 2020, and 2019, statement of stockholders’ equity for the three and six months ended June 30,March 31, 2021 and 2020 and 2019 and its cash flows for the sixthree months ended June 30, 2020March 31, 2021 and 2019.2020. These interim financial statements should be read in conjunction with the Company’s audited financial statements and accompanying notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission (“SEC”) on February 14, 2020. The results for the three and six months ended June 30, 2020March 31, 2021 are not necessarily indicative of the results expected for the full fiscal year or any interim period.AsJune 30, 2020, the Company had an accumulated deficit of $140.9 million and $23.5 millionConsolidationcash, cash equivalents and marketable securities. On April 8, 2020, the Company repaidconformity with U.S. GAAP. Any reference in full its $20.0 million convertible term loan (see Note 9).Therethese notes to applicable guidance is no guarantee that the Exchange will be completed. The Company expects its $23.5 million in cash, cash equivalents and marketable securities as of June 30, 2020 will be sufficientmeant to fund operations for at least the next twelve months. This estimate assumes no additional funding from new collaboration agreements, equity financings or further sales under the Company’s Controlled Equity OfferingSM Sales Agreement with Cantor Fitzgerald & Co. (see Note 8).The Company does not expect to raise any additional funds priorrefer to the completionauthoritative U.S. GAAP as found in the ASC and Accounting Standards Updates (“ASU”) of the Exchange. However, if the Exchange is not completed, the Company may require significant additional funds earlier than it currently expects in order to conduct clinical trials and preclinical and discovery activities. There can be no assurances, however, that additional funding will be available on favorable terms, or at all. To the extent that the Company raises additional capital through the sale of equity or convertible debt securities, stockholders’ ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect common stockholder rights. If the Company raises additional funds through collaborations, strategic alliances or licensing arrangements with third parties, the Company may have to relinquish valuable rights to its technologies, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to the Company.Principles of Consolidationthe CompanyF-star Therapeutics Inc. and its wholly owned subsidiaries, Sperovie Biosciences, Inc., SBP Securities Corporation and SBP International Limited. Sperovie Biosciences, Inc. had operations consisting mainly of legal fees associated with intellectual property activities as of June 30, 2020. Sperovie Biosciences, Inc. was a joint borrower with the Company under the Company’s convertible term loan (see Note 9). SBP Securities Corporation had assets primarily related to investments in marketable securities and operations consisting primarily of interest income as of June 30, 2020. SBP International Limited had operations consisting mainly of clinical trial oversight, including European data protection oversight, as of June 30, 2020.subsidiaries. All intercompany balances and transactions between the consolidated companies have been eliminated in consolidation. 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.years. Significant estimates and assumptions reflected in these 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 and assumptions on historical experience, when availableknown trends and on variousother market-specific or other relevant factors that it believes to be reasonable under the circumstances. SignificantEstimatesrelied uponare recorded in preparing the accompanying financial statements related to the fair value of warrants, accounting for stock-based compensation, income taxes, useful lives of long-lived assets, and accounting for certain accruals. The Company evaluates its estimates and assumptions on an ongoing basis. The Company’s actualperiod in which they become known. Actual results maycould differ from these estimates.Cashthose estimates or assumptions.Cash EquivalentsCash equivalents are stated at fair value and include short-term, highly liquid investments with remaining maturities of 90 days or less at the date of purchase. Included in cash and cash equivalents as of June 30, 2020 are money market fund investments of $7.0 million and included in cash and cash equivalents as of December 31, 2019 are money market fund investments of $21.1 million and United States treasury securities of $6.0 million, which are reported at fair value (see Note 5).Restricted CashAs of June 30, 2020 and December 31, 2019, restricted cash consists of approximately $234,000, which is held as a security deposit required in conjunction with a lease agreement for the Company’s principal office and laboratory space entered into in October 2017.Concentration of Credit Risksubjectpotentially expose the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains its cash and cash equivalents restricted cash and marketable securities. Substantially all of the Company’s cash is held atin financial institutions in amounts that management believes to be of high credit quality. Deposits with these financial institutions maycould exceed the amount of insurance provided on such deposits; however, these deposits may be redeemed upon demand and, therefore, bear minimal risk.Investments in Marketable Securitiesinvests excess cash balances in short-term and long-term marketable securities. does not believe it is subject to additional credit risks beyond those normally associated with commercial banking relationships.classifies investmentsis dependent on contract research organizations to provide its clinical trials and third-party manufacturers to supply products for research and development activities in marketable securities as either held-to-maturity or available-for-sale based on facts and circumstances present at the time of purchase. At each balance sheet date presented, all investments in securities are classified as available-for-sale. The Company reports available-for-sale investments at fair value at each balance sheet date and includes any unrealized holding gains and losses (the adjustment to fair value) in accumulated other comprehensive income (loss), a component of stockholders’ equity. Realized gains and losses are determined using the specific identification method and are included in other income (expense). If any adjustment to fair value reflects a decline in the value of the investment,its programs. In particular, the Company considers all available evidencerelies and expects to evaluatecontinue to rely on a small number of manufacturers to supply its requirements for supplies and raw materials related to these programs. These programs could be adversely affected by a significant interruption in these manufacturing services or the extent to which the decline is “other than temporary,” including the intention to sellavailability of raw materials.if so, marks the investment to market through a charge to the Company’s consolidated statements of operations and comprehensive loss.and Equipment, NetPropertyplant and equipment are recordedstated at cost. Costs associated with maintenance and repairs are expensed as incurred.cost, less accumulated depreciation. Depreciation expense is providedrecognized using the straight-line method over the estimated useful lives:Asset CategoryUseful LifeEquipment5-7 yearsfixturesoffice equipment5Leasehold improvementsLesser of 10 years or the remainingterm of the respective leaseLeases operating lease other current liabilities and operating lease liabilitiesobligations in the Company’s consolidated balance sheets.June 30, 2020,March 31, 2021, 0occurred.(i) (ii) Costsconsist primarilyare comprised of costs incurred for the Company’s research activities, including discovery efforts, and the development of product candidates, which include:•expenses incurred under agreements with third parties, including contract research organizations, or CROs, that conduct research, preclinical activities and clinical trials on the Company’s behalf as well as contract manufacturing organizations, or CMOs, that manufacture drug products for use in the Company’s preclinical and clinical trials;•salaries, benefits and other related costs, including stock-based compensation expense, for personnel in the Company’s research and development functions;•costs of outside consultants, including their fees, stock-based compensation and related travel expenses;•the cost of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;•costs related to compliance with regulatory requirements; and•facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.The Company expensesin 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 incurred. The Company recognizes external development costs based on an evaluationwell as the cost of licensing technology. Typically, upfront payments and milestone payments made for the progress to completionlicensing of specific tasks using information provided to the Company by its vendors and its clinical investigative sites. Payments for these activitiestechnology are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in the Company’s consolidated financial statementsexpensed as prepaid or accrued research and development in the period in which they are incurred, except for payments relating for 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. freestanding 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 stockholdersstockholders’ 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.The Company’s stock-based payments include stock options, performance-based restricted stock units (“performance-based RSUs”), time-based restricted stock units (“time-based RSUs”) and grants of common stock. all stock-basedshare-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 granted to employees and nonemployees using a fair value method. The measurement date for employee awards ison the date of grant, and stock-based compensation costs aregrant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the employees’ requisite service period which is generallyin the Company’s consolidated statements of operations and comprehensive loss.period, on a straight-line basis.method. The Company accounts for forfeitures as they occur.measuresreviews stock award modifications when there is an exchange of original award for a new award. The Company calculates for the incremental fair value based on the difference between the fair value of the performance-based RSUs relating to the total share return performance using a Monte Carlo valuation model. The Company measuresmodified award and the fair value of the performance-based RSUs relatingoriginal award immediately before it was modified. The Company immediately recognizes the incremental value as compensation cost for vested awards and recognizes, on a prospective basis over the remaining requisite service period, the sum of the incremental compensation cost and any remaining unrecognized compensation cost for the original award on the modification date.the milestone performance goals usingdetermine the fair value of the award.probability thatend of the specified performance criteria willcontractual term.met. Each quarterzero, as the Company updates its assessment of the probability that the specified milestone criteria will be achievedhas never paid dividends and adjusts its estimate of the fair value, if necessary. Stock-basedhas no current plans to pay any dividends.is classified in the accompanyingits consolidated statements of operations and comprehensive loss based onin the department tosame manner in which the related servicesaward recipient’s payroll costs are provided.Financial Instrumentsequivalents, marketable securities, accounts payable, a term loanCVRs and liability classified warrants. The carrying amounts of cash and cash equivalents and accounts payable approximate their fair value due to the short-term nature of those financial instruments. The fair value of CVRs and the marketable securities and liability classified warrants are remeasured to fair value each reporting period (see Note 5). The fairperiod.ofis defined as the term loan approximates its face value dueexchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market terms.MeasurementsThe Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures (“Measurementof inputs used when available.for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. Theapplies only tothat distinguishes between the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below:1—Valuations based on unadjusted quoted1 — Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.2—Valuations based on2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or for which all significantsimilar assets or liabilities, or other inputs that are observable either directly or indirectly.3—Valuations that require3 — Unobservable inputs that reflect the Company’s own assumptionsare supported by little or no market activity that are both significant to determining the fair value measurementof the assets or liabilities, including pricing models, discounted cash flow methodologies and unobservable.similar techniques.Company’s assetscarrying amounts reflected in the consolidated balance sheets for cash and liabilities measured at fair value on a recurring basis include cash equivalents, marketable securities and warrant liabilities.Loss Per ShareBasicloss per shareis computed by dividingin accordance with ASC Topic 260,loss by(loss) income per share using the weighted-average number of of common stock outstanding for the period. computation of basic or diluted net (loss) income.loss(loss) income per share is computed by dividing the same as basic net (loss) income per share for the periods in which the Company had a net loss bybecause the weighted-average numberinclusion of shares of common stock and dilutiveoutstanding common stock equivalents outstandingwould be anti-dilutive.period, determined usingexpected future tax consequences of events that have been recognized in the treasury-stock method andconsolidated financial statements or in the as if-converted method, for convertible securities, if inclusion of these instruments is dilutive.For the three and six months ended June 30, 2020 and 2019, both methods are equivalent. Basic and diluted net loss per share is described further in Note 2.Income Taxesbased uponon the basis of the differences between the consolidated financial statement carrying amountsstatements and the tax basis of existing assets and liabilities as well as net operating loss and tax credit carryforwards using enacted tax rates expected to be in effect infor the yearsyear in which the differences are expected to reverse. DeferredChanges in deferred tax assets and liabilities are reduced by a valuation allowance ifrecorded 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 someall or a portion or all of the deferred tax assetassets will not be realized.assesses its income tax positions and records tax benefits based upon management’s evaluation ofaccounts for uncertainty the facts, circumstances and information available atconsolidated financial statements by applying a reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, the Company records the largest amount of tax benefit with a greater than 50%to be recognized. First, the tax position must be evaluated to determine the likelihood of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. For those income tax positions wherethat it is not more likely than not that a tax benefit will be sustained 0upon external examination by the taxing authorities. If the tax position is deemedis recognizedto recognize in the consolidated financial statements. The Company classifiesamount 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, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties associated with such uncertainpenalties.positionscredits received in the United Kingdom are recorded as a component of interest expense. As of June 30, 2020reduction to research and December 31, 2019,development expenses. The U.K. research and development tax credit is payable to the Company 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 the future, any UK research and development tax credits generated are utilized 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.0t identified any material uncertain tax positions.Guaranteesbeen incurred and IndemnificationsAs permitted under Delaware law,the amount can be reasonably estimated. At each reporting date, the Company indemnifies its officersevaluates whether or not a potential loss amount or a potential loss range is probable and directorsreasonably estimable under the provisions of the authoritative guidelines that address accounting for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity.leases its principal officeexpenses costs as incurred in relation to such legal proceedings as general and laboratory space in Hopkinton, Massachusetts under a non-cancelable operating lease. The Company has standard indemnification arrangements underadministrative expense within the lease that require it to indemnify the landlords against liability for injury, loss, accident, or damage from any claims, actions, proceedings, or costs resulting from certain acts, breaches, violations, or nonperformance under the Company’s lease.Through June 30, 2020, the Company had 0t experienced any losses related to these indemnification obligationsconsolidated statements of operations and 0 material claims were outstanding. The Company does not expect significant claims related to these indemnification obligations, and consequently, concluded that the fair valuecomprehensive loss.1one operating segment and does not track expenses on aAugust 2018,June 2016, the FASB issued ASU 2018-13, Fair ValueNo.820)326), Disclosure Framework – ChangesDerivatives and Hedging (Topic 815), and Leases (Topic 842): Effective DatesDisclosure Requirement effective date of ASUFair Value Measurement.This ASU removes, modifies and adds certain disclosure requirements of ASC Topic 820. The ASU isentities eligible to be “smaller reporting companies,” as defined by the SEC, to be effective for all entities for fiscal years, and interim periods within those fiscal years beginning after December 15, 2019.2022, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted this standard as of January 1, 2020; however,has not elected to early adopt ASUthis standard did not impactASUconsolidated financial statements.position and results of operations.NET LOSS PER SHARE 4,449,559 $ 4.84 $ 21,536 $ 9,779 5,000 935 2,784 4,720 10,451 (5,453 ) (2,520 ) (422 ) (576 ) (3,162 ) $ 21,536
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Net loss |
| $ | (6,544 | ) |
| $ | (4,555 | ) |
| $ | (14,722 | ) |
| $ | (9,750 | ) |
Weighted-average number of shares outstanding - basic and diluted |
|
| 17,052,088 |
|
|
| 16,443,379 |
|
|
| 16,787,919 |
|
|
| 16,440,192 |
|
Net loss per common share - basic and diluted |
| $ | (0.38 | ) |
| $ | (0.28 | ) |
| $ | (0.88 | ) |
| $ | (0.59 | ) |
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 | ) | ||
|
| For the Three and Six Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Common stock warrants |
|
| 1,927,124 |
|
|
| 1,662,124 |
|
Stock options and inducement awards |
|
| 1,606,275 |
|
|
| 1,714,815 |
|
Restricted stock units |
|
| 534,000 |
|
|
| 185,800 |
|
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 | ||||||
Cash in excess of the Company’s immediate requirements is invested in accordance with the Company’s investment policy that primarily seeks to maintain adequate liquidityProperty, plant and preserve capital.
The following table summarizes the Company’s investments, by category, as of June 30, 2020equipment, net
|
| June 30, |
|
| December 31, |
| ||
Investments - Current: |
| 2020 |
|
| 2019 |
| ||
Debt securities - available for sale |
| $ | 14,990 |
|
| $ | 25,746 |
|
Total |
| $ | 14,990 |
|
| $ | 25,746 |
|
A summary of the Company’s available-for-sale classified investments as of June 30, 2020 and December 31, 2019equipment, net consisted of the following (in thousands):
|
| At June 30, 2020 |
| ||||||||||||||
|
| Cost Basis |
|
| Accumulated Unrealized Gains |
|
| Accumulated Unrealized Losses |
|
|
| Fair Value |
| ||||
Investments - Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States treasury securities |
| $ | 14,991 |
|
| $ | — |
|
| $ | (1 | ) |
|
| $ | 14,990 |
|
Total |
| $ | 14,991 |
|
| $ | — |
|
| $ | (1 | ) |
|
| $ | 14,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At December 31, 2019 |
| ||||||||||||||
|
| Cost Basis |
|
| Accumulated Unrealized Gains |
|
| Accumulated Unrealized Losses |
|
|
| Fair Value |
| ||||
Investments - Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
| $ | 4,990 |
|
| $ | — |
|
| $ | (58 | ) |
|
| $ | 4,932 |
|
United States treasury securities |
|
| 20,979 |
|
|
| — |
|
|
| (165 | ) |
|
|
| 20,814 |
|
Total |
| $ | 25,969 |
|
| $ | — |
|
| $ | (223 | ) | (1) |
| $ | 25,746 |
|
(1) $(12) of unrealized losses are included in the cash and cash equivalents balance as of December 31, 2019, a total of $(235) netunrealized losses at December 31, 2019.
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 | |||||
The amortized cost and fair value of the Company’s available-for-sale investments, by contract maturity, as of June 30, 2020 consisted of the following (in thousands):
|
| Amortized Cost |
|
| Fair Value |
| ||
Due in one year or less |
| $ | 14,991 |
|
| $ | 14,990 |
|
Total |
| $ | 14,991 |
|
| $ | 14,990 |
|
4. PROPERTY AND EQUIPMENT, NET
Property and equipment as of June 30, 2020 and December 31, 2019 consisted of the following (in thousands):
|
| June 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
Equipment |
| $ | 1,278 |
|
| $ | 1,278 |
|
Furniture and fixtures |
|
| 423 |
|
|
| 450 |
|
Leasehold improvements |
|
| 1,356 |
|
|
| 1,356 |
|
Total property and equipment |
|
| 3,057 |
|
|
| 3,084 |
|
Less: accumulated depreciation and amortization |
|
| (1,014 | ) |
|
| (850 | ) |
Property and equipment, net |
| $ | 2,043 |
|
| $ | 2,234 |
|
Depreciation expense for the three and six months ended June 30,March 31, 2021 and 2020 was $95,000$0.1 million and $191,000, respectively. Depreciation expense for$0.2 million, respectively
5. FAIR VALUE MEASUREMENTS
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value are performed in a manner to maximize the use of observable inputs and minimize the use of unobservable inputs.
The Company classified its money market funds within Level 1 because their fair values are based on their quoted market prices. The Company classified its United States treasury securities and fixed income securities within Level 2 because their fair values are determined using alternative pricing sources or models that utilized market observable inputs.
A summary of theCompany’s financial assets and liabilities that are measured at fair value ason a recurring basis and indicate the level of June 30, 2020 and December 31, 2019 is as followsthe fair value hierarchy utilized to determine such fair values (in thousands):
|
|
|
|
|
| Fair Value Measurement at June 30, 2020 |
| |||||||||
Assets: |
| Carrying Value |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||
Money market funds(1) |
| $ | 7,012 |
|
| $ | 7,012 |
|
| $ | — |
|
| $ | — |
|
United States treasury securities |
|
| 14,990 |
|
|
| — |
|
|
| 14,990 |
|
|
| — |
|
Total |
| $ | 22,002 |
|
| $ | 7,012 |
|
| $ | 14,990 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liabilities |
| $ | 38 |
|
| $ | — |
|
| $ | — |
|
| $ | 38 |
|
Total |
| $ | 38 |
|
| $ | — |
|
| $ | — |
|
| $ | 38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value Measurement at December 31, 2019 |
| |||||||||
Assets: |
| Carrying Value |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
| ||||
Money market funds (1) |
| $ | 21,065 |
|
| $ | 21,065 |
|
| $ | — |
|
| $ | — |
|
United States treasury securities (1) |
|
| 5,982 |
|
|
| — |
|
|
| 5,982 |
|
|
| — |
|
Fixed income securities |
|
| 25,746 |
|
|
| — |
|
|
| 25,746 |
|
|
| — |
|
Total |
| $ | 52,793 |
|
| $ | 21,065 |
|
| $ | 31,728 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liabilities |
| $ | 299 |
|
| $ | — |
|
| $ | — |
|
| $ | 299 |
|
Total |
| $ | 299 |
|
| $ | — |
|
| $ | — |
|
| $ | 299 |
|
(1)Money market funds and United States treasury securities with maturities
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 | |||||||||
three months ended March 31, 2021. The following table reflects the change in the Company’s Level 3 liabilities, which consists of the warrants, issued in a private placement in November 2016 (see Note 7), for the three monthsperiod ended June 30, 2020March 31, 2021 (in thousands):
|
| November Private Placement Warrants |
| |
Balance at December 31, 2018 |
| $ | 8,511 |
|
Change in fair value |
|
| (8,212 | ) |
Balance at December 31, 2019 |
|
| 299 |
|
Change in fair value |
|
| (261 | ) |
Balance at June 30, 2020 |
| $ | 38 |
|
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
November 2016 Private | ||||
Placement Warrants | ||||
Balance at December 31, 2020 | $ | 37 | ||
Warrants exercised | 26 | |||
Balance at March 31, 2021 | $ | 11 | ||
|
| June 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
Preclinical and clinical studies |
| $ | 1,124 |
|
| $ | 1,473 |
|
Compensation and benefits |
|
| 765 |
|
|
| 614 |
|
Accounting and legal |
|
| 254 |
|
|
| 240 |
|
Other |
|
| 96 |
|
|
| 111 |
|
Total accrued expenses and other current liabilities |
| $ | 2,239 |
|
| $ | 2,438 |
|
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 | |||||
7. WARRANTS
In November 2016, the CompanySpring Bank entered into a definitive agreement with respect to the private placement of 1,644,737411,184 shares of common stock and warrants to purchase 1,644,737411,184 shares of common stock (the “November 2016 Private Placement Warrants”) to a group of accredited investors. These investors paid $9.12 for each share of common stock and warrant to purchase one share of common stock. The November 2016 Private Placement Warrants are exercisable at an exercise price of $10.79$43.16 per share and expire on November 23, 2021. The Company evaluated the terms of these warrants and concluded that they are liability-classified. In November 2016, the Company recorded the fair value of these warrants of approximately $8.3 million using a Black-Scholes pricing model. The Company must recognize any change in the value of the warrant liability each reporting period in the statement of operations.operations and comprehensive loss. As of June 30, 2020 and DecemberMarch 31, 2019,2021, the fair value of the November 2016 Private Placement Warrants was approximately $38,000$11,000 and $0.3 million, respectively, and 10,960 shares388,451 warrants have been exercised to date (see Note 5).
A summary of the Black-Scholes pricing model assumptions used to record the fair value of thedate. At March 31, 2021, there were 19,993 warrants is as follows:
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
Risk-free interest rate |
|
| 0.2 | % |
|
| 1.6 | % |
Expected term (in years) |
|
| 1.4 |
|
|
| 1.9 |
|
Expected volatility |
|
| 80.9 | % |
|
| 100.0 | % |
Expected dividend yield |
|
| 0 | % |
|
| 0 | % |
In September
In September 2019, the CompanySpring Bank issued warrants to a service provider to purchase 15,0003,750 shares of common stock (the “September 2019 Warrants”). The September 2019 Warrants are exercisable at an exercise price of $4.21$16.84 per share and expire on September 19, 2021. The Company evaluated the terms of the September 2019 Warrantswarrants and concluded that they areshould be equity-classified. The fair value of the September 2019 Warrants was estimated on the applicable issuance date using a Black-Scholes pricing model based on the following assumptions: an expected term of 2.0 years; expected stock price volatility of 69.4%; a risk-free interest rate of 1.7%; and a dividend yield of 0%. The aggregate fair value of the September 2019 Warrants on the date of issuance was approximately $19,000. Approximately $13,000 and $6,000 has been expensed during the periods ended June 30, 2020 and DecemberAt March 31, 2019, respectively.
| ||||
Warrants | ||||
Outstanding at December 31, |
| |||
Exercises |
| ) | ||
|
| |||
Outstanding at March 31, 2021 |
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
8. STOCKHOLDERS’ EQUITY
Common
7. | Stock Option Plans |
shareholders approved the 2019 Plan. The initial maximum number of ordinary shares that could be issued under the 2019 Plan was 2,327,736. This number consisted of 1,922,241 new ordinary shares and 405,495 new ordinary shares as replacements for grants under the previous
2014 Stock Incentive Plan andRestated 2015 Stock Incentive Plan
The Company’s 2015 Stock“Stock Incentive Plan (the “2015 Plan”Plans”) became effective immediately prior to the closing of the Company’s IPO on May 11, 2016. Upon the effectiveness of the 2015 Plan, 116,863 shares of common stock that remained available for grant under the 2014 Plan became available for grant under the 2015 Plan, and 0 further awards were available to be issued under the 2014 Plan.
The Company’s Board of Directors initially adopted the 2015 Plan in December 2015, subject to stockholder approval, and authorized 750,000 shares of Common Stock to be issued under the 2015 Plan. The 2014 Plan and 2015 Plan provide for the issuance of common stock, stock options and other stock-based awards to employees, officers, directors, consultants and advisors of the Company.
Amended and Restated 2015 Stock Incentive Plan
In March 2018, the Board approved the Amended and Restated 2015 Plan.. Upon receipt of stockholder approval at the Company’sSpring Bank’s 2018 annual meeting in June 2018, theSpring Bank’s 2015 Stock Incentive Plan was amended and restated in its entirety, increasing the authorized number of shares of common stock reserved for issuance by 800,000 shares (the Amended and Restated 2015 Plan, and together with the 2014 Plan, the “Stock Incentive Plans”). Upon receipt of stockholder approval at the Company’s 2020 annual meeting in June 2020,shares. Pursuant to the Amended and Restated 2015 Plan, was further amended to increase the authorized number of shares of common stock reserved for issuance by 1,150,000 shares. Following this approval, there are 2,816,8631,666,863 shares authorized for issuance pursuant to the Amended and Restated 2015 Plan.issuance. In addition, to the extent any outstanding awards under the 2014 Plan expire, terminate, or are otherwise surrendered, cancelled or forfeited after the closing of the Company’sSpring Bank’s IPO, those shares are added to the authorized shares under the Amended and Restated 2015 Plan.
The total amountnumber of shares authorized for issuance under both the 2014 Plan and the Amended and Restated 2015 Plan is 2,300,000.
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 | ||||||||||
The following table summarizesduring the option activity under the Stock Incentive Plans for the sixthree months ended June 30, 2020March 31, 2021 and the year ended December 31, 2019:
|
| Options |
|
| Weighted-Average Exercise Price Per Share |
|
| Aggregate Intrinsic Value |
| |||
Outstanding at December 31, 2018 |
|
| 1,299,565 |
|
| $ | 11.18 |
|
| $ | 881,385 |
|
Granted |
|
| 395,500 |
|
|
| 9.61 |
|
|
| — |
|
Exercised |
|
| — |
|
|
| — |
|
|
| — |
|
Cancelled |
|
| (22,750 | ) |
|
| 13.36 |
|
|
| — |
|
Outstanding at December 31, 2019 |
|
| 1,672,315 |
|
|
| 10.78 |
|
|
| — |
|
Granted |
|
| 270,000 |
|
|
| 1.44 |
|
|
| — |
|
Exercised |
|
| — |
|
|
| — |
|
|
| — |
|
Cancelled |
|
| (426,040 | ) |
|
| 10.45 |
|
|
| — |
|
Options outstanding at June 30, 2020 |
|
| 1,516,275 |
|
| $ | 9.21 |
|
| $ | — |
|
Options exercisable at June 30, 2020 |
|
| 1,017,853 |
|
| $ | 10.79 |
|
| $ | — |
|
As of June 30, 2020, all options outstanding have a weighted-average remaining contractual life of 6.6 years. The weighted-average fair value of all stock options granted for the six months ended June 30, 2020, was $0.99. Intrinsic value at June 30, 2020$6.70 and December 31, 2019 is based on the closing price of the Company’s common stock on that date of $1.47 per share and $1.58$14.45 per share, respectively.
In January 2018, the Company issued a stock option award as an inducement grant for the purchase of an aggregate of 50,000 shares of the Company’s common stock, outside of the Stock Incentive Plans, at an exercise price of $12.02 per share. In February 2019, the Company issued a stock option award as an inducement grant for the purchase of an aggregate of 40,000 shares of the Company’s common stock, outside of the Stock Incentive Plans, at an exercise price of $10.39 per share. These inducement grants are excluded from the option activity table above.
The assumptions the Company used to determine the fair value of stock options granted to employees and directors during the six months ended June 30, 2020 and 2019 are as follows, presented on a weighted-average basis:
|
| For the Six Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Risk-free interest rate |
|
| 0.7 | % |
|
| 2.6 | % |
Expected term (in years) |
|
| 5.9 |
|
|
| 6.0 |
|
Expected volatility |
|
| 82.8 | % |
|
| 81.1 | % |
Expected dividend yield |
|
| 0 | % |
|
| 0 | % |
Restricted Stock Units
Performance-Based Restricted Stock Units
In January 2019, the Company issued performance-based RSUs to senior management under the Amended and Restated 2015 Plan that represented shares potentially issuable in the future subject to the satisfaction of certain performance milestones as well as a service condition. The vesting of 50% of the performance-based RSUs was based upon the Company’s performance relative to a peer group over a two-year performance period, from January 1, 2019 through December 31, 2020, measured by the Company’s relative total shareholder return. The vesting of 25% of the performance-based RSUs was based on the achievement of a performance goal milestone as of December 31, 2019 and the vesting of the remaining 25% of the performance-based RSUs was based upon the achievement of a performance goal milestone as of December 31, 2020.
The Company estimated the fair value of total shareholder return performance-based RSUs at the date of grant using a Monte Carlo valuation methodology and amortizes those fair values over the requisite service period for each separately vesting tranche of the award. The Monte Carlo methodology that the Company uses to estimate the fair value of total shareholder return performance-based RSUs at the date of grant incorporates into the valuation the possibility that the market condition may not be satisfied. Provided that the requisite service is rendered, the total fair value of options vested during the total shareholder return performance-based RSUs at the date of grant must be recognized as compensation expense even if the market condition is not achieved. However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria.
The Company estimates the fair value of milestone performance-based RSUs at the date of grant using the fair value methodthree months ended March 31, 2021 and the probability that the specified performance criteria will be met and amortizes the fair value over the requisite service period for each separately vesting tranche of the award when attainment of the milestone is deemed probable. The assumption used to determine the fair value of the performance-based RSUs granted to management in 2019 for the performance goal milestone units is based on the market price of the award on the grant date. Each quarter the Company updates its assessment of the probability that the specified criteria will be achieved and adjusts its estimate of the fair value, if necessary.
As of December 31, 2019, the Company did not meet the 2019 milestone under the performance-based RSUs, and accordingly 46,450 shares were returned to the Amended and Restated 2015 Plan. The previously recognized expense of $0.3 million related to the 2019 milestone was reversed during the year ended December 31, 2019. The 2020, milestone was not deemed probable,$2.8 million and the previously recognized expense of $0.1$2.0 million, was reversed during the year ended December 31, 2019. The Company recognized $0.3 million expense related to the total shareholder return component of the performance-based RSUs during the year ended December 31, 2019.
respectively.
In April 2020,February 2021, the Company issued 360,000 performance-based RSUs to senior management under the Amended and Restated 2015 Plan that represented shares potentially issuable in the future subject to the satisfaction of certain performance milestones. The vesting of 50% of the performance-based RSUs is based on the achievement of a performance goal milestone as of December 31, 2020 and the vesting of the remaining 50% of the performance-based RSUs is based upon the achievement of a performance goal milestone as of December 31, 2021. For the three and six months ended June 30, 2020, the Company recognized approximately $44,000 expense related to the performance-based RSUs.
Time-Based Restricted Stock Units
In March 2020, the Company issued 199,000310,385 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 $1.41$8.57 for the three and six months ended June 30, 2020.March 31, 2021. The vesting for the time-based RSUs is 50%occurs either immediately, after one-year from the grant date and the remaining 50% as of December 31, 2021.one year or after four years. For the three and six months ended June 30, 2020,March 31, 2021, the Company recognized approximately $32,000 and $43,000 expense$0.9 million in expenses related to the time-based RSUs, respectively.
RSUs.
|
| Restricted Stock Units |
|
| Weighted-Average Grant Date Fair Value |
| ||
Total nonvested units at December 31, 2019 |
|
| 139,350 |
|
| $ | 7.86 |
|
Granted |
|
| 559,000 |
|
|
| 1.41 |
|
Vested |
|
| — |
|
|
| — |
|
Cancelled |
|
| (164,350 | ) |
|
| 6.88 |
|
Total nonvested units at June 30, 2020 |
|
| 534,000 |
|
| $ | 1.07 |
|
Stock-Based Compensation
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 | |||||
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
Stock-based compensation: |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Research and development |
| $ | 171 |
|
| $ | 339 |
|
| $ | 446 |
|
| $ | 656 |
|
General and administrative |
|
| 303 |
|
|
| 702 |
|
|
| 845 |
|
|
| 1,357 |
|
Total Stock-based compensation |
| $ | 474 |
|
| $ | 1,041 |
|
| $ | 1,291 |
|
| $ | 2,013 |
|
The fair value of stock options vested during the six months ended June 30, 2020 was $1.5 million.
March 31, | March 31, | |||||||
2021 | 2020 | |||||||
Research and development expenses | $ | 414 | $ | 124 | ||||
General and administrative expenses | 1,766 | 410 | ||||||
| $ | 2,180 | $ | 534 | |||||
Reserved Shares
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
Revenue by collaboration partner | ||||||||
| Ares | $ | 2,800 | $ | 895 | ||||
Denali | 117 | 460 | ||||||
Total | $ | 2,917 | $ | 1,355 | ||||
|
| June 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
IPO warrants |
|
| 28,347 |
|
|
| 28,347 |
|
November private placement warrants |
|
| 1,633,777 |
|
|
| 1,633,777 |
|
Convertible term loan |
|
| — |
|
|
| 2,329,143 |
|
Pontifax warrants |
|
| 250,000 |
|
|
| 250,000 |
|
September 2019 warrants |
|
| 15,000 |
|
|
| 15,000 |
|
Amended and restated 2015 stock incentive plan |
|
| 3,266,451 |
|
|
| 2,160,338 |
|
Inducement awards |
|
| 90,000 |
|
|
| 90,000 |
|
Total |
|
| 5,283,575 |
|
|
| 6,506,605 |
|
9. CONVERTIBLE TERM LOAN
In September 2019, the Company entered into a Convertible Term Loan with Pontifax Medison Finance (Israel) L.P. and Pontifax Medison Finance (Cayman) L.P., as lenders, and Pontifax Medison Finance GP, L.P., in its capacity as administrative agent and collateral agent for itself and the lenders (collectively, the “Lenders”), providing for a $20.0 million term loan (the “Convertible Term Loan”), which the Company received on September 19, 2019 (the “Closing Date”). The Company incurred issuance costs of $0.4 million and Pontifax Warrants costs of $0.6 million. The Convertible Term Loan issuance costs and Pontifax Warrant costs are shown as an offset to the Convertible Term Loan on the balance sheet and are amortized using the effective interest method to interest expense through September 23, 2023 (the “Maturity Date”). In April 2020, the Company entered into a prepayment notice and pay-off letter with the Lenders, which providedtransaction price for the full repayment in cashfirst Accepted Fcab was increased to $6.6 million due to achievement of a $1.5 million milestone that on initial recognition of the $20.0 million Convertible Term Loan and amended the exercise price with respect to the Pontifax Warrants. Upon repayment of the Convertible Term Loan, the Company incurred a loss on extinguishment of debt, which included $0.3 million for a prepayment fee, $0.4 million of unamortized issuance costs, $0.5 million in unamortized Pontifax Warrant costs and approximately $54,000 for the Pontifax Warrant amendment (see Note 7).
Pursuant to the Convertible Term Loan, the Companycontract was entitled, at its option, to prepay some or all of the then outstanding principal balance and all accrued and unpaid interest on the Convertible Term Loan, together with a prepayment charge equal to 3% of the principal amount being prepaid.The Lenders were entitled, at their option, to elect to convert the then outstanding Convertible Term Loan amount and all accrued and unpaid interest thereon into shares of the Company’s common stock at a conversion price of $8.76 per share.
The Company’s obligations were secured by a security interest, senior to any current and future debts and to any security interest, in all of the Company’s right, title, and interest in, to and under all of its property and other assets, subject to limited exceptions including the Company’s intellectual property. The Convertible Term Loan contained customary events of default, representations, warranties and covenants, including a material adverse effect clause. The Company was required to maintain a minimum cash balance of $7.0 million in its accounts.
Upon the occurrence of an event of default, a default interest rate of an additional 4% per annum would have been applied to the outstanding loan balances, and the Lenders would have been able to declare all outstanding obligations immediately due and payable and exercise all of its rights and remedies as set forth in the Convertible Term Loan and under applicable law. The Company evaluated the accounting for the Convertible Term Loan and identified an embedded derivative related to the contingent interest feature. The Company determined the fair value of the contingent interest feature to be de minimis.
In addition, the Company issued the Lenders warrants to purchase an aggregate of 250,000 shares of the Company’s common stock (the “Pontifax Warrants”). The Pontifax Warrants are exercisable for a period of six years from the Closing Date and were exercisable at an exercise price of $6.57 per share prior to their amendment in April 2020. The aggregate fair value of the Pontifax Warrants on the date of issuance was approximately $0.6 million and was recorded as a discount to the term loan and will be amortized over the life of the term loan using the effective interest rate method. The aggregate fair value remaining on the payoff date was $0.5 million and wasnot included in the loss on extinguishmenttransaction price, as it was not deemed probable that a reversal would not occur in a future reporting period.
incremental expense of approximately $54,000 for the amendmentcompanies to collaborate on the development of tetravalent bispecific antibodies against five drug target pairs. The Option Agreement granted Ares a call option to acquire the entire issued share capital of Delta. Under the Ares LCA, Delta was obligated to use commercially reasonable efforts to perform research and development activities on the five selected target pairs, under mutually agreed research plans. The activities were governed by a joint steering committee formed by an equal number of representatives from both parties.
actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation.
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 | ||||||
10. LEASES
Cambridge, United Kingdom. The Company also has operating leases for its principal officethe former Spring Bank headquarters and laboratory space and the Company’s former headquarters.in Hopkinton, Massachusetts, which are being subleased. The Company’s leases have remaining lease terms of approximately 8.37.6 years for its former principal office and laboratory space, which includes an option to extend the lease for up to 5five years, and approximately 0.90.2 years for its former headquarters. The Company’s former headquarters location islocations are being subleased through the remainder of the lease term.
Other information related to leases as of June 30, 2020 and 2019 was as follows:
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
Cash paid for amounts included in the measurement of lease liabilities: |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Operating cash flow from operating leases (in thousands) |
| $ | 147 |
|
| $ | 91 |
|
| $ | 291 |
|
| $ | 130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases (in thousands) |
| $ | — |
|
| $ | 2,980 |
|
| $ | — |
|
| $ | 2,980 |
|
As of June 30, 2020 and December 31, 2019, the weighted average remaining lease term for operating leases was 8.0 years and 8.3 years, respectively.
As of June 30, 2020 and December 31, 2019, the weighted average discount rate for operating leases was 8% for both periods.
income.
Year |
|
|
|
|
2020 (excluding the six months ended June 30, 2020) |
| $ | 297 |
|
2021 |
|
| 508 |
|
2022 |
|
| 450 |
|
2023 |
|
| 462 |
|
2024 |
|
| 474 |
|
Thereafter |
|
| 1,931 |
|
Total lease payments | $ | 4,122 |
| |
Less: present value discount |
|
| (1,070 | ) |
Total |
| $ | 3,052 |
|
11. COMMITMENTS AND CONTINGENCIES
Contingencies
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 | ||
12. SUBSEQUENT EVENTS
The Exchange is intended
The combined company will be led by Eliot Forster, Ph.D., MBA, F-star President and Chief Executive Officer, and will be headquartered in United Kingdom. The initial size of the Board of Directors of the Company will be 8 and the initial directors are expected to be Nessan Bermingham, Ph.D., who shall be Chairman; David Arkowitz, MBA (continuing Company director); Edward Benz, MD; Todd Brady, MD, Ph.D. (continuing Company director); Eliot Forster, Ph.D., MBA; Pamela Klein, MD (continuing Company director); Patrick Krol, MBA; and Geoffrey Race, FCMA MBA. The resignations from the Company’s board of directors of each of Timothy Clackson, Ph.D., Martin Driscoll, Kurt Eichler and Scott Smith will be effective as of the closing of the proposed Exchange.
The Company continues to conduct activities with respect to SB 11285, its intravenously-administered STING agonist product candidate, as well as other preclinical activities as described further in this Quarterly Report on Form 10-Q.
The Company has evaluated subsequent events throughJanuary 15, 2021, the date on which the consolidated financial statements were issuedterm sheet relating to ensure that this Quarterly Report on Form 10-Q includes appropriate disclosure of events both recognizedthe Loan and Security Agreement was entered into, subject to certain adjustments as specified in the consolidated financial statementsWarrant.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
This report contains forward-looking statements that are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, or PSLRA, with the intention of obtaining the benefits of the “safe harbor” provisions of the PSLRA. Forward-looking statements involve risks and uncertainties. In this Quarterly Report on Form 10-Q, words such as “may,” “will,” “expect,” “anticipate,” “estimate,” “intend,” and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements.
March 30, 2021.
We are
Until January 2020, we had been developing inarigivir soproxil, an orally-administered investigational selective immunomodulator, as a potential treatment for chronic hepatitis B virus, or HBV. In April 2019, we launched two Phase 2 global trials (CATALYST 1 and CATALYST 2) examining the administration of inarigivir 400mg as monotherapy and co-administered with a nucleotide in naïve and virally suppressed chronic HBV patients. On January 29, 2020, we announced that we were terminating all clinical development of inarigivirimmunotherapeutic compound for the treatment of HBV dueselected cancers.
Key Developments
Onthe Share Exchange Agreement, dated July 29, 2020 we entered into(the “Exchange Agreement”), by and among the Company,
The Exchange is intended to create beginning on Monday, November 23, 2020. Commencing on November 23, 2020, the Company’s common stock was represented by a company focused on transformingnew CUSIP number, 30315R 107. After the livesClosing of patients with cancer through the development of innovative tetravalent bispecific (mAb2™) antibodies.Transaction, the Company had approximately $30 million in cash. The combined company will advance its immuno-oncology pipelineis now headquartered out of multiple tetravalent bispecific antibody programs, including the Company’s STING (STimulator of INterferon Gene) agonist, SB 11285, currently in a Phase 1/2 clinical trial.
The combined company will be led by Eliot Forster, Ph.D., MBA,
directors are expectedfacts and circumstances specific to be Nessan Bermingham, Ph.D., who shall be Chairman; David Arkowitz, MBA (continuing Company director); Edward Benz, MD; Todd Brady, MD, Ph.D. (continuing Company director); Eliot Forster, Ph.D., MBA; Pamela Klein, MD (continuing Company director); Patrick Krol, MBA; and Geoffrey Race, FCMA MBA. The resignations from the Company’sTransaction, including the fact that immediately following the Transaction:each of Timothy Clackson, Ph.D., Martin Driscoll, Kurt Eichlerthe combined company; and Scott Smith will be effective asclosingcombined company. As a result, upon consummation of the proposed Exchange.
We will continue to conduct activities with respect to SB 11285,Transaction, the historical financial statements of
Spring Bank Development Programs
The pandemic caused by an outbreak of a newBusiness
We are developing our lead STING agonist product candidate, SB 11285, as a next-generation immunotherapeutic agent for the treatment of selected cancers. SB 11285 is currently being evaluated as an intravenously (IV)-administered monotherapywould result in a Phase 1a/1b multicenter, dose escalation clinical trial in patients with advanced solid tumors. Phase 1a of this trial is a dose-escalation study with IV SB 11285 monotherapy which allows combination with a checkpoint inhibitor after the completion of the first two cohorts of the trial. Phase 1b of this trial is designed to explore IV SB 11285 antitumor activity in combination with a checkpoint inhibitor in tumor types expected to be responsive to immunotherapy. In February 2020, we entered into a clinical collaboration with Roche for the use of Roche’s PD-L1 checkpoint inhibitor atezolizumab (Tecentriq®)any significant impairment losses in the combination cohortscarrying values of this trial.
We initiated dosing in the initial monotherapy cohort of this Phase 1 trial in the fourth quarter of 2019. Although several of the institutions involved in the conduct of this trial have suspended patient enrollment in all of their clinical trials due to the COVID-19 pandemic, we have been able to continue dosing patients in this trial at two key sites and just recently completed the dosing of patients in the third cohort. Depending on whether we are able to continue enrolling and dosing patients in this Phase 1 trial, we plan to complete the fourth monotherapy cohort by the end of the third or early fourth quarter of 2020. Also, we expect to initiate the first combination cohort examining the co-administration of SB 11285 and atezolizumab by the end of summer 2020. We anticipate that we will announce monotherapy data in the fourth quarter of 2020 and generate sufficient data from our Phase 1a/1b IV STING agonist program by the end of the first half of 2021 to enable advancement into a Phase 2 clinical trial. While the company currently anticipates this Phase 1 trial will remain open and currently enrolled patients will continue on study, all clinical sites activated for the study may determine to stop enrolling and/or dosing patientsassets as a result of the impactpandemic and are not aware of any specific related event or circumstance that would require management to revise estimates reflected in our consolidated financial statements.
ADCs represent a novel platform to enable the targeted delivery of payload molecules. Conjugation of a payload molecule to an antibody that has its own efficacy profile could allow for a single drug with enhanced potency and safety compared to either mechanism alone. We believe the chemistry used to develop our STING agonists is differentiated from first generation STING agonists because preclinical studies have shown that our molecules allow for site-specific conjugation to other therapeutic modalities, including antibodies, to form ADCs. Our STING agonists, in combination with an antibody to form an ADC, could provide targeted delivery to the tumor site to better achieve anti-tumor efficacy.
We are also exploring the use of our novel STING antagonist compounds for the treatment of certain autoimmune and inflammatory diseases where the STING pathway is involved. Our STING antagonists are selectively designed to block aberrant activation of the STING pathway, which contributes to the causes of certain autoimmune and inflammatory diseases, including STING-associated vasculopathy with onset in infancy (SAVI), systemic lupus erythematosus (SLE) and other proinflammatory-mediated diseases. In July 2019, we presented preclinical data from a novel STING antagonist compound, which showed potent inhibition of interferon and pro-inflammatory cytokines in wild type and mutant STING in vitro models. In vivo administration of this compound antagonized STING-agonist-induced interferon and cytokine production in the blood, spleen and liver in mice, illustrating the potential that this compound has for therapeutic applications in interferonopathies, as well as autoimmune and inflammatory diseases. Furthermore, in August 2019, weCompany entered into a researchVenture 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 four (4) separate and independent $2.5 million term loans (“Loan A”, “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 funding of the Term Loans, each Term Loan would be delivered by Horizon to 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 proceeds of the Term Loans for working capital or general corporate purposes as contemplated by the Loan and Security Agreement. The Company drew down $5 million on April 1, 2021.
Southwestern Medical School to evaluate our small molecule STING antagonist compounds. We hope to initiate IND-enabling activities for our lead, orally-available STING antagonist product candidate, SB 11736,approximately 9.3 million shares of the Company’s common stock, par value $0.0001 per share. The underwritten public offering resulted in early 2021.
In April 2020, we announced that we are exploring programs and collaborations to study our portfoliogross proceeds of RIG-I agonist and STING agonist compounds as potential therapeutics and vaccine adjuvants for SARS-CoV-2, the virus responsible for COVID-19. We are collaborating$65.0 million. The Company incurred $3.9 million in issuance costs associated with the National Instituteunderwritten public offering, resulting in net proceeds to the Company of Allergy and Infectious Diseases (NIAID) to examine multiple compounds from our RIG-I agonist and STING agonist portfolio in the Middle East Respiratory Syndrome Coronavirus (MERS-CoV) assay and the SARS-CoV-2 antiviral assay. We are also pursuing the inclusion of inarigivir soproxil, a RIG-I agonist, as an adjuvant therapy in ongoing clinical trials involving Bacille Calmette-Guerin (BCG) vaccines against SARS-CoV-2.
$61.1 million.
We have incurred significant annual net operating losses in every year since our inception andwe do not expect to continue to incur significant expenses and net operating lossesgenerate any revenue from product sales for the foreseeable future. Our net lossesrevenue consists of collaboration revenue under our license and collaboration agreements with Ares Trading S.A. (“Ares”) and Denali Therapeutics, Inc. (“Denali”), 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 three and six months ended June 30, 2020 were $6.5 million and $14.7 million, respectively, and our net losses for the three and six months ended June 30, 2019 were $4.6 million and $9.8 million, respectively. As of June 30, 2020, we had an accumulated deficit of $140.9 million. Our net losses may fluctuate significantly from quarter to quarter and year to year. We expect to continue to incur significant expenses and increasing operating losses for the next several years.
We do not expect to raise any additional funds prior to the completion of the Exchange. However, if the Exchange is not completed, we may require significant additional funds earlier than we currently expect in order to conduct clinical trials and preclinical and discovery activities. There can be no assurances, however, that additional funding will be available on favorable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, stockholders’ ownership interests will be diluted, and the terms of these securitiesfuture, revenue may include liquidation or other preferences that adversely affect common stockholder rights. If we raisenew collaboration agreements, additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights tomilestone payments, option exercise payments, and royalties on any net product sales under our technologies, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to us.
There is no guarantee that the Exchange will be completed. As of June 30, 2020, we had $23.5 million in cash, cash equivalents and marketable securities.collaborations. We expect that our cash, cash equivalentsany revenue we generate will fluctuate from period to period as a result of the timing and marketable securities asamount of June 30, 2020 will be sufficient to fund operations for at least the next twelve months. This estimate assumes no additional funding from new collaboration agreements, equity financings or further sales under our Controlled Equity OfferingSM Sales Agreement with Cantor Fitzgerald & Co.
Financial Operations Overview
Operating expenses
Our operating expenses since inception have consisted primarily oflicense, research and development expenseservices, and generalmilestone and administrative costs.
other payments.
costs
|
|
|
|
|
|
|
|
|
|
|
|
We expensein 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 incurred. We recognizewell as the cost of licensing technology. Typically, upfront payments and
Our directCompany expects that research and development expenses are not currently tracked on a program-by-program basis. Until January 2020, we were primarily focused onwill increase over the researchnext several years as the Company increases personnel costs, initiate and development of inarigivir. Going forward,conduct additional clinical trials and at least untilprepare regulatory filings related to the completion of the Exchange, we expect our primary focus to be on the research and development of compounds targeting the STING pathway. Our direct research and development expenses consist primarily of external costs, such as fees paid to investigators, consultants and CROs in connection with our preclinical studies and clinical trial and regulatory fees. We do not allocate employee-related costs and other indirect costs to specific research and development programs.
various product candidates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We 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 researchclinical trials and development expenses will trend below comparable prior period levels inwe 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 uncertain process that takes years to complete, and we may never generate the near future as a result of reduced researchnecessary data or results required to obtain marketing approval and development activities and a reduced headcount of research and development personnel.
achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success.
expenses
We anticipate ourassociated with being a public company. Other expense also includes foreign currency transaction losses. The Company expects that general and administrative expenses will remain consistent with comparable prior period levelsincrease in the near future. We will continue to incur expenses associated withfuture as the Company expands its operating activities and incurs costs of being a US public company, including costscompany.
and expenses, net
Change in fair value of warrant liabilities
Change in fair value of warrant liabilities consists of a gain GBP, U.S. dollar and/or (loss) related to the changeEuro. Change in the fair value of convertible debt is the warrants issued in connectionfair value adjustment of the convertible notes as measured using level 3 inputs which was converted on November 20, 2020 with our private placement offering in November 2016, resultingthe transaction with Spring Bank.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles2020, the Company was subject to corporate taxation in the United States, United Kingdom and Austria.
purchase invoices is generally reclaimable from the Austrian tax authority.
|
|
|
|
|
|
|
|
Warrants Issued in 2016 Private Placement
In connection with our private placement offering in November 2016, or the November private placement, we issued warrants to purchase 1,644,737 shares of common stock, which we refer to as the November 2016 Warrants. These warrants are exercisable at an exercise price of $10.79 per share. We evaluated the terms of these warrants and concluded that they should be liability-classified. In November 2016, we recorded the
Stock-Based Compensation
We issue stock-based awards to employees and non-employees, generallyrequisite service period in the form of stock options or performance-based restricted stock units. We account for our stock-based compensation awards in accordance with Financial Accounting Standards Board, (FASB) ASC Topic 718, Compensation—Stock Compensation, or ASC 718. ASC 718 requires all stock-based payments to employees and non-employees, including grants of employee stock options and modifications to existing stock awards, to be recognized in theCompany’s consolidated statements of operations and comprehensive loss based on their fair values.
We measure stock options and other stock-basedloss.
We estimateaward.
We recognize forfeitures as they occur and thedividends.
|
| For the Six Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Risk-free interest rate |
|
| 0.7 | % |
|
| 2.6 | % |
Expected term (in years) |
|
| 5.9 |
|
|
| 6.0 |
|
Expected volatility |
|
| 82.8 | % |
|
| 81.1 | % |
Expected dividend yield |
|
| 0 | % |
|
| 0 | % |
The assumptions used to determine the fair value of the time-based RSUs granted to management during the six months ended June 30, 2020 is based on the market price of the award on the grant date, which was a weighted average fair value for the six months ended June 30, 2020 of $1.41 per share.
These assumptions represent our best estimates, but the estimates involve inherent uncertainties and the application of our judgment. As a result, if factors change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different. We recognize compensation expense for only the portion of awards that are expected to vest.
The impact of our stock-based compensation expense for stock options and performance based restricted stock units granted to employees and non-employees may grow in future periods if the fair value of our common stock increases.
The following table summarizes the classification of our stock-based compensation expenses recognized in ourits consolidated statements of operations and comprehensive loss (in thousands):
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
Stock-based compensation: |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Research and development |
| $ | 171 |
|
| $ | 339 |
|
| $ | 446 |
|
| $ | 656 |
|
General and administrative |
|
| 303 |
|
|
| 702 |
|
|
| 845 |
|
|
| 1,357 |
|
Total Stock-based compensation |
| $ | 474 |
|
| $ | 1,041 |
|
| $ | 1,291 |
|
| $ | 2,013 |
|
JOBS Act
In April 2012,Income in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company,” or EGC, can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. Thus, as an EGC, we could have delayed the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
Subject to certain conditions, as an EGC, we intend to rely on certain exemptions afforded by the JOBS Act, including the exemption from certain requirements related to the disclosure of executive compensation in our periodic reports and proxy statements, and the requirement that we hold a nonbinding advisory vote on executive compensation and any golden parachute payments; the requirement that the auditors provide an attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; and complying with any requirement that may be adopted by the Public Company Accounting Oversight Board, or PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an EGC until the earliest of the last day of the fiscal yearsame manner in which we have total annual gross revenues of approximately $1.07 billionthe award recipient’s payroll costs are classified or more;in which the last day of the fiscal year following the fifth anniversary of the date of the completion of the closing of our initial public offering, or IPO, which is December 31, 2021; the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or the date on which weaward recipient’s service payments are deemed to be a large accelerated filer under the rules of the SEC.
|
| For the Three Months Ended June 30, |
|
|
|
|
|
| For the Six Months Ended June 30, |
|
|
|
|
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
| $ | 3,204 |
|
| $ | 7,275 |
|
| $ | (4,071 | ) |
| $ | 8,507 |
|
| $ | 12,842 |
|
| $ | (4,335 | ) |
General and administrative |
|
| 2,164 |
|
|
| 2,490 |
|
|
| (326 | ) |
|
| 5,043 |
|
|
| 5,300 |
|
|
| (257 | ) |
Total operating expenses |
|
| 5,368 |
|
|
| 9,765 |
|
|
| (4,397 | ) |
|
| 13,550 |
|
|
| 18,142 |
|
|
| (4,592 | ) |
Loss from operations |
|
| (5,368 | ) |
|
| (9,765 | ) |
|
| 4,397 |
|
|
| (13,550 | ) |
|
| (18,142 | ) |
|
| 4,592 |
|
Other income (expense) |
|
| (1,198 | ) |
|
| 325 |
|
|
| (1,523 | ) |
|
| (1,433 | ) |
|
| 686 |
|
|
| (2,119 | ) |
Change in fair value of warrant liabilities |
|
| 22 |
|
|
| 4,885 |
|
|
| (4,863 | ) |
|
| 261 |
|
|
| 7,706 |
|
|
| (7,445 | ) |
Net loss |
| $ | (6,544 | ) |
| $ | (4,555 | ) |
| $ | (1,989 | ) |
| $ | (14,722 | ) |
| $ | (9,750 | ) |
| $ | (4,972 | ) |
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 | ) | |||
Research2020, revenue has been generated from two collaboration partners (Ares and development expensesDenali).
Research and development expenses during the six months ended June 30, 2020 and 2019 were $8.5 million and $12.8 million, respectively. The decrease of $4.3 million during the six months ended June 30, 2020 was primarily is due to a $1.4 million decrease in spending on preclinical studies and clinical trial-related activities for inarigivir and manufacturing costsfor inarigivir and SB 11285the U.K. R&D tax incentive, which is allocated across all programs, offset by a $0.4 million increase in R&D staff costs.
expense
General and administrative expenses duringfor the six months ended June 30, 2020 and 2019 were $5.0 million and $5.3 million, respectively. The decrease of $0.3 million during the six months ended June 30, 2020 was primarily due to an decrease in non-cash charges for stock-based compensation of $0.5 million and legal-related costs of $0.2 million, offset by other general and administrative related expenses of $0.4 million, including consulting-related costs and public company related costs.
Other income (expense). Other income (expense) during the three and six months ended June 30, 2020 and 2019 is comprised of interest income, offset by interest expense and loss on extinguishment of debt. Interest income during the three and six months ended June 30, 2020 was approximately $44,000 and $285,000, respectively, and was primarily related to the interest earned on marketable securities. Interest expense during the three and six months ended June 30, 2020 was approximately $35,000 and $511,000, respectively, and was due to the interest expense incurred on the Convertible Term Loan. Loss on extinguishment of debt during the three and six months ended June 30, 2020 was approximately $1.2 million during both periods and was due to the repayment of the Convertible Term Loan. Interest income during the three and six months ended June 30, 2019 was approximately $325,000 and approximately $686,000, respectively, and was primarily due to the interest earned on marketable securities. There was no interest expense and no loss on extinguishment of debt as of June 30, 2019.
Change in fair value of warrant liabilities. The change in fair value of warrant liabilities duringconvertible debt, for the for three and six months ended June 30, 2020 was a gain of approximately $22,000 and $261,000, respectively. The change in fair value of warrant liabilities during the three and six months ended June 30, 2019 was a gain of $4.9 million and $7.7 million, respectively. The change in value each period was solely due to the change in the fair value of the November 2016 Warrants, primarily as a result of the change in our stock price and stock price volatility.
liquidity
In August 2017, weCompany entered into a Controlled Equity OfferingSM Sales Agreement, or2021 Sales Agreement with Cantor Fitzgerald & Co., or Cantor, pursuantSVB Leerink with respect to an
In September 2019, weCompany, as borrower, entered into a loanthe Loan and security agreementSecurity Agreement with certain affiliates of Pontifax MedisonHorizon Technology Finance or the Lenders, that providedCorporation, as lender and collateral agent for a $20.0itself. The Loan and Security Agreement provides for four (4) separate and independent $2.5 million term loanloans (“Loan A”, “Loan B”, “Loan C”, and bears annual interest at“Loan D”) (with each of Loan A, Loan B, Loan C and Loan D, individually a rate“Term Loan” and, collectively, the “Term Loans”), whereby upon the satisfaction of 8.0%, which we referall the conditions to as the Convertiblefunding of the Term Loan. The ConvertibleLoans, each Term Loan provided for interest-only payments for twenty-four monthswould be delivered by Horizon to 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 repayment(iv) Loan D is required to be delivered by Horizon to the Company prior to June 30, 2021. The Company may only use the proceeds of the aggregate outstanding principal balance ofTerm Loans for working capital or general corporate purposes as contemplated by the loan in quarterly installments starting upon expiration of the interest only periodLoan and continuing through September 19, 2023.Security Agreement. The Lenders could have, at their option, elected to convert some or all of the then outstanding term loan amount and all accrued and unpaid interest thereon into shares of our common stock at a conversion price of $8.76 per share.
On April 8, 2020, we entered into a prepayment notice and pay-off letter with the Lenders, which provided for the full repayment in cashCompany drew down $5 million on April 8, 2020 of our $20.0 million Convertible Term Loan. The pay-off letter provided that the repayment amount would be approximately $20.3 million, which included payment in full of all outstanding principal and accrued interest underlying the Convertible Term Loan and $0.3 million for a prepayment fee. Pursuant to the pay-off letter, all of our indebtedness and obligations to the Lenders were discharged in full, and all security interests and other liens held by the Lenders as security for the Convertible Term Loan terminated upon the Lenders’ receipt of the repayment amount.In connection with the repayment of the Convertible Term Loan, the warrants previously issued to the lenders were amended and restated so that the new exercise price is $2.08, which was equal to 1.5 times the weighted-average closing price of our common stock during the 90 days prior to the repayment date and resulted in an incremental expense of approximately $54,000. All other terms and conditions of the Pontifax Warrants remain the same.
We made the decision to repay the Convertible Term Loan as a result of changes in our operating needs following our announcement in the first quarter of 2020 that we were discontinuing the development of our HBV program, as well as the cost of capital associated with the Convertible Term Loan.
1, 2021.
|
| For the Six Months Ended June 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net cash used in operating activities |
| $ | (11,961 | ) |
| $ | (14,765 | ) |
Net cash provided by investing activities |
|
| 11,234 |
|
|
| 10,582 |
|
Net cash (used in) provided by financing activities |
|
| (19,451 | ) |
|
| 6 |
|
Net decrease in cash, cash equivalents and restricted cash |
| $ | (20,178 | ) |
| $ | (4,177 | ) |
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 | ) | |||
non-cash change in the fair value of the warrant liabilityconvertible notes of $7.4 million, non-cash change$0.4 million. There was also an adjustment for changes in stock-based compensation of $0.7 millionoperating assets and prepaid expense and other current assets of $1.5 million, offset by an increase in net loss of $4.9 million, loss on extinguishment of debt of $1.2 million and accrued expenses and other current and non-current liabilities of $1.7$3.0 million.
Net cash provided by investing
Net cash (used in) provided by financing activities. Net cash used in financing activities during the sixthree months ended June 30, 2020 was $19.5 million andMarch, 31, 2020.
Funding Requirements
AsTerm Loans, the Company’s cash of June 30, 2020, we had $23.5approximately $76.3 million in cash, cash equivalents and marketable securities. We expect that our cash, cash equivalents and marketable securities as of June 30, 2020 will be sufficient to fund operationsits current operating plan and planned capital expenditures for at least the next twelve12 months. This estimate assumes no
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 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
|
|
|
|
|
|
|
|
|
|
We do not expectour ability to raise any additional funds prior to the completioncapital in light of the Exchange. However, ifimpacts of the Exchange is not completed,ongoing global
Todistribution, for any product candidates for which we receive marketing approval;
In September 2019, we entered into the Convertible Term Loan with the Lenders that provided for a $20.0 million term loan with an annual interest rate of 8.0%. The Convertible Term Loan provided for interest-only payments for twenty-four months and repayment of the aggregate outstanding principal balance of the term loan in quarterly installments starting upon expiration of the interest only period and continuing through September 19, 2023. On April 8, 2020, we entered into a prepayment notice and pay-off letter with the Lenders, which provided for the full repayment in cash on April 8, 2020 of the Convertible Term Loan. Pursuant to the pay-off letter, all of our indebtedness and obligations to the Lenders were discharged in full, and all security interests and other liens held by the Lenders as security for the Loan terminated upon the Lenders’ receipt of the repayment amount. The Convertible Term Loan and the subsequent repayment are described in Note 9 to the notes to the consolidated financial statements contained in this Quarterly Report on Form 10-Q.
Other accounting standards thatASU
|
|
We are exposed to market risk related to changes in interest rates. Our cash, cash equivalents and marketable securities of $23.5 million as of June 30, 2020, consisted of cash, cash equivalents and marketable securities. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. However, because a significant amount of the marketable securities in our investment portfolio are short-term in nature, an immediate 10% change in market interest rates would not be expected to have a material impact on the fair market value of our investment portfolio or on ourCompany’s financial condition orposition and results of operations.
|
|
Evaluation of Disclosure Controls
Our management, with the participation of our principal executive officer and our principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures. Based on that evaluation of our disclosure controls and procedures as of June 30, 2020, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of such dateSmaller Reporting Company Status
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Item 4. | Controls and Procedures. |
Inherent Limitationsspreadsheets.
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.
As a result
| Legal Proceedings. |
| Risk Factors. |
Risks Related to the Exchange
The issuance of our common stock in the Exchange pursuant to the Exchange Agreement must be approved by our stockholders. Failure to obtain this approval and failure of any other closing conditions to the Exchange Agreement would prevent the Closing of the Exchange.
Before the Exchange can be completed, our stockholders must approve the Exchange. Failure to obtain the required stockholder approval may result in a material delay in, or the abandonment of, the Exchange. Even if the Exchange is approved by the our stockholders, certain other specified conditions set forth in the Exchange Agreement must be satisfied or waived to complete the Exchange. We cannot assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the Exchange will not occur or will be delayed, and we may lose some or all of the intended benefits of the Exchange. Any delay in completing the Exchange may materially adversely affect the timing and benefits that are expected to be achieved from the Exchange.
The Exchange Ratio set forth in the Exchange Agreement is not adjustable based on the market price of our common stock, so the Exchange consideration at the Closing may have a greater or lesser value than at the time the Exchange Agreement was signed.
At the Closing, the issued and outstanding share capital of F-star will be exchanged for shares of our common stock based on the exchange ratio formula in the Exchange Agreement (the “Exchange Ratio”). The Exchange Ratio may be adjusted to the extent that (i) our expected net cash as of Closing is less than $15.0 million or greater than $17.0 million, (ii) F-star does not raise at least $25.0 million in a private placement of ordinary shares of F-star to occur prior to the Closing (the “Pre-Closing Financing”), and (iii) to account for the actual proceeds raised in the Pre-Closing Financing. Should the Closing occur after September 30, 2020, the $15.0 million and $17.0 million thresholds will each be reduced by $250,000 on October 30, 2020 and on the last day of each 30-day period thereafter until the Closing occurs. These and other adjustments to the Exchange Ratio are described further in the Exchange Agreement. Immediately following the Closing and assuming an Exchange Ratio of 0.5338 (which assumes both that our valuation will not be adjusted as a result of the expected net cash at Closing and that F-star raises $25.0 million in the Pre-Closing Financing), Spring Bank equity holders and the holders of F-star’s share capital are expected to own approximately 38.8% and 61.2%, respectively, of the outstanding capital stock of the combined company. However, as a result of these and other adjustments described in the Exchange Agreement, either the Spring Bank equity holders or the F-star equity holders could own more or less of the combined company than currently expected.
Any changes in the market price of our common stock before the completion of the Exchange will not affect the number of shares of our common stock issuable to the F-star equity holders pursuant to the Exchange Agreement. Therefore, if before the completion of the Exchange, the market price of our common stock declines from the market priceAnnual Report on the date of the Exchange Agreement, then the F-star equity holders could receive Exchange consideration with substantially lower value than the value of the Exchange consideration on the date of the Exchange Agreement. Similarly, if before the completion of the Exchange, the market price of our common stock increases from the market price of our common stock on the date of the Exchange Agreement, then F-star’s equity holders could receive Exchange consideration with substantially greater value than the value of the Exchange consideration on the date of the Exchange Agreement. Because the Exchange Ratio does not adjust as a result of changes in the market price of our common stock, for each one percentage point change in the market price of our common stock, there is a corresponding one percentage point rise or decline, respectively, in the value of the total Exchange consideration payable to the F –star equity holders pursuant to the Exchange Agreement.
Our stockholders may not receive any payment on the CVRs and the CVRs may otherwise expire valueless.
At the Closing, Spring Bank, F-star, a representative of the Spring Bank stockholders prior to the Closing, and Computershare Trust Company N.A., as the Rights Agent, will enter into a STING Agonist Contingent Value Rights Agreement (the “STING Agonist CVR Agreement”) and a STING Antagonist Contingent Value Rights Agreement (the “STING Antagonist CVR Agreement” and, togetherfiled with the STING Agonist CVR Agreement, the “CVR Agreements). Each share of our common stock held by our stockholders as of a record date prior to the Closing will receive a dividend of (i) one contingent value right entitling these holders to receive payments in connection with certain transactions involving Spring Bank’s proprietary STING agonist compound (“STING Agonist CVR”), and (ii) one contingent value right entitling these holders to receive payments in connection with the execution of a potential development agreement and certain other transactions involving Spring Bank’s proprietary STING antagonist compound (the “STING Antagonist CVR” and, together with the STING Agonist CVR, the “CVRs”).
The right of our stockholders to receive any future paymentSEC on or to derive any value from the CVRs will be contingent solely upon the achievement of the events specified in the CVR Agreements within the time periods specified in the CVR Agreements and the consideration received being greater than any amounts permitted to be retained or deducted by the combined company under the CVR Agreements. The combined company may not be able to successfully achieve the development of Spring Bank’s STING Agonist or Antagonist compounds in a manner or within a time period that would generate payment pursuant to the CVR Agreements. If these payment triggering events are not achieved for any reason within the time periods specified in the CVR Agreements or the consideration received for these events is not greater than the amounts permitted to be retained or deducted by the combined company, no payments will be made under the CVRs, and the CVRs will expire valueless.
Furthermore, the CVRs will be unsecured obligations of the combined company and all payments under the CVRs, all other obligations under the CVR Agreement and the CVRs and any rights or other related claims will be subordinated in right of payment to the prior payment in full of all current or future senior obligations of the combined company. Finally, the U.S. federal income tax treatment of the CVRs is unclear. There is no legal authority directly addressing the U.S. federal income tax treatment of the receipt of, and payments on, the CVRs, and there can be no assurance that the Internal Revenue Service would not assert, or that a court would not sustain, a position that could result in adverse U.S. federal income tax consequences to holders of the CVRs.
Failure to complete the Exchange may result in either Spring Bank or F-star paying a termination fee to the other party and could significantly harm the market price of our common stock and negatively affect our future business and operations.
If the Exchange is not completed and the Exchange Agreement is terminated under certain circumstances, the terminating party may be required to pay the other party a termination fee of $2 million. In addition, under certain conditions, we may be required to reimburse F-star for up to $750,000 of F-star’s expenses. Even if a termination fee or expenses of the other party are not payable in connection with a termination of the Exchange Agreement, we will have incurred significant fees and expenses, which must be paid whether or not the Exchange is completed. Further, if the Exchange is not completed, it could significantly harm the market price of our common stock.
In addition, if the Exchange Agreement is terminated and our Board of Directors determines to seek another business combination or strategic transaction, there can be no assurance that we will be able to find a partner and close an alternative transaction on terms that are as favorable or more favorable than the terms set forth in the Exchange Agreement.
The Exchange may be completed even though certain events occur prior to the Closing that materially and adversely affect Spring Bank or F-star.
The Exchange Agreement provides that either Spring Bank or F-star can refuse to complete the Exchange if there is a material adverse change affecting the other party between the date of the Exchange Agreement and the Closing. However, certain types of changes do not permit either party to refuse to complete the Exchange, even if this change could have a material adverse effect on Spring Bank or F-star, including:
Item 2. |
|
|
Item 3. |
|
Defaults Upon Senior Securities |
Item 4. |
|
Mine Safety Disclosures. |
Item 5. |
|
Other Information. |
Item 6. |
|
Exhibits. |
|
|
|
|
|
|
|
|
|
|
|
|
If adverse changes occur and Spring Bank and F-star still complete the Exchange, the market price of the combined company’s common stock may suffer. This in turn may reduce the value of the Exchange to the stockholders of Spring Bank, F-star or both.
Some of our officers and directors have interests in the Exchange that are different from our stockholders and that may influence them to support or approve the Exchange without regard to the interests of our stockholders.
Certain of our officers and directors participate in arrangements that provide them with interests in the Exchange that are different from the interests of our stockholders. These interests relate to or arise from, among other things, (i) severance payments to which certain of our executive officers will be entitled following completion of the Exchange as a result of termination of employment under certain circumstances, (ii) the accelerated vesting of certain of the equity awards held by our executive officers and directors in connection with the completion of the Exchange, and (iii) the fact that certain of our current directors will continue as directors of the combined company after the Closing, each of which could influence them to support the Exchange.
The market price of our common stock following the Exchange may decline as a result of the Exchange.
The market price of our common stock may decline as a result of the Exchange for a number of reasons, including if:
|
|
|
|
|
|
Our stockholders may not realize a benefit from the Exchange commensurate with the ownership dilution they will experience in connection with the Exchange.
If the combined company is unable to realize the strategic and financial benefits currently anticipated from the Exchange, our stockholders will have experiencedsubstantial dilution of their ownership interests in our company without receiving the expected commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the expected strategic and financial benefits currently anticipated from the Exchange.
The combined company will need to raise additional capital by issuing securities or debt or through licensing or other strategic arrangements, which may cause dilution to the combined company’s stockholders or restrict the combined company’s operations or impact its proprietary rights.
The combined company may be required to raise additional funds sooner than currently planned. If either or both of Spring Bank or F-star hold less cash at the time of the Closing than the parties currently expect, the combined company will need to raise additional capital sooner than expected. The combined company will also generally need to raise substantial additional capital to support its planned operations. Additional financing may not be available to the combined company when it needs it or may not be available on favorable terms. In addition, the combined company’s ability to obtain future funding when needed may be particularly challenging in light of the uncertainties and circumstances regarding the COVID-19 pandemic. To the extent that the combined company raises additional capital by issuing equity securities, this issuance may cause significant dilution to the combined company’s stockholders’ ownership. The terms of any new equity securities may have preferences over the combined company’s common stock. Any debt financing the combined company enters into may involve covenants that restrict its operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of the combined company’s assets, as well as prohibitions on its ability to create liens, pay dividends, redeem its stock or make investments. In addition, if the combined company raises additional funds through licensing, partnering or other strategic arrangements, it may be necessary to relinquish rights to some of the combined company’s technologies or product candidates and proprietary rights, or grant licenses on terms that are not favorable to the combined company.
During the pendency of the Exchange, we may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Exchange Agreement, which could adversely affect our business.
Subject to certain exceptions, covenants in the Exchange Agreement impede the ability of Spring Bank to make acquisitions or to complete other transactions that are not in the ordinary course of business pending completion of the Exchange. As a result, if the Exchange is not completed, we may be at a disadvantage to our competitors during this period. In addition, while the Exchange Agreement is in effect, we are generally prohibited from soliciting, initiating, encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets, or other business combination outside the ordinary course of business with any third party, subject to certain exceptions relating to fiduciary duties.
The pendency of the Exchange could have an adverse effect on the trading price of our common stock and our business, financial condition and prospects.
The pendency of the Exchange could disrupt our business in many ways, including:
|
|
|
|
Should they occur, any of these matters could adversely affect the trading price of our common stock or harm our business, financial condition and prospects.
We are substantially dependent on our employees to facilitate the consummation of the Exchange.
Our ability to successfully complete the Exchange depends in large part on our ability to retain certain personnel. Despite our efforts to retain these employees, one or more may terminate their employment with us on short notice. The loss of the services of certain employees could potentially harm our ability to consummate the Exchange, to run our day-to-day business operations, as well as to fulfill our reporting obligations as a public company.
Litigation relating to the Exchange could require us to incur significant costs and suffer management distraction, and could delay or enjoin the Exchange.
We could be subject to demands or litigation related to the Exchange, whether or not the Exchange is consummated. Such actions may create uncertainty relating to the Exchange, or delay or enjoin the Exchange, result in substantial costs to us and divert management time and resources.
|
|
The exhibits filed as part of this Quarterly Report on
* Filed herewith.
** Furnished herewith. This certification is not deemed filed for purposes
SIGNATURES
| ||||||
F-star Therapeutics, Inc. | ||||||
|
|
| ||||
| Date: May 17, 2021 |
| By: | /s/ Eliot R. Forster | |||
| Eliot R. Forster, Ph.D. | |||||
| President and | |||||
41