On October 30, 2020, Stealth BioTherapeutics Corp (the Company) entered into a development
funding agreement (the Agreement) with Morningside Venture (I) Investments Limited (Morningside), under which Morningside agreed to provide funding to the Company to support the Companys efforts to secure
regulatory approval for elamipretide and to develop elamipretide for the treatment of Barth syndrome (BTHS), geographic atrophy associated with dry age-related macular degeneration
(dAMD), Friedreichs ataxia (FRDA), Duchennes cardiomyopathy (DMDC), primary mitochondrial myopathy associated with nuclear gene mutations (replisome-related disorders) and Lebers
Hereditary Optic Neuropathy (LHON, and together with BTHS, dAMD, FRDA, DMDC and replisome-related disorders, the Designated Indications).
Under the Agreement, Morningside has agreed to pay to the Company (i) $20 million upon execution of the Agreement, (ii) $10 million within 15 days
of the first to occur of (a) the Company completing enrollment of its RECLAIM-2 Phase 2 clinical trial of elamipretide for the treatment of dAMD and (b) the submission by the Company of a new drug
application to the U.S. Food and Drug Administration (the FDA) for elamipretide for the treatment of BTHS (the Tranche 2 Milestone Event) and (iii) $5 million within 15 days of the later to occur of (a) and (b) (the
Tranche 3 Milestone Event).
Prior to the occurrence of the Tranche 3 Milestone Event, the Company may agree to add additional investors to
the Agreement (each, an Additional Investor, and any such Additional Investors together with Morningside, the Investors), subject to the prior written consent of Morningside. The commitment from each such Additional Investor
will be on the same terms and subject to the same conditions as the initial commitments, and, together with the commitment from Morningside, the aggregate commitments of the Investors will not exceed $70 million without the consent of
Morningside. Prior to any Investor having an obligation to provide the funding due upon the occurrence of the Tranche 2 Milestone Event and the Tranche 3 Milestone Event, the Company must satisfy certain customary conditions.
In addition, upon the mutual agreement of the Company and the Investors, at any time after the Company receives positive data from a clinical trial in a
Designated Indication, the Company may request that the Investors make additional commitments of up to an additional $35 million in the aggregate (the Additional Funding). Each Investor may agree to fund such commitment or not in
its sole discretion.
During the term of the Agreement, the Company has agreed to use commercially reasonable efforts to (i) seek and maintain
regulatory approval of elamipretide for the treatment of BTHS in the United States and (ii) initiate clinical trials in two of the Designated Indications other than BTHS, which are referred to together as the Development Efforts.
The Company is required to make success payments to the Investors (Success Payments) upon receipt of an approval of elamipretide (a
Regulatory Approval) of a NDA by the FDA or a marketing authorization application by the European Medicines Agency (the EMA) for the treatment of (i) dAMD (a Common Approval) and (ii) BTHS, FRDA, DMDC,
replisome-related disorders or LHON (each, an Orphan Approval) as follows, subject to certain adjustments:
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If the first Regulatory Approval is an Orphan Approval, the Company will pay Success Payments of $2 million
and then an additional $158 million in the aggregate in seven additional annual payments; and
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If the first Regulatory Approval is a Common Approval, or upon a second regulatory approval (whether a Common
Approval or an Orphan Approval), the Company will make total Success Payments reflecting a 27% internal rate of return over a seven-year term following such approval.
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All Success Payments will be proportionately adjusted in the event that the actual funding received by the Company from Investors is lower or greater than
$70 million (including as a result of the payment of the Additional Funding).
If the Companys board of directors determines to seek a
Regulatory Approval from both the FDA and EMA, then 66% of each applicable Success Payment will be due upon Regulatory Approval by the FDA and each applicable anniversary thereof and 34% of each applicable Success Payment will be due upon Regulatory
Approval by the EMA and each applicable anniversary thereof.
At any time within 60 days of a receipt of (a) a Common Approval, if such approval is
the first Regulatory Approval or (b) the second Regulatory Approval, if the first Regulatory Approval is an Orphan Approval, the Company has the right, at its option, to make one-time cash payments to the
Investors to buy out all or a portion of the future unpaid Success Payments for a price that reflects a discount rate of 5%.
In addition, the Company has
agreed that its obligations to the Investors under the Agreement will be subordinated to its existing indebtedness owed to Hercules Capital, Inc. (Hercules) under the Companys Loan and Security Agreement, as amended. The Company,
Hercules and the Investors have entered in a customary subordination agreement.
Upon execution of the Agreement, the Company issued a warrant to
Morningside exercise for 46,153,846 ordinary shares of the Company at an exercise price of $0.13 with such number of ordinary shares being equal to the quotient of 30% of the amount of Morningsides commitment divided by the exercise price. The
warrant has a three-year term and vests commensurate with the payment of each tranche by Morningside. The Company agreed to issue to substantially identical warrants to any Additional Investors.
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