10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2022

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from

 

to

 

 

Commission File Number: 001-37718

 

F-STAR THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

52-2386345

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

Eddeva B920 Babraham Research Campus

Cambridge, United Kingdom

CB22 3AT

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: +44-1223-497400

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading

Symbol

 

Name of each exchange
on which registered

 

Common Stock, $0.0001 par value per share

FSTX

The Nasdaq Stock Market

(Nasdaq Capital Market)

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ NO ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO

The number of shares of Registrant’s Common Stock outstanding as of March 31, 2022 was 21,493,212.

 

 

 


 

F-star Therapeutics, Inc.

INDEX

PART I. FINANCIAL INFORMATION

 

 

 

Page

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

2

 

Condensed Consolidated Balance Sheets at March 31, 2022 and December 31, 2021

2

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021

3

 

Condensed Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021

4

 

Condensed Consolidated Statements of Cash Flows for the three Months Ended March 31, 2022 and 2021

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

36

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

37

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 3

Defaults Upon Senior Securities

37

Item 4

Mine Safety Disclosures

37

Item 5

Other Information

37

Item 6.

Exhibits

37

Exhibit Index

38

Signatures

39

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

F-star Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

Unaudited

 

 

Audited

 

Assets

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

68,801

 

 

$

78,549

 

Other receivables

 

 

15

 

 

 

 

Prepaid expenses and other current assets

 

 

4,318

 

 

 

3,879

 

Tax incentive receivable

 

 

4,152

 

 

 

2,311

 

Total current assets

 

 

77,286

 

 

 

84,739

 

Property and equipment, net

 

 

743

 

 

 

887

 

Right of use asset

 

 

3,034

 

 

 

3,281

 

Goodwill

 

 

14,772

 

 

 

14,898

 

In-process research and development and intangible assets, net

 

 

18,427

 

 

 

18,765

 

Other long-term assets

 

 

444

 

 

 

451

 

Total assets

 

$

114,706

 

 

$

123,021

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

4,310

 

 

$

3,081

 

Accrued expenses and other current liabilities

 

 

5,511

 

 

 

6,241

 

Contingent value rights

 

 

1,936

 

 

 

1,907

 

Lease obligations, current

 

 

896

 

 

 

906

 

Total current liabilities

 

 

12,653

 

 

 

12,135

 

Long term Liabilities:

 

 

 

 

 

 

Term debt

 

 

9,675

 

 

 

9,605

 

Lease obligations

 

 

2,484

 

 

 

2,723

 

Contingent value rights

 

 

1,723

 

 

 

1,694

 

Deferred tax liability

 

 

7

 

 

 

7

 

Total liabilities

 

 

26,542

 

 

 

26,164

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value; authorized, 10,000,000 shares at December
   31, 2021 and 2020;
no shares issued or outstanding at March 31, 2022
   December 31, 2021

 

 

 

 

 

 

Common Stock, $0.0001 par value; authorized 200,000,000 shares at
   March 31, 2022 and December 31, 2021;
21,493,212 and 20,874,590
   shares issued and outstanding at March 31, 2022 and December 31, 2021

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

180,141

 

 

 

176,808

 

Accumulated other comprehensive loss

 

 

(1,441

)

 

 

(1,502

)

Accumulated deficit

 

 

(90,538

)

 

 

(78,451

)

Total stockholders’ equity

 

 

88,164

 

 

 

96,857

 

Total liabilities and stockholders’ equity

 

$

114,706

 

 

$

123,021

 

See accompanying notes to consolidated financial statements.

 

2


 

F-star Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In Thousands, Except Share and Per Share Amounts)

 

 

 

For the Three Months
Ended March 31,

 

 

 

2022

 

 

 

 

2021

 

License revenue

 

$

2,551

 

 

 

 

$

2,917

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

8,037

 

 

 

 

 

7,132

 

General and administrative

 

 

5,702

 

 

 

 

 

6,429

 

Total operating expenses

 

 

13,739

 

 

 

 

 

13,561

 

Loss from operations

 

 

(11,188

)

 

 

 

 

(10,644

)

Other non-operating (expense) income:

 

 

 

 

 

 

 

 

Interest expense

 

 

(308

)

 

 

 

 

(87

)

Change in fair value of contingent value rights

 

 

(58

)

 

 

 

 

 

Other (expense) income

 

 

(533

)

 

 

 

 

1,105

 

Total other non-operating (expense) income

 

 

(899

)

 

 

 

 

1,018

 

Net loss before income taxes

 

 

(12,087

)

 

 

 

 

(9,626

)

Income tax expense

 

 

 

 

 

 

 

(108

)

Net loss

 

$

(12,087

)

 

 

 

$

(9,734

)

Basic and diluted adjusted net loss per common
   shares

 

$

(0.57

)

 

 

 

$

(1.07

)

Weighted-average number of shares
   outstanding, basic and diluted

 

 

21,083,473

 

 

 

 

 

9,100,273

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

Net loss

 

$

(12,087

)

 

 

 

$

(9,734

)

Other comprehensive (loss) gain :

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

61

 

 

 

 

 

(468

)

Total comprehensive loss

 

$

(12,026

)

 

 

 

$

(10,202

)

See accompanying notes to consolidated financial statements.

 

3


 

F-star Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

For the three months ended March 31, 2022 and 2021

(Unaudited)

(In Thousands, Except Share Amounts)

 

 

 

Stockholders’ Equity

 

 

 

Common Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2022

 

Number of
Shares

 

 

Value

 

 

Capital in Excess
of par Value

 

 

Accumulated Other
Comprehensive
Loss

 

 

Accumulated
deficit

 

 

Total Stockholders’
Equity

 

Balance at December 31, 2021

 

 

20,874,590

 

 

 

2

 

 

 

176,808

 

 

 

(1,502

)

 

 

(78,451

)

 

 

96,857

 

Issuance of common stock in connection with at-the-
  market offering, net of issuance costs

 

 

545,054

 

 

 

 

 

 

1,949

 

 

 

 

 

 

 

 

 

1,949

 

RSU vesting, net of shares repurchased to cover tax
  withholding

 

 

73,568

 

 

 

 

 

 

(70

)

 

 

 

 

 

 

 

 

(70

)

Share-based compensation

 

 

 

 

 

 

 

 

1,454

 

 

 

 

 

 

 

 

 

1,454

 

Equity adjustment from foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

61

 

 

 

 

 

 

61

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,087

)

 

 

(12,087

)

Balance at March 31, 2022

 

 

21,493,212

 

 

$

2

 

 

$

180,141

 

 

$

(1,441

)

 

$

(90,538

)

 

$

88,164

 

 

 

 

Stockholders’ Equity

 

 

 

Common Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2021

 

Number of
shares

 

 

Value

 

 

Capital in Excess
of par Value

 

 

Accumulated Other
Comprehensive Loss

 

 

Accumulated
deficit

 

 

Total Stockholders’
Equity

 

Balance at December 31, 2020

 

 

9,100,117

 

 

$

1

 

 

$

91,238

 

 

$

(1,077

)

 

$

(47,168

)

 

$

42,994

 

Equity adjustment from foreign
   currency translation

 

 

 

 

 

 

 

 

 

 

 

(468

)

 

 

 

 

 

(468

)

Stock option exercises

 

 

203

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

 

 

 

2,180

 

 

 

 

 

 

 

 

 

2,180

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,734

)

 

 

(9,734

)

Balance at March 31, 2021

 

 

9,100,320

 

 

$

1

 

 

$

93,418

 

 

$

(1,545

)

 

$

(56,902

)

 

$

34,972

 

See accompanying notes to consolidated financial statements.

4


 

F-star Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In Thousands)

 

 

 

 

For the Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(12,087

)

 

$

(9,734

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Share based compensation expense

 

 

1,454

 

 

 

2,180

 

Foreign currency (gain) loss

 

 

614

 

 

 

(670

)

(Gain) loss on disposal of property, plant and equipment

 

 

 

 

 

(9

)

Depreciation

 

 

122

 

 

 

144

 

Amortization of intangible assets

 

 

65

 

 

 

 

      Non-cash interest

 

 

29

 

 

 

 

Amortization of debt issuance costs

 

 

42

 

 

 

77

 

Fair value adjustments

 

 

58

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Other receivables

 

 

(15

)

 

 

(2,805

)

Prepaid expenses and other current assets

 

 

(534

)

 

 

566

 

Tax incentive receivable

 

 

(1,952

)

 

 

(413

)

Operating right of use asset

 

 

223

 

 

 

278

 

Accounts payable

 

 

1,197

 

 

 

(548

)

Accrued expenses and other current liabilities

 

 

(606

)

 

 

(2,473

)

Deferred revenue

 

 

 

 

 

(304

)

Operating lease liability

 

 

(225

)

 

 

(272

)

Other long term asset

 

 

 

 

 

(395

)

Net cash used in operating activities

 

 

(11,615

)

 

 

(14,378

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

 

 

 

(267

)

Proceeds from sale of property, plant and equipment

 

 

 

 

 

15

 

Net cash used in investing activities

 

 

 

 

 

(252

)

Cash flows from financing activities:

 

 

 

 

 

 

Net proceeds from issuance of common stock, net

 

 

1,949

 

 

 

 

Payments to tax authorities in connection with shares directly withheld from
  employees

 

 

(70

)

 

 

 

Net cash provided by financing activities

 

 

1,879

 

 

 

 

Net increase in cash and cash equivalents

 

 

(9,736

)

 

 

(14,630

)

Effect of exchange rate changes on cash

 

 

(12

)

 

 

(216

)

Cash and cash equivalents at beginning of period

 

 

78,549

 

 

 

18,526

 

Cash and cash equivalents at end of period

 

$

68,801

 

 

$

3,680

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Interest paid

 

$

238

 

 

$

 

Purchases of intangible assets included in accounts payable and accrued expenses

 

$

100

 

 

$

 

Purchases of property and equipment included in accounts payable and accrued
  expenses

 

$

 

 

$

97

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

Additions to ROU assets obtained from new operating lease liabilities

 

 

 

 

 

1,468

 

See accompanying notes to consolidated financial statements.

 

5


 

 

F-star Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

 

 

1. Nature of Business and Summary of Significant Accounting Policies

Nature of Business

F-star Therapeutics Inc. (“we” or the “Company”) is a clinical-stage biopharmaceutical company dedicated to developing next generation immunotherapies to transform the lives of patients with cancer. We are pioneering the use of tetravalent (2+2) bispecific antibodies to create a paradigm shift in cancer therapy. We have four second generation immuno-oncology (also referred to as "IO") therapeutics in the clinic, each directed against some of the most promising IO targets in drug development, including LAG-3 and CD137. Our proprietary antibody discovery platform is protected by an extensive intellectual property estate. We have attracted multiple partnerships with biotechnology and pharmaceutical companies targeting significant unmet needs across several disease areas, including oncology, immunology, and indications affecting the central nervous system (“CNS”) with over 20 programs, based on our technology, being developed by our partners. Our goal is to offer patients better and more durable benefits than currently available immuno-oncology treatments by developing medicines that seek to block tumor immune evasion. Through our proprietary tetravalent, bispecific natural antibody (mAb²™) format, our mission is to generate highly differentiated medicines with monoclonal antibody-like manufacturability, good safety and tolerability.

Share Exchange Agreement

On November 20, 2020, F-star Therapeutics, Inc., formerly known as Spring Bank Pharmaceuticals, Inc., completed a business combination (the “Transaction”) with F-star Therapeutics Limited (“F-star Ltd”) in accordance with the terms of the Share Exchange Agreement, dated July 29, 2020 (the “Exchange Agreement”), by and among the Company, F-star Ltd and certain holders of capital stock and convertible notes of F-star Ltd (each a “Seller”, and collectively with holders of F-star Ltd securities who subsequently became parties to the Exchange Agreement, the “Sellers”). Pursuant to the Exchange Agreement, each ordinary share of F-star Ltd outstanding immediately prior to the closing of the Transaction (the “Closing”) was exchanged by the Sellers that owned such F-star Ltd shares for a number of duly authorized, validly issued, fully paid and non-assessable shares of Company common stock pursuant to the exchange 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 a 1-for-4 reverse stock split of its common stock (the “Reverse Stock Split”) and, following the completion of the Transaction, changed its name to F-star Therapeutics, Inc. Following the completion of the Transaction, the business of the Company became the business conducted by F-star, which is a clinical-stage immuno-oncology company focused on cancer treatment through its proprietary tetravalent bispecific antibody programs. Unless otherwise noted, all references to share amounts in this report reflect the Reverse Stock Split.

Liquidity

From our inception through March 31, 2022, we have not generated any revenue from product sales, and we have incurred significant operating losses and negative cash flows from our operations. We do not expect to generate significant revenue from sales of any products for several years, if at all.

As of March 31, 2022, we had working capital (current assets less current liabilities) of $64.6 million, an accumulated deficit of $90.5 million, cash of $68.8 million and accounts payable and accrued expenses of $9.8 million. Our future success is dependent on our ability to successfully obtain additional working capital, obtain regulatory approval for and successfully launch and commercialize our product candidates and to ultimately attain profitable operations.

On March 30, 2021, the Company entered into a Sales Agreement (the “Sales Agreement”) with SVB Securities LLC with respect to an "at-the-market” (“ATM”) offering program under which the Company could offer and sell,

6


 

from time to time at its sole discretion, shares of its common stock, having an aggregate offering price of up to $50.0 million, through SVB Securities LLC as its sales agent. On May 6, 2021, the Company terminated the Sales Agreement.

On August 13, 2021, the Company entered into a new Sales Agreement (the “2021 Sales Agreement”) with SVB Securities LLC with respect to an at-the-market offering program under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $50.0 million, through SVB Securities LLC as its sales agent.

During the quarter ended March 31, 2022, the Company had sold 545,054 shares of common stock pursuant to the 2021 Sales Agreement for gross proceeds of $2.2 million, resulting in net proceeds of $2.1 million after deducting sales commissions.

Historically, we have financed our operations primarily with proceeds from the sale and issuance of common and convertible preferred shares, proceeds from issuances in connection with a convertible note facility, proceeds received from upfront payments and development milestone payments in connection with our collaboration arrangements, payments received for research and development services and term debt. We expect to continue to use these means of financing our operations until we are able to obtain regulatory approval for and successfully commercialize one or more of our drug candidates. We cannot provide any assurance that we will obtain regulatory approval or successfully commercialize any of our current or planned future drug product candidates.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) for interim financial statements. Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

The accompanying interim condensed consolidated financial statements as of March 31, 2022, and for the three months ended March 31, 2022 and 2021, and information contained within the notes to these condensed consolidated financial statements, are unaudited. These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s audited annual consolidated financial statements and in management's opinion contain all adjustments (including normal recurring adjustments) necessary for the fair presentation of the Company’s financial position as of March 31, 2022, results of operations for the three months ended March 31, 2022 and 2021, statement of stockholders’ equity for the three months ended March 31, 2022 and 2021 and its cash flows for the three months ended March 31, 2022 and 2021. These interim condensed consolidated financial statements should be read in conjunction with the Company’s annual audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The results for the three months ended March 31, 2022, are not necessarily indicative of the results expected for the full fiscal year or any interim period.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of F-star Therapeutics, Inc. and its wholly owned subsidiaries. All inter-company balances and transactions between the consolidated companies have been eliminated in consolidation.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting years. Significant estimates and assumptions reflected in these

7


 

condensed consolidated financial statements include, but are not limited to, the fair value of the assets and liabilities acquired in the transaction between Spring Bank and F-star Ltd, the fair value of contingent value rights, the accrual for research and development expenses, revenue recognition, fair values of acquired intangible assets and impairment review of those assets, share based compensation expense, and income taxes. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. Estimates are periodically reviewed in light of reasonable changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates or assumptions.

Concentrations of credit risk and of significant suppliers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains its cash and cash equivalents in financial institutions in amounts that could exceed government-insured limits. The Company does not believe it is subject to additional credit risks beyond those normally associated with commercial banking relationships.

The Company is dependent on contract research organizations to provide its clinical trials and third-party manufacturers to supply products for research and development activities in its programs. In particular, the Company relies and expects to continue to rely on a small number of manufacturers to supply its requirements for supplies and raw materials related to these programs. These programs could be adversely affected by a significant interruption in these manufacturing services or the availability of raw materials.

Property, plant and equipment

Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation expense is recognized using the straight-line method over the estimated useful lives of the respective assets as follows:

 

 

 

Estimated Useful Economic Life

Leasehold property improvements, right of use assets

 

Lesser of lease term or useful life

Laboratory equipment

 

5 years

Furniture and office equipment

 

3 years

 

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use (“ROU”) assets, and lease obligations in the Company’s consolidated balance sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. This is the rate the Company would have to pay if borrowing on a collateralized basis over a similar term to each lease. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Impairment of long-lived assets

Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows. If the undiscounted cash flows are insufficient to recover the carrying value, an impairment loss is recorded for the difference between the carrying value and fair value of the asset. As of March 31, 2022, no such impairment has been recorded.

8


 

License and collaboration arrangements and revenue recognition

The Company’s revenues are generated primarily through license and collaboration agreements with pharmaceutical and biotechnology companies. The terms of these arrangements may include (i) the grant of intellectual property rights (IP licenses) to therapeutic drug candidates against specified targets, developed using the Company’s proprietary mAb2 bispecific antibody platform, (ii) performing research and development services to optimize drug candidates, and (iii) the grant of options to obtain additional research and development services or licenses for additional targets, or to optimize product candidates, upon the payment of option fees.

The terms of these arrangements typically include payment to the Company of one or more of the following:

non-refundable, upfront license fees; payments for research and development services; fees upon the exercise of options to obtain additional services or licenses; payments based upon the achievement of defined collaboration objectives; future regulatory and sales-based milestone payments; and royalties on net sales of future products.

The Company has adopted FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. To date, the Company has entered into License and Collaboration Agreements with Denali Therapeutics, Inc. (“Denali”), Ares Trading S.A. (“Ares”), an affiliate of Merck KGaA, Darmstadt, Germany, AstraZeneca AB ("AstraZeneca") and Janssen Biotech, Inc. ("Janssen") which were determined to be within the scope of ASC 606.

Research and development costs

Research and development costs are expensed as incurred. Research and development expenses are comprised of costs incurred in performing clinical trials, 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 as well as the cost of licensing technology. Typically, upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred, except for payments relating to intellectual property rights with future alternative use which will be expensed when the intellectual property is in use. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.

Warrants

The Company accounts for warrants within stockholders equity or as liabilities based on the characteristics and provisions of each instrument. The Company evaluates outstanding warrants in accordance with ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging. If none of the criteria in the evaluation in these standards are met, the warrants are classified as a component of stockholders’ equity and initially recorded at their grant date fair value without subsequent remeasurement. Warrants that meet the criteria are classified as liabilities and remeasured to their fair value at the end of each reporting period.

Stock-Based Compensation

The Company accounts for share-based compensation in accordance with ASC 718, “Compensation – Stock Compensation”(“ASC 718”). ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service period in the Company’s consolidated statements of operations and comprehensive loss.

Fair value measurements of financial instruments

The Company’s financial instruments consist of cash, accounts payable, Contingent Value Rights (“CVRs”) and liability classified warrants. The carrying amounts of cash and accounts payable approximate their fair value due to

9


 

the short-term nature of those financial instruments. The fair value of CVRs and the liability classified warrants are remeasured to fair value each reporting period.

Net loss per share

The Company computes net loss per share in accordance with ASC Topic 260, Earnings Per Share (“ASC 260”) and related guidance, which requires two calculations of net (loss) income attributable to the Company’s shareholders per share to be disclosed: basic and diluted. Convertible preferred shares are considered participating securities and are included in the calculation of basic and diluted net (loss) income per share using the two-class method. In periods where the Company reports net losses, such losses are not allocated to the convertible preferred shares for the computation of basic or diluted net (loss) income.

Diluted net (loss) income per share is the same as basic net (loss) income per share for the periods in which the Company had a net loss because the inclusion of outstanding common stock equivalents would be anti-dilutive.

Income taxes

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined on the basis of the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. The potential recovery of deferred tax assets is evaluated by estimating the potential for future taxable profits, if any.

Research and development tax credit

As the entity located in the United Kingdom (“UK”) carries out extensive research and development, and clinical trial activities, it seeks to benefit from the UK research and development tax credit cash rebate regime known as the Small and Medium-sized Enterprises R&D Tax Credit Program (the “SME Program”). Qualifying expenditures largely comprise employment costs for research staff, consumables expenses incurred under agreements with third parties that conduct research and development, preclinical activities, clinical activities and manufacturing on the Company’s behalf and certain internal overhead costs incurred as part of research projects. The tax credit received in the UK pursuant to the SME Program permits companies to deduct an extra 130% of their qualifying costs from their yearly profit or loss, as well as the normal 100% deduction, to make a total 230% deduction. If the company is incurring losses, it is entitled to claim a tax credit worth up to 14.5% of the surrenderable loss. To qualify for relief under the SME Program, companies are required to employ fewer than 500 staff and have a turnover of under €100.0 million or a balance sheet total of less than €86.0 million.

Research and development tax credits received in the UK are recorded as a reduction in research and development expenses. The UK research and development tax credit is payable to companies after surrendering tax losses and is not dependent on current or future taxable income. As a result, it is not reflected as part of the income tax provision.

Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential loss range is probable and reasonably estimable under the provisions of the authoritative guidelines that address accounting for contingencies. The Company expenses costs as incurred in relation to such legal proceedings as general and administrative expense within the consolidated statements of operations and comprehensive loss.

10


 

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed below, the Company does not believe that the adoption of recently issued standards have or may have a material impact on its consolidated financial statements and disclosures.

Going Concern

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Since inception, the Company has devoted substantially all of its efforts to business planning, research and development, pre-clinical and clinical activities, recruiting management and technical staff, and securing funding via collaborations. The Company has historically funded its operations with proceeds from its collaboration arrangements, sale and issuance of its common stock and preferred stock, and proceeds from the sale and issuance of convertible notes and debt financing. As of March 31, 2022, the Company had incurred significant losses and has an accumulated deficit of $90.5 million. The Company had approximately $68.8 million in cash and cash equivalents as of March 31, 2022. The Company expects to continue to generate operating losses in the foreseeable future, particularly as the Company advances its pre-clinical activities and clinical trials for its product candidates in development. The Company plans to seek additional funding through public equity, private equity, debt financing, collaboration partnerships, or other sources. There are no assurances, however, that the Company will be successful in these endeavors.

If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate its research and development programs, or reduce product candidate expansion, which could adversely affect its business prospects. Although management continues to pursue its funding plans, there is no assurance that the Company will be successful in obtaining sufficient funding to continue operations on terms acceptable to the Company, if at all. Management believes that its existing cash and cash equivalents at March 31, 2022 will fund our current operating plan into the first quarter of 2023. Accordingly, the Company has concluded that substantial doubt exists concerning the Company’s ability to continue as a going concern for a period of at least twelve months from the date of the financial statements.

2. Net Loss Per Share

The following table presents the calculation of basic and diluted net loss per share applicable to common stockholders of the Company (in thousands, except share and per share data):

 

Net Loss Per Share

 

 

 

For the Three Months
Ended March 31,

 

 

 

2022

 

 

2021

 

Net loss

 

$

(12,087

)

 

$

(9,734

)

Weighted average number shares
   outstanding, basic and diluted

 

 

21,083,473

 

 

 

9,100,273

 

Net loss income per common, basic
   and diluted

 

$

(0.57

)

 

$

(1.07

)

 

Diluted net loss per share of common stock is the same as basic net loss per share of common stock for all periods presented. The following shares were excluded from the calculation of diluted net loss per share, prior to the use of the treasury stock method or if-converted method, because their effect would have been anti-dilutive for the period presented:

11


 

 

Potential Dilutive Shares

 

 

 

For the Three Months
Ended March 31,

 

 

 

2022

 

 

2021

 

Common stock warrants

 

 

104,736

 

 

 

93,330

 

Stock options and RSUs

 

 

2,254,579

 

 

 

1,241,435

 

 

3. In process R&D (IPRD) and intangible assets, net

 

 

 

March 31, 2022

 

 

December 31, 2021

 

 

 

Indefinite-lived assets

 

 

Definite-lived assets

 

 

Indefinite-lived assets

 

 

Definite-lived assets

 

 

 

Goodwill

 

 

In-process R&D

 

 

In-process R&D

 

 

Goodwill

 

 

In-process R&D

 

 

In-process R&D

 

Cost

 

$

14,772

 

 

$

18,607

 

 

$

4,431

 

 

$

14,898

 

 

$

18,961

 

 

$

4,473

 

Less: accumulated amortization

 

 

 

 

 

 

 

 

200

 

 

 

 

 

 

 

 

 

130

 

Less: impairments

 

 

 

 

 

4,411

 

 

 

 

 

 

 

 

 

4,539

 

 

 

 

 

 

$

14,772

 

 

$

14,196

 

 

$

4,231

 

 

$

14,898

 

 

$

14,422

 

 

$

4,343

 

$0.1 million and zero amortization was recorded for the three months ended March 31, 2022 and 2021 respectively.

 

4. Property, Plant and Equipment, net

Property, plant and equipment, net consisted of the following (in thousands):

 

Property, Plant and Equipment, net

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021