Exhibit 99.2
Bioniz Therapeutics, Inc
Interim Condensed Financial Statements
For Nine Months Ended September 30, 2021 and September 30, 2020
INDEX TO THE INTERIM CONDENSED FINANCIAL STATEMENTS
BIONIZ THERAPEUTICS, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share and par value data)
| | | | | | | | |
| | September 30, | | | December 31, | |
| | 2021 | | | 2020 | |
| | (Unaudited) | | | | |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash | | $ | 2,318 | | | $ | 6,338 | |
Prepaid expenses and other assets | | | 33 | | | | 185 | |
Total current assets | | | 2,351 | | | | 6,523 | |
Property and equipment, net | | | 8 | | | | 11 | |
Total assets | | $ | 2,359 | | | $ | 6,534 | |
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK, AND STOCKHOLDERS’ DEFICIT | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 101 | | | $ | 129 | |
Accrued expenses | | | 744 | | | | 533 | |
Option agreement liability | | | — | | | | 15,000 | |
Total current liabilities | | | 845 | | | | 15,662 | |
Long term liabilities | | | | | | |
Other long-term liabilities | | | 87 | | | | 87 | |
Total liabilities | | | 932 | | | | 15,749 | |
Commitments and contingencies (Note 7) | | | | | | |
Redeemable convertible preferred stock - $0.0001 par value; 41,763,612
shares authorized as of September 30, 2021 and December 31, 2020;
41,762,612 shares issued and outstanding as of September 30, 2021
and December 31, 2020; liquidation preference of $29,671 as of
September 30, 2021 and December 31, 2020 | | | 28,247 | | | | 28,247 | |
Stockholders’ deficit: | | | | | | |
Common stock, $0.0001 par value; 50,000,000 shares authorized as of
September 30, 2021 and December 31, 2020; 3,421,015 shares issued
and outstanding as of September 30, 2021 and December 31, 2020 | | | — | | | | — | |
Additional paid-in capital | | | 856 | | | | 781 | |
Accumulated deficit | | | (27,676 | ) | | | (38,243 | ) |
Total stockholders’ deficit | | | (26,820 | ) | | | (37,462 | ) |
Total liabilities, redeemable convertible preferred stock, and stockholders’
deficit | | $ | 2,359 | | | $ | 6,534 | |
The accompanying notes are an integral part of these interim condensed financial statements.
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BIONIZ THERAPEUTICS, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
| | | | | | | | |
| | Nine Months Ended
September 30, | |
| | 2021 | | | 2020 | |
Operating expenses: | | | | | | |
Research and development | | $ | 2,806 | | | $ | 4,156 | |
General and administrative | | | 1,619 | | | | 1,495 | |
Depreciation and amortization | | | 7 | | | | 14 | |
Total operating expenses | | | 4,432 | | | | 5,665 | |
Loss from operations | | | (4,432 | ) | | | (5,665 | ) |
Other income (expense) | | | | | | |
Other income | | | 2 | | | | 325 | |
Gain on termination of Almirall contract | | | 15,000 | | | ─ | |
Interest expense, net | | ─ | | | | (30 | ) |
Total other income (expense) | | | 15,002 | | | | 295 | |
Income (loss) before provision for income taxes | | | 10,570 | | | | (5,370 | ) |
Income tax expense | | | 3 | | | ─ | |
Net income (loss) and comprehensive income (loss) | | $ | 10,567 | | | $ | (5,370 | ) |
The accompanying notes are an integral part of these interim condensed financial statements.
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BIONIZ THERAPEUTICS, INC.
CONDENSED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK, COMMON STOCK, AND STOCKHOLDERS’ DEFICIT
(Unaudited)
(in thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Redeemable Convertible
Preferred Stock | | | | Common
Stock | | | Additional
Paid-in | | | Accumulated | | | Total
Stockholders’ | |
| | Shares | | | Amount | | | | Shares | | | Amount | | | Capital | | | Deficit | | | Deficit | |
Balance as of December 31, 2020 | | | 41,762,612 | | | $ | 28,247 | | | | | 3,421,015 | | | $ | — | | | $ | 781 | | | $ | (38,243 | ) | | $ | (37,462 | ) |
Stock-based compensation | | | — | | | | — | | | | | — | | | | — | | | | 75 | | | | — | | | | 75 | |
Net income | | | — | | | | — | | | | | — | | | | — | | | | — | | | | 10,567 | | | | 10,567 | |
Balance as of September 30, 2021 | | | 41,762,612 | | | $ | 28,247 | | | | | 3,421,015 | | | $ | — | | | $ | 856 | | | $ | (27,676 | ) | | $ | (26,820 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Redeemable Convertible
Preferred Stock | | | | Common
Stock | | | Additional
Paid-in | | | Accumulated | | | Total
Stockholders’ | |
| | Shares | | | Amount | | | | Shares | | | Amount | | | Capital | | | Deficit | | | Deficit | |
Balance as of December 31, 2019 | | | 33,640,911 | | | $ | 19,609 | | | | | 917,162 | | | $ | — | | | $ | 350 | | | $ | (30,505 | ) | | $ | (30,155 | ) |
Stock-based compensation | | | — | | | | — | | | | | — | | | | — | | | | 153 | | | | — | | | | 153 | |
Common stock issued in connection
with incentive stock plan | | | — | | | | — | | | | | 1,039,525 | | | | — | | | | 104 | | | | — | | | | 2,104 | |
Vesting of early exercised stock options | | | — | | | | — | | | | | 321,357 | | | | — | | | | 25 | | | | — | | | | 25 | |
Issuance of series A redeemable convertible
preferred stock upon conversion of
convertible promissory notes | | | 8,121,701 | | | | 8,638 | | | | | — | | | | — | | | | — | | | | — | | | | — | |
Net loss | | | — | | | | — | | | | | — | | | | — | | | | — | | | | (5,370 | ) | | | (5,370 | ) |
Balance as of September 30, 2020 | | | 41,762,612 | | | $ | 28,247 | | | | | 2,278,044 | | | $ | — | | | $ | 632 | | | $ | (35,875 | ) | | $ | (35,243 | ) |
The accompanying notes are an integral part of these interim condensed financial statements.
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BIONIZ THERAPEUTICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
| | | | | | | | |
| | Year Ended December 31, | |
| | 2020 | | | 2019 | |
Cash flows from operating activities: | | | | | | |
Net loss | | $ | (7,738 | ) | | $ | (8,762 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | |
Depreciation and amortization | | | 18 | | | | 21 | |
Stock-based compensation | | | 181 | | | | 117 | |
Non-cash interest expense | | | 30 | | | | 609 | |
Changes in operating assets and liabilities: | | | | | | |
Prepaid expenses and other assets | | | (185 | ) | | | — | |
Accounts payable | | | (243 | ) | | | (604 | ) |
Accrued expenses | | | 175 | | | | (149 | ) |
Income taxes payable | | | (38 | ) | | | 38 | |
Other long-term liabilities | | | 29 | | | | — | |
Net cash used in operating activities | | | (7,771 | ) | | | (8,730 | ) |
Cash flows from investing activities: | | | | | | |
Option agreement liability | | | — | | | | 15,000 | |
Net cash provided by investing activities | | | — | | | | 15,000 | |
Cash flows from financing activities: | | | | | | |
Proceeds from issuance of convertible promissory notes, net of issuance
costs | | | — | | | | 7,966 | |
Proceeds from exercise of stock options | | | 348 | | | | — | |
Return of capital | | | — | | | | (1,000 | ) |
Net cash provided by financing activities | | | 348 | | | | 6,966 | |
Net change in cash | | | (7,423 | ) | | | 13,236 | |
Cash—beginning of year | | | 13,761 | | | | 525 | |
Cash—end of year | | $ | 6,338 | | | $ | 13,761 | |
Supplemental disclosure of cash flow information: | | | | | | |
Cash paid for interest | | | — | | | | — | |
Cash paid for taxes | | | — | | | | — | |
Non-cash investing and financing activities: | | | | | | |
Conversion of convertible promissory notes to Series A convertible
preferred stock (see Note 3) | | $ | 8,638 | | | | — | |
Vesting of early exercised stock options | | $ | 43 | | | | — | |
The accompanying notes are an integral part of these interim condensed financial statements.
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BIONIZ THERAPEUTICS, INC.
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS
Description of the Business
Bioniz Therapeutics, Inc. (the “Company”), a Delaware Corporation, is a discovery and development stage biopharmaceutical company involved in the discovery and development of peptide therapeutics that selectively and simultaneously inhibit multiple cytokines to treat immuno-inflammatory diseases and cancer. The Company’s strategy is to discover novel therapeutics that can be further developed into drugs targeting immunologic diseases. Upon reaching the clinical development stage, the Company will seek to either partner the asset(s) with another party or raise additional capital to advance the asset(s) to the clinical setting.
Since its inception, the Company has devoted substantially all of its efforts to organizing and staffing the Company and performing discovery and development of its lead platform in cytokine inhibition. The Company recently completed a phase 2 study of its lead asset, BNZ-1, which is being tested as a potential treatment of a rare form of lymphoma. In addition, the Company’s second asset, BNZ-2, is phase 1 ready and the oral form of BNZ-2, BNZ-3, is in early pre-clinical studies.
On February 14, 2022, the Company was acquired by Equillium, Inc. (“Equillium”) pursuant to the terms of an Agreement and Plan of Merger (the “Merger Agreement”) under which Equillium’s wholly-owned subsidiary merged with and into the Company, with the Company surviving as Equillium’s wholly-owned subsidiary (the “Merger”).
As consideration for the Merger, Equillium agreed to: (a) issue up to an aggregate of 5,699,492 shares of its common stock (“Merger Shares”), and (b) make contingent payments up to an aggregate of $57.5 million based on the achievement of certain regulatory events for the Company’s product candidates commencing on first U.S. approval, and up to an aggregate of $250 million based on the achievement of certain commercialization events for product candidate BNZ-1 as set forth in the Merger Agreement. The closing issuance of Merger Shares may be adjusted after the closing, pursuant to procedures set forth in the Merger Agreement, in connection with the finalization of transaction expenses, debt, net exercise taxes and working capital amounts at closing.
Each stock option of the Company (“Options”) that was outstanding and unexercised immediately prior to the effective time of the Merger (the “Effective Time”) was cancelled as of the Effective Time and represents a right to receive consideration as if the Options had been exercised prior to the Effective Time. Any amount payable to the holder of cancelled Options will be less the applicable exercise price and any applicable tax withholding.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES
Basis of Presentation
The accompanying interim condensed financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“GAAP”). These unaudited interim condensed financial statements do not include all of the information and notes required by GAAP for financial statements. Accordingly, these interim condensed financial statements should be read in conjunction with the Company’s audited financial statements and notes for the year ended December 31, 2020. The Company’s accounting policies are consistent with those presented in the audited financial statements. Results of operations for interim periods are not necessarily indicative of the results of operations for a full year. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) promulgated by the Financial Accounting Standards Board (“FASB”).
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Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make informed estimates and assumptions that impact the amounts reported in these interim condensed financial statements and accompanying notes. These amounts may materially differ from the amounts ultimately realized and reported due to the inherent uncertainty of any estimate or assumption. On an on-going basis, management evaluates its most critical estimates and assumptions, including those related to the: (i) fair value of its common stock, (ii) fair value of stock awards and periodic expense recognition of stock-based compensation, (iii) realization of income tax assets and estimates of tax liabilities, and (iv) expense accruals. Accounting policies and estimates that most significantly impact the presented amounts within these interim condensed financial statements are further described below.
COVID-19
In March 2020, the World Health Organization declared a pandemic related to the global novel coronavirus disease 2019 (“COVID-19”) outbreak and recommended containment and mitigation measures. In response, extraordinary actions were taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the world. These actions included travel bans, quarantines, “stay-at-home” orders, and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. Some of these measures have since been rescinded, but the Company continues to take precautionary measures in order to minimize the risk of the virus to its employees and the communities in which it operates. While the impacts of COVID-19 and variants moderated during 2021 and the first half of 2022, there remains uncertainty around the broader implications of the COVID-19 pandemic on the Company’s results of operations and overall financial performance. The COVID-19 pandemic has, to date, not had a material adverse impact on its results of operations, including ongoing and planned clinical trials, or the ability to raise funds to sustain operations. The economic effects of the pandemic and resulting long-term societal changes are currently not predictable, and the future financial impacts could vary from those foreseen.
Concentration of Credit Risk
The Company maintains cash balances at various financial institutions and such balances frequently exceed the amounts insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk with respect to such cash.
Risks and Uncertainties
The Company’s products require approval from the FDA and other foreign regulatory agencies before commercial sales can commence. There can be no assurance that the Company’s products will receive any of these required approvals. The denial or delay of such approvals may have a material adverse impact on the Company’s business now and in the future. In addition, after the approval by the FDA, there will remain an ongoing risk of adverse events that were not present during the therapeutic approval process.
The Company is subject to risks common to companies in the life science industry, including, but not limited to, new technological innovations, clinical development risk, establishment of appropriate commercial partnerships, protection of proprietary technology, compliance with government and environmental regulations, uncertainty of market acceptance of our products, product liability, and the need to obtain additional financing.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:
| |
Computer equipment | 3 years |
Furniture and fixtures | 5 years |
Medical equipment | 5 years |
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Significant improvements that extend the useful life of an asset are capitalized. Repairs and maintenance which do not extend the useful lives of assets are expensed as incurred. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are written-off and any resulting gains or losses are recognized.
The Company evaluates the recoverability of property and equipment whenever events or changes in circumstances in the business indicate that an asset’s carrying amount may not be recoverable. Recoverability of these assets is measured by comparing the carrying amounts to the sum of the future undiscounted cash flows the assets are expected to generate over their remaining useful lives. If a long-lived asset fails a recoverability test, the Company recognizes an impairment charge equal to the amount by which the carrying value of the asset exceeds its fair value. There were no impairment charges recognized during the nine months ended September 30, 2021 and 2020.
Research and Development Expenses
Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred in the discovery and development of product candidates and include, but are not limited to: (i) salaries and personnel-related costs, (ii) external research and development expenses incurred under arrangements with third parties engaged to provide consulting services and conduct pre-clinical and clinical trials, (iii) license fees, and (iv) other direct and allocated expenses for laboratory equipment, facilities, and other supplies.
General and Administrative Expense
General and administrative costs are expensed as incurred and include legal costs, personnel-related costs related to employees not directly involved in research and development (i.e., executive, legal, finance and accounting, and other administrative functions), accounting and tax service fees, consulting fees, and facilities costs not otherwise included in research and development expenses.
Stock-Based Compensation
The Company accounts for all stock-based awards granted to employees and non-employees as stock-based compensation expense measured on the grant date at fair value. Stock-based compensation expense is recorded and classified in the accompanying statements of operations and comprehensive income (loss) based on the respective department of the award recipient. The Company recognizes stock-based compensation expense for the portion of awards that have vested. Stock-based compensation is reduced by estimated forfeitures, which are estimated at the time of the grant and revised in subsequent periods, if necessary, when actual forfeitures differ from those estimates.
The fair value of each stock option is estimated on the grant date using the Black-Scholes option-pricing model, which requires inputs based on the following subjective assumptions:
Fair Value of Common Stock — The fair value of the shares of common stock has historically been determined by the Company’s Board of Directors as there was no public market for the common stock. The Board of Directors determines the fair value of the common stock by considering a number of objective and subjective factors, including, but not limited to: (i) input from independent third-party valuation specialists to estimate the value of the Company’s common stock, (ii) the valuation of comparable companies, (iii) the Company’s operating and financial performance, and (iv) the general and industry specific economic outlook.
Expected Term — The expected term represents the period that the Company’s stock options are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term) as the Company has concluded that its stock option exercise history does not provide a reasonable basis upon which to estimate expected term.
Volatility — Because the Company is privately held and does not have an active trading market for its common stock, the expected volatility was estimated based on the average volatility for comparable publicly-traded companies, over a period equal to the expected term of the Company’s stock option grants.
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Risk-free Rate —The risk-free rate is based on U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the option.
Dividends —The Company has never paid, and does not anticipate paying, dividends on its common stock. Therefore, the Company uses an expected dividend yield of zero.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires deferred income tax assets or liabilities be computed based on the temporary difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal income tax rate in effect for the year in which the differences are expected to reverse. Deferred income taxes are based on the changes in deferred income tax assets or liabilities from period to period. A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized.
Significant judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against net deferred tax assets. The evaluation of the need for a valuation allowance is performed on a jurisdiction-by-jurisdiction basis and includes a review of all available positive and negative evidence. Factors reviewed include projections of pre-tax book income for the foreseeable future, the determination of cumulative pre-tax book income after permanent differences, earnings history, and reliability of forecasting. The Company recognized a full valuation allowance on deferred tax assets as of September 30, 2021 and December 31, 2020 as it was more likely than not the deferred tax assets would not be realized as of those dates.
The Company records uncertain tax positions using a recognition threshold and measurement methodology to recognize and measure an income tax position taken, or expected to be taken, in a tax return. The Company’s policy is to recognize interest and penalties on taxes, if any, as income tax expense. As of September 30, 2021 and December 31, 2020, the Company had no accrued interest or penalties.
Redeemable Convertible Preferred Stock
The Company classifies redeemable convertible preferred stock outside of stockholders’ deficit on the accompanying balance sheets, instead of in stockholders’ deficit in accordance with authoritative guidance for the classification and measurement of securities redeemable at the option of the holder or upon an event outside the control of the Company. Upon certain change in control events that are outside of the Company’s control, including liquidation, sale or transfer of control of the Company, holders of the redeemable convertible preferred stock can cause a deemed liquidation event. The Company has determined not to adjust the carrying values of the outstanding redeemable convertible preferred stock to its liquidation preference because a deemed liquidation event is not probable of occurring as of the end of the reporting period.
The Company records the issuance of redeemable convertible preferred stock at the issuance price net of related issuance costs. Specific to Series A redeemable convertible preferred stock, the Company has elected to recognize the Series A redeemable convertible preferred stock at its redemption value as of each balance sheet date, with changes in the redemption value recognized as an increase or decrease to earnings during the period. As of September 30, 2021 and December 31, 2020, the Series A redeemable convertible preferred stock redemption value is equal to the original issuance price and, therefore, no remeasurement has been necessary.
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Fair Value Measurements
Assets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability 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 must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:
•Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
•Level 2: Observable prices that are based on inputs not quoted in active markets, but are corroborated by market data. These inputs may include quoted prices for similar assets or liabilities or quoted market prices in markets that are not active.
•Level 3: Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.
The carrying amounts for financial instruments consisting of cash, prepaid expenses and other assets, accounts payable, and accrued expenses approximate fair value due to their short maturities.
Comprehensive Income (Loss)
Comprehensive income (loss) represents all changes in stockholders’ deficit, except those resulting from distributions to stockholders. For all periods presented, comprehensive income (loss) was the same as reported net income (loss).
Recent Accounting Pronouncements
Changes to GAAP are established by the FASB in the form of ASUs. ASUs not listed below were assessed and determined not to be applicable or are expected to have minimal impact on the Company’s financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes FASB ASC Topic 840, Leases (Topic 840) (“ASU 2016-02”) and provides principles for the recognition, measurement, presentation, and disclosure of leases for both lessees and lessors. The new standard requires lessees to classify leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee, and such classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and related lease liability for all leases with a term greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates (“ASU 2019-10”), which revised the private-company effective date for ASU 2016-02 to fiscal years beginning after December 15, 2020. In June 2020, the FASB issued ASU No. 2020-05, Revenue From Contracts With Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities (“ASU 2020-05”), further delaying the private-company effective date for ASU 2016-02 to fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. The Company adopted ASU 2019-10 and ASU 2020-05 upon issuance by the FASB. The Company is currently assessing the impact of ASU 2016-02 on its financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), as amended, which sets forth a “current expected credit loss” (“CECL”) model that requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and certain off-balance sheet credit
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exposures. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, for private companies, with early adoption permitted. The Company is currently assessing the impact of ASU 2016-13 on its financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. The new standard removes certain exceptions to the general principles in ASC 740 and clarifies and amends existing guidance to improve consistent application. The standard is effective for fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2019-12 on its financial statements.
3. DEBT
Convertible Promissory Note
On January 18, 2019, the Company entered into a Note Purchase Agreement with certain investors (the “Holders”), some of whom were related parties, for an aggregate amount of $8.0 million (the “Issue Price”). The Holders purchased Convertible Promissory Notes (the “Notes”) with an 8% annual rate of interest and a maturity date of January 18, 2020. All principal and accrued interest was due in full upon the maturity date, unless converted as described below. In the event of a Series B convertible preferred stock financing of greater than $25.0 million (a “Qualified Series B Financing”), the outstanding balance of the Notes and any unpaid interest would be automatically converted into Series B convertible preferred stock based on a conversion price equal to 80% of the issuance price paid by investors in the Qualified Series B Financing.
Additionally, if prior to the maturity date, the Company completed an equity financing pursuant to which it sold shares of the Company’s convertible preferred stock in a transaction that did not constitute a Qualified Series B Financing, the Holders had the option to designate such equity financing as a Qualified Series B Financing and cause the conversion of the Notes based on a conversion price equal to 80% of the issuance price paid by investors in the financing.
If a change of control occurred prior to the maturity date of the Notes, an amount equal to 200% of the Issue Price plus all accrued but previously unpaid interest would become due and payable.
If no other automatic conversion or repayment had occurred before the maturity date, the Notes could have been converted at the option of the Holders into Series A redeemable convertible preferred stock on the same terms as the Company’s existing Series A redeemable convertible preferred stock.
On January 17, 2020, the Holders of the Notes elected to convert the outstanding principal and unpaid interest balance of $8.6 million into 8,121,701 shares of Series A redeemable convertible preferred stock at a per share price of $1.0636. For the nine months ended September 30, 2021 and 2020, the Company did not incur a material amount of interest expense.
4. ALMIRALL OPTION AGREEMENT
On December 19, 2019, the Company entered into an Option Agreement and Plan of Merger (collectively the “Agreement”) with Almirall, Inc. (“Almirall”) and ALM Sub, Inc., a wholly owned Subsidiary of Almirall. The Company granted Almirall an irrevocable and exclusive option during the exercise period, as defined by the Agreement, to acquire BNZ-1 subsequent to completing certain spin-out activities discussed below. Pursuant to the Agreement, the Company received: (i) a non-refundable payment from Almirall of $14.0 million and (ii) a $1.0 million Stockholder Fee, to be distributed to the pre-closing holders on account of common shares or preferred shares. The Agreement had an initial expiration date of June 18, 2021, unless extended as provided for in the Agreement.
Under the Agreement, Almirall would have the ability to elect to exercise its option following the availability of BNZ-1 phase 1/2 results in Cutaneous T-cell Lymphoma (“CTCL”) and other defined deliverables related to this trial. If Almirall had exercised its option, the Company would have received an option exercise fee of $17.5 million,
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plus additional future aggregate development milestone payments of up to $146.0 million, sales milestone payments up to an aggregate of $410.0 million, and royalties based on a percentage of sale, as defined in the Agreement.
Under the Agreement, the Company remained responsible, at its sole expense, for all research and preclinical, clinical, and other development and commercialization of the Company’s products. While the Agreement was outstanding, the Company retained all decision-making rights regarding development and commercialization of its products.
The Company recognized the cash proceeds received and classified the Agreement as a liability on the balance sheets as of December 31, 2020. The Company recognized the $1.0 million Stockholder Fee as a return of capital to preferred stockholders, which was classified as a partial offset to redeemable convertible preferred stock, upon distribution concurrent with entering into the Agreement in 2019. During 2020 and 2021, the Company received reimbursements for research and development costs from Almirall, which were recorded as other income on the statement of operations and comprehensive income (loss).
On March 15, 2021, the Agreement was terminated by Almirall. Upon termination, the $15.0 million liability recorded on the balance sheet as of December 31, 2020 was reversed and recognized as other income on the statement of operations and comprehensive income (loss) as the Company no longer had a legal obligation under the Agreement.
5. STOCKHOLDERS’ EQUITY
Under the 2020 Certificate of Incorporation in effect as of September 30, 2021, the Company is authorized to issue two classes of stock: common and preferred. The Company is authorized to issue up to 50,000,000 shares of common stock and 41,763,612 shares of redeemable convertible preferred stock.
Redeemable Convertible Preferred Stock
The Company has five classes of redeemable convertible preferred stock: (i) Series A, (ii) Series Seed-1, (iii) Series Seed-2, (iv) Series Seed-3, and (v) Series Seed-4. The following tables summarize relevant information related to the Company’s Redeemable Convertible Preferred stock (in thousands, except share and per share amounts):
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| | As of September 30, 2021 | |
| | Shares
Authorized | | | Shares Issued and Outstanding | | | Net
Carrying Value | | | Aggregate
Liquidation
Preference | | | Common Stock Issuable on Conversion | | | Original Issue Price Per Share | |
Series A | | | 25,647,407 | | | | 25,646,407 | | | $ | 26,047 | | | $ | 27,278 | | | | 25,646,407 | | | $ | 1.0636 | |
Series Seed-1 | | | 9,000,000 | | | | 9,000,000 | | | | 92 | | | | 100 | | | | 9,000,000 | | | | 0.0111 | |
Series Seed-2 | | | 4,977,687 | | | | 4,977,687 | | | | 916 | | | | 996 | | | | 4,977,687 | | | | 0.2000 | |
Series Seed-3 | | | 981,103 | | | | 981,103 | | | | 532 | | | | 579 | | | | 981,103 | | | | 0.5900 | |
Series Seed-4 | | | 1,157,415 | | | | 1,157,415 | | | | 660 | | | | 718 | | | | 1,157,415 | | | | 0.6200 | |
Total | | | 41,763,612 | | | | 41,762,612 | | | $ | 28,247 | | | $ | 29,671 | | | | 41,762,612 | | | | |
| | | | | | | | | | | | | | | | | | |
| | As of December 31, 2020 | |
| | Shares
Authorized | | | Shares Issued and Outstanding | | | Net
Carrying Value | | | Aggregate
Liquidation
Preference | | | Common Stock Issuable on Conversion | | | Original Issue Price Per Share | |
Series A | | | 25,647,407 | | | | 25,646,407 | | | $ | 26,047 | | | $ | 27,278 | | | | 25,646,407 | | | $ | 1.0636 | |
Series Seed-1 | | | 9,000,000 | | | | 9,000,000 | | | | 92 | | | | 100 | | | | 9,000,000 | | | | 0.0111 | |
Series Seed-2 | | | 4,977,687 | | | | 4,977,687 | | | | 916 | | | | 996 | | | | 4,977,687 | | | | 0.2000 | |
Series Seed-3 | | | 981,103 | | | | 981,103 | | | | 532 | | | | 579 | | | | 981,103 | | | | 0.5900 | |
Series Seed-4 | | | 1,157,415 | | | | 1,157,415 | | | | 660 | | | | 718 | | | | 1,157,415 | | | | 0.6200 | |
Total | | | 41,763,612 | | | | 41,762,612 | | | $ | 28,247 | | | $ | 29,671 | | | | 41,762,612 | | | | |
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The following are the rights and privileges of these classes of redeemable convertible preferred stock:
Dividends
The holders of outstanding shares of Series A, Series Seed-1, Series Seed-2, Series Seed-3, and Series Seed-4 are entitled to receive dividends out of amounts legally available at the times and in the amounts that the Company’s Board of Directors may determine. Series A holders have preferential dividend rights to the holders of Series Seed-1, Series Seed-2, Series Seed-3, and Series Seed-4. Series Seed-2 holders have preferential dividend rights to the holders of Series Seed-3, Series Seed-4, and Series Seed-1. After payment of preferential dividends to the holders of the Series A and Series Seed-2 holders, the Series Seed-3 and Series Seed-4 holders are entitled to receive, on a pari passu basis, dividends in preference to any declaration or payment of any dividend on the common stock at the rate per annum per share equal to (a) six percent of the Series Seed-3 Original Purchase Price for the holders of the Series Seed-3 redeemable convertible preferred stock and (b) six percent of the of the Series Seed-4 Original Purchase Price for the holders of the Series Seed-4 redeemable convertible preferred stock, respectively. In the event dividends are paid on any shares of Common Stock, an additional dividend shall be paid with to all holders of Series A, Series Seed-1, Series Seed-2, Series Seed-3, and Series Seed-4 redeemable convertible preferred stock in an amount per share equal to the amount paid or set aside for each share of Common Stock.
Voting Rights
Holders of the Company’s redeemable convertible preferred stock are entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of redeemable convertible preferred stock held by such holders are convertible as of the record date for determining the stockholders entitled to vote on such matter.
Liquidation Preference
Upon liquidation, dissolution, or winding-up, the assets legally available for distribution to the Company’s preferred stockholders would be distributed first to Series A preferred stockholders at a liquidation value of $1.06360 per share, then to Series Seed-2 preferred stockholders at a liquidation value of $0.20 per share, then to Series Seed-3 preferred stockholders at a liquidation value of $0.59 per share, then to Series Seed-4 preferred stockholders at a liquidation value of $0.62 per share, then to Series Seed-1 preferred stockholders at a liquidation value of $0.01110 per share, and lastly to holders of the Company’s common stock.
Conversion Rights
The holders of the Company’s redeemable convertible preferred stock have the right to convert, at the option of the holder, at any time and without payment of additional consideration by the holder, into such number of fully paid and non-assessable shares of common stock as is determined by dividing the Original Issue Price of such share of redeemable convertible preferred stock by the Conversion Price (as defined in the Certificate of Incorporation) for such preferred stock in effect at the time of conversion.
Mandatory Conversion
Upon either (a) the closing of the sale of shares of common stock to the public at a specified price per share (subject to appropriate adjustments in the event of any stock dividend, stock split, combination, or other similar recapitalization with respect to the common stock), in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933 resulting in gross proceeds as outlined in the Certificate of Incorporation or (b) the date and time specified by vote or written consent of the holders of at least a majority of the then outstanding Series A redeemable convertible preferred stock and Series Seed-2 redeemable convertible preferred stock voting together as a single class and on an as-converted basis, then all outstanding shares of redeemable convertible preferred stock shall automatically be converted into shares of common stock at the then effective Conversion Prices (as defined in the Certificate of Incorporation).
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Redemption
The holders of at least a majority of the shares of Series A redeemable convertible preferred stock shall have the right, by delivery or written notice, to cause the Company to redeem from any source of funds legally available, the outstanding shares of Series A redeemable convertible preferred stock on the six-year anniversary of the Series A Original Issue Date; provided that such redemption request is received by the Company at least 120 days prior to the redemption date.
Common Stock
Common stockholders have one vote for each share of common stock held and are entitled to receive any dividends declared by the Company’s Board of Directors when legally available for distribution, subject to the dividend rights of the holders of redeemable convertible preferred stock, as discussed above. As of September 30, 2021, no dividends had been declared or paid.
6. STOCK-BASED COMPENSATION
2015 Stock Incentive Plan
On September 6, 2016, the Company adopted the Bioniz Therapeutics, Inc. 2015 Equity Incentive Plan (the “2015 Plan”), which permits awards of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, and restricted stock units to employees, directors, and consultants on terms determined by the Compensation Committee of the Board of Directors. Incentive stock options may be granted to employees with exercise prices of no less than the fair value of the common stock on the grant date and non-statutory options may be granted to employees, directors, or consultants at exercise prices of no less than the fair value of the common stock on the grant date, as determined by the Board of Directors. If, at the time the Company grants an option, the optionee directly or by attribution owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, the option price shall be at least 110% of the fair value. Options granted under the 2015 Plan generally expire no later than ten years and generally vest four years from the date of grant. The aggregate number of shares available for issuance under the 2015 Plan is 5,600,645. Shares available for future grants were 578,500 as of September 30, 2021.
The following table summarizes of the Company’s stock option activity:
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| | Number of
Shares | | | Weighted-
Average
Exercise
Price per Share | | | Weighted-
Average Remaining
Contract Term
(in years) | | | Aggregate
Intrinsic
Value (in thousands) | |
Outstanding as of December 31, 2019 | | | 5,106,331 | | | $ | 0.19 | | | | 8.07 | | | $ | — | |
Granted | | | 520,000 | | | | 0.10 | | | | — | | | | 62 | |
Exercised | | | (2,503,853 | ) | | | 0.10 | | | | — | | | | 300 | |
Forfeited/Cancelled | | | (1,333,831 | ) | | | 0.19 | | | | — | | | | 40 | |
Outstanding as of December 31, 2020 | | | 1,788,647 | | | $ | 0.10 | | | | 8.37 | | | $ | 233 | |
Granted | | | 729,645 | | | | 0.45 | | | | — | | | | — | |
Exercised | | | (736,147 | ) | | | 0.10 | | | | — | | | | 258 | |
Outstanding as of September 30, 2021 | | | 1,782,145 | | | $ | 0.24 | | | | 8.71 | | | $ | 624 | |
Exercisable as of September 30, 2021 | | | 215,000 | | | $ | 0.10 | | | | 8.37 | | | $ | 75 | |
Vested and expected to vest as of September 30, 2021 | | | 1,524,303 | | | $ | 0.20 | | | | 8.67 | | | $ | 534 | |
Stock options generally vest over four years with a one-year cliff vesting and have certain accelerated vesting provisions based upon a Change in Control or Corporate Transaction as defined in the respective option grant agreement.
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The Company used the Black-Scholes option pricing model to calculate the grant date fair value of the options with the following assumptions:
| | | | | | | | |
| | Nine Months Ended
September 30, | |
| | 2021 | | | 2020 | |
Expected term (in years) | | | 6.08 | | | | 6.08 | |
Risk-free interest rate | | 1.05% - 1.06% | | | 0.36% - 0.84% | |
Expected volatility | | 95.38% - 95.77% | | | 90.52% - 94.68% | |
Expected dividend yield | | | 0 | % | | | 0 | % |
Weighted-average grant-date fair value per stock option | | $ | 0.45 | | | $ | 0.18 | |
Stock-Based Compensation Summary
Total stock-based compensation expense by department is as follows (in thousands):
| | | | | | | | |
| | Nine Months Ended
September 30, | |
| | 2021 | | | 2020 | |
General and administrative | | $ | 22 | | | $ | 96 | |
Research and development | | | 53 | | | | 57 | |
Total stock-based compensation expense | | $ | 75 | | | $ | 153 | |
Management estimates expected forfeitures and recognizes compensation costs only for those awards expected to vest. As of September 30, 2021, total stock-based compensation costs related to unvested awards not yet recognized was $0.3 million and the weighted average period over which the expense is expected to be recognized was 3.28 years.
Stock Option Repricing
In July 2020, the Company’s Board of Directors approved a common stock option repricing program whereby previously granted and unexercised options held by current employees with exercise prices of $0.19 per share were repriced on a one-for-one basis to $0.10 per share. There were no other modifications to the options. As a result, 3,772,500 unexercised options originally granted to purchase common stock at $0.19 per share were repriced under this program.
The Company accounted for the repricing as a modification of the original awards and calculated additional compensation cost for the difference between the fair value of the modified award and the fair value of the original award on the modification date. The repricing resulted in the recognition of an immaterial amount of incremental stock-based compensation expense related to vested shares at the time of modification. Additionally, there will be an immaterial amount of additional compensation expense related to the unvested shares that will be recognized over the remaining vesting period of such stock options.
7. Commitments and Contingencies
Operating Leases
The Company leased its corporate office under an operating lease which expired in April 2021 and was converted to month-to-month. Rent expense was $0.1 million for both the nine months ended September 30, 2021 and 2020. As the lease was month-to-month as of September 30, 2021, there were no future minimum rent payments under the operating lease agreement.
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Contingencies
From time to time, the Company may be subject to various claims and suits arising in the ordinary course of business. The Company is not currently a party to any legal proceedings the outcome of which the Company believes, if determined adversely to the Company, would individually or in the aggregate have a material adverse effect on the Company’s business, operating results or financial condition.
Indemnities and Guarantees
The Company has certain indemnity commitments, under which it may be required to make payments to its officers and directors in relation to certain transactions to the maximum extent permitted under applicable laws. The duration of these indemnities varies, and in certain cases, is indefinite and does not provide for any limitation of maximum payments. The Company has not been obligated to make any such payments to date and no liabilities have been recorded for this contingency in the accompanying balance sheets.
8. SUBSEQUENT EVENTS
The Company has evaluated subsequent events for recognition and measurement purposes from the balance sheet date through May 2, 2022, the date at which these interim condensed financial statements were available to be issued.
In February 2022, the Company was acquired by Equillium (see Note 1 for additional information).
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