NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Dollars in Thousands, Except Share and per Share Data)
(Unaudited)
1. Nature of Business
LianBio (“LianBio” or the “Company”) is a clinical stage biopharmaceutical company dedicated to bringing innovative medicines to patients with unmet medical needs in Asia. The Company’s initial focus is to license assets for development and commercialization in Greater China and other Asian markets.
The Company was incorporated in the Cayman Islands in July 2019 and maintains its Chinese headquarters in Shanghai, China. The Company conducts its corporate activities at its United States headquarters located in Princeton, New Jersey.
On November 3, 2021, the Company completed its initial public offering (“IPO”) through an underwritten sale of 20,312,500 American Depositary Shares (“ADSs") representing 20,312,500 ordinary shares at a price of $16.00 per share. Following the close of the IPO, on December 1, 2021, the underwriters partially exercised their option to purchase additional shares and purchased an additional 593,616 ADSs at the IPO price of $16.00 per ADS. The Company received gross proceeds of $334.5 million in connection with the IPO and subsequent exercise of the underwriters’ option and aggregate net proceeds of $304.8 million after deducting underwriting discounts, commissions and other offering expenses.
Concurrent with the IPO, all of the Company’s convertible preferred shares then-outstanding were automatically converted into an aggregate of 64,467,176 ordinary shares and were reclassified into permanent equity. Following the IPO, there were no preferred shares outstanding.
2. Significant Accounting Policies
(A) Basis of Presentation
The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates of the Financial Accounting Standards Board.
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, which include the People’s Republic of China (“PRC”) registered entities directly owned by the Company. All intercompany accounts and transactions have been eliminated in consolidation.
The interim balance sheet as of March 31, 2023, and the interim consolidated statements of operations and comprehensive loss, changes in shareholders’ equity for the three months ended March 31, 2023 and 2022, and the cash flows for the three months ended March 31, 2023 and 2022 are unaudited. These unaudited interim financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, which consist of only normal recurring adjustments, necessary for the fair statement of the Company’s financial information. The financial data and other information disclosed in these notes related to the three month periods are also unaudited. The interim results for the three months ended March 31, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023, any other interim periods or any future year or period. The accompanying financial statements should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 28, 2023.
(B) Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported financial position at the date of the financial statements and the reported results of operations during the reporting period. Such estimates and assumptions affect the reported amounts of assets, liabilities, and expenses, and disclosure of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The only material estimates in the accompanying financial statements are the fair value of warrants, share-based compensation, and share options. Actual results could differ from those used in evaluating these accounting estimates.
(i) Concentration of Credit Risk and Other Risks and Uncertainties
The Company’s operations have not been significantly impacted by the global novel coronavirus disease 2019 (“COVID-19”) pandemic. However, the Company cannot at this time predict the specific extent, duration, or full impact that the COVID-19 pandemic will have on its financial condition and operations, including planned clinical trials. The impact of the COVID-19 pandemic on the Company’s financial performance will depend on future developments, including the duration and spread of the pandemic and related governmental advisories and restrictions. These developments and the impact of the COVID-19 pandemic on the financial markets and the overall economy continue to be highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s results may be materially adversely affected.
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents in deposits at financial institutions that exceed federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to material credit risk due to the financial position of the banking institutions. The Company has no off-balance sheet risks, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements.
The Company’s results of operations involve numerous risks and uncertainties. Factors that could affect the Company’s operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of results of clinical trials, uncertainty of regulatory approval of the Company’s potential product candidates, uncertainty of market acceptance of its product candidates, competition from substitute products and larger companies, securing and protecting proprietary technology, strategic relationships and dependence on key individuals and sole source suppliers.
Each of the Company’s product candidates require approvals from the National Medical Products Administration (“NMPA”) in China and comparable foreign regulatory agencies prior to commercial sales in their respective jurisdictions. There can be no assurance that any product candidates will receive the necessary approvals. If the Company is denied approval, approval is delayed or the Company is unable to maintain approval for any product candidate, such events could have a materially adverse impact on the Company’s business.
(ii) Liquidity
The Company has incurred operating losses since inception and had an accumulated deficit of $494.6 million as of March 31, 2023. The Company’s cash and cash equivalents and marketable securities were $286.5 million as of March 31, 2023. The Company has financed its operations to date primarily through equity capital raises.
The Company believes that existing capital resources, will be sufficient to meet projected operating requirements for at least 12 months from the date of issuance of the accompanying consolidated financial statements, though it expects to continue to incur operating losses and negative operating cash flows. The Company will be required to raise additional capital to fund future operations, however, no assurance can be given as to whether additional needed financing will be available on terms acceptable to the Company, if at all. If sufficient funds on acceptable terms are not available when needed, the Company may be required to curtail planned activities to preserve cash resources. These factors may adversely impact the Company’s ability to achieve its business objectives and would likely have an adverse effect on its future business prospects, or even its ability to remain a going concern.
(C) Significant Accounting Policies Update
The Company’s significant accounting policies are disclosed in Note 2, Significant Accounting Policies in the Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2023.
(D) Recently Issued Accounting Pronouncements Not Yet Adopted
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. As an emerging growth company, the Company has elected to “opt out” of such extended transition period for the implementation of new or revised accounting standards and, as a result, the Company will comply with new or revised accounting standards on the same timeline as other public companies. The Company has evaluated recent accounting pronouncements and believes that there are none that will have a material impact on its financial position or results of operations upon adoption.
(E) Reclassification
Certain reclassifications of prior year information have been made to conform to the current year's presentation.
3. Material Agreements
License Agreement with QED Therapeutics, Inc.
In October 2019, the Company entered into a license agreement (the “QED License Agreement”) with QED Therapeutics, Inc. (“QED”), as subsequently amended, under which the Company obtained an exclusive license under certain patents and know-how (including patents and know-how that QED licensed from QED’s upstream licensor) to develop, manufacture, use, sell, import, and commercialize QED’s ATP-competitive, FGFR1-3 tyrosine kinase inhibitor, infigratinib, in pharmaceutical products in the licensed territory of Mainland China, Macau, Hong Kong, Taiwan, Thailand, Singapore and South Korea, in the licensed field of human prophylactic and therapeutic uses in cancer indications. In September 2020, the Company entered into an amendment with QED to reduce the licensed territories to include Mainland China, Macau and Hong Kong. In December 2021, the Company entered into a second amendment with QED to modify the Company’s development obligations with respect to certain clinical trials, and change the development milestone payments the Company owes to QED and the royalty rates for the tiered royalties on net sales of licensed products the Company will pay to QED. Under the QED License Agreement, QED received a nonrefundable upfront payment of $10.0 million and was granted warrants to purchase 100,000 ordinary shares in Lian Oncology, a subsidiary of LianBio, valued at $1.0 million. Pursuant to ASC 505-50, as the fair value of the warrants were more reliably determinable than the fair value of the benefits received from the licensing agreement, the Company valued the warrants using the Black-Scholes Model. The warrants were issued in three tranches with the aggregate number of shares across all tranches equaling 10% of the fully diluted equity of Lian Oncology as of the issue date. Vesting of the warrant shares are linked to regulatory milestones and the warrants expire 10 years from the issue date. The amended and restated option agreement also provided QED with the option to choose to either convert the warrant (“Subsidiary Warrant”) into ordinary shares of the Company (“Parent Company Shares”) or a warrant to purchase a certain number of Parent Company Shares (“Parent Company Warrant”) immediately prior to an IPO of the Company. In the event QED chose to convert the Subsidiary Warrant into Parent Company Shares, the number of Parent Company Shares QED was entitled to receive would have been calculated as the aggregate fair market value of the ordinary shares of Lian Oncology that are under the Subsidiary Warrant, divided by the per share fair market value of the Parent Company Shares, on a fully diluted and as-converted basis and as of the date the Company sent QED the notice of the IPO. In the event QED chose to convert the Subsidiary Warrant into the Parent Company Warrant, the number of Parent Company Shares under the Parent Company Warrant QED was entitled to receive would have been calculated as the aggregate intrinsic value of the Subsidiary Warrant (the number of the ordinary shares of Lian Oncology under the Subsidiary Warrant multiplied by the difference between the strike price of the Subsidiary Warrant and the per share fair market value of Lian Oncology), divided by the per share intrinsic value of the Parent Company Warrant (the difference between the strike price of the Parent Company Warrant and the per share fair market value of Parent Company Shares), on a fully diluted and as-converted basis on the date of the warrant conversion. This conversion feature was not required to be bifurcated as it is clearly and closely related to the equity host instrument, pursuant to ASC 815. On October 18, 2021, based on the conversion feature, LianBio issued to QED a warrant to purchase 347,569 of its ordinary shares at an exercise price of $0.000017100448 per share and, concurrently with such issuance, the Subsidiary Warrant was deemed to be performed and settled in full and was irrevocably terminated. Additionally, QED is entitled to receive from the Company development milestone payments of up to $7.0 million upon achievement of specified development milestones, and sales milestone payments of up to $87.5 million based on cumulative net sales of infigratinib, in addition to tiered royalties on net sales of licensed products at the greater of (a) percentage rates in the mid- to high-teens on the net sales of the licensed products, or (b) the applicable rate payable under QED’s agreement with its upstream licensor (capped in the mid-teens). No payments were made under this agreement during the three months ended March 31, 2023.
License Agreement with MyoKardia
In August 2020, the Company entered into an exclusive license agreement (the “MyoKardia License Agreement”) with MyoKardia Inc. (“MyoKardia,” now a wholly-owned subsidiary of Bristol-Myers Squibb (“BMS”)), under which the Company obtained an exclusive license under certain patents and know-how of MyoKardia to develop, manufacture, use, sell, import and commercialize MyoKardia’s proprietary compound, mavacamten, in the licensed territory of Mainland China, Hong Kong, Macau, Taiwan, Thailand and Singapore, and in the licensed field of any indication in humans, which includes any prophylactic or therapeutic use in humans. Under the MyoKardia License Agreement, MyoKardia received a nonrefundable upfront payment of $40.0 million and was granted a warrant to purchase 170,000 ordinary shares in Lian Cardiovascular, a subsidiary of LianBio, valued at $33.8 million. Pursuant to ASC 505-50, as the fair value of the warrants were more reliably determinable than the fair value of the benefits received from the licensing agreement, the Company valued the warrants using the Black-Scholes Model and the underlying assumptions are discussed in further detail in Note 10 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The warrants, representing 17% of the fully diluted equity of Lian Cardiovascular, are exercisable by MyoKardia at any time after issuance. The amended and restated option agreement also provided MyoKardia with the option to choose to either convert the warrant (“Subsidiary Warrant”) into ordinary shares of the Company (“Parent Company Shares”) or a warrant to purchase a certain number of Parent Company Shares (“Parent Company Warrant”) immediately prior to an IPO of the Company. MyoKardia was entitled to choose to convert the Subsidiary Warrant into Parent Company Shares, and the number of Parent Company Shares MyoKardia was entitled to receive would have been calculated as the aggregate fair market value of the ordinary shares of Lian Cardiovascular that are under the Subsidiary Warrant, divided by the per share fair market value of the Parent Company Shares, on a fully diluted and as-converted basis on the date the Company sent MyoKardia the notice of the IPO. Alternatively, MyoKardia was entitled to choose to convert the Subsidiary Warrant into the Parent Company Warrant, the number of Parent Company Shares under the Parent Company Warrant MyoKardia was entitled to receive would be calculated as the aggregate intrinsic value of the Subsidiary Warrant (the number of the ordinary shares of Lian Cardiovascular under the Subsidiary Warrant multiplied by the difference between the strike price of the Subsidiary Warrant and the per share fair market value of Lian Cardiovascular), divided by the per share intrinsic value of the Parent Company Warrant (the difference between the strike price of the Parent Company Warrant and the per share fair market value of Parent Company Shares), on a fully diluted and as-converted basis on the date of the warrant conversion. This conversion feature was not required to be bifurcated as it was clearly and closely related to the equity host instrument, pursuant to ASC 815. As of October 12, 2021, MyoKardia elected not to exercise this option and, therefore, continues to hold its warrant to purchase 170,000 ordinary shares in Lian Cardiovascular. MyoKardia’s option to convert the warrant irrevocably terminated upon the completion of the Company’s IPO. Additionally, MyoKardia was entitled to receive a nonrefundable financing milestone payment of $35.0 million upon a specified financing event, which occurred on October 29, 2020. The financing milestone was recorded at present value upon execution of the MyoKardia License Agreement, with total imputed interest of $2.3 million accreted under the effective interest method through the date the liability was settled. The financing milestone was paid to MyoKardia in December 2020 as a result of the Series A Preferred financing. Additionally, MyoKardia is entitled to receive from the Company development milestone payments of up to $60.0 million upon achievement of specified development milestones, and sales milestone payments of up to $87.5 million based on cumulative net sales of mavacamten, plus tiered royalties on net sales ranging from the low to upper-teens. The Company paid the first development milestone of $5.0 million during the twelve months ended December 31, 2022. No payments were made under this agreement during the three months ended March 31, 2023.
License Agreement with Navire
In August 2020, pursuant to the BridgeBio exclusivity agreement, the Company entered into an exclusive license agreement with Navire Pharma, Inc. (“Navire”), a BridgeBio affiliate. Pursuant to the license agreement, Navire granted to the Company an exclusive, sublicensable license under certain patents and know-how of Navire to develop, manufacture, use, sell, import and commercialize Navire’s proprietary SHP2 inhibitor, BBP-398 (formerly known as IACS-15509) in the licensed territory of Mainland China, Hong Kong, Macau, Taiwan, Thailand, Singapore, and South Korea. Under the license agreement, Navire received a nonrefundable upfront payment of $8.0 million. Additionally, Navire is entitled to receive from the Company development milestone payments of up to $24.5 million upon achievement of specified development milestones, and sales milestone payments of up to $357.6 million upon achievement of specified commercialization milestones, plus tiered royalties on net sales ranging from approximately 5-15% on the net sales of the licensed products. The Company paid the first development milestone of $8.5 million for IND acceptance in the PRC in 2021. No payments were made under this agreement during the three months ended March 31, 2023.
Pfizer Strategic Collaboration
In November 2020, the Company entered into a strategic collaboration agreement (the “Pfizer Collaboration Agreement”) with Pfizer Inc. (“Pfizer”), pursuant to which Pfizer will contribute up to $70.0 million of restricted, non-dilutive capital (the “Funds”), including a $20.0 million upfront payment, toward the Company’s in-licensing and co-development activities in Greater China. The Company has accounted for the Pfizer Collaboration Agreement as a contract to perform research and development services for others under ASC 730-20 and the consideration received for performing these services will be recognized as contra-R&D in the Consolidated Statement of Operations and Comprehensive Loss as the services are performed.
Upon receipt in 2021, the upfront payment was recorded as restricted cash within the consolidated balance sheet and will remain restricted until such time as the upfront payment is utilized for specified in-licensing and co-development activities or until the Pfizer Collaboration Agreement terminates. Under the Pfizer Collaboration Agreement, Pfizer and LianBio will form a joint collaboration committee to discuss potential third party in-license opportunities and development and commercialization of the Company’s products in Greater China. In the event the Company seeks to engage a third-party commercialization partner with respect to the commercialization of the Company’s future products in Greater China, Pfizer will have a right to opt into such product. Upon opting in, a portion of the Funds will be used to pay for development and commercialization costs of such product and Pfizer will thereafter have a right of first negotiation and right of last refusal to obtain the commercialization rights of such product in Greater China, in each instance for additional, separate financial consideration. During the collaboration, Pfizer may provide in-kind support to the Company for marketing, development and regulatory activities.
In December 2022, the Company, Pfizer, and ReViral Ltd. (“ReViral,” now a wholly owned subsidiary of Pfizer) entered into a commercial agreement (the “Pfizer Commercial Agreement”) with respect to sisunatovir (a fusion inhibitor product for the treatment of respiratory syncytial virus (“RSV”)) as the first opted-in product under the Pfizer Collaboration Agreement. Pursuant to the Pfizer Commercial Agreement, LianBio will assign and transfer its development and commercialization rights to sisunatovir in Mainland China, Hong Kong, Macau and Singapore (the “Territory”) to Pfizer.
Under the Pfizer Commercial Agreement, the $20.0 million upfront payment, which was previously received and recorded as restricted cash, paid by Pfizer to LianBio in 2020 pursuant to the Pfizer Collaboration Agreement was released, as there are no further obligations and the associated contingencies were resolved. In addition, LianBio could also receive up to $135.0 million in potential development and sales milestones contingent on sisunatovir achieving a specified regulatory milestone event prior to the end of October 2035 and specified net sales milestone events. LianBio is further entitled to receive tiered payments in the low single digits on a percentage of net sales of sisunatovir in the Territory. Pfizer will lead all development and commercial activities, use commercially reasonable efforts to develop and seek regulatory approval for sisunatovir as a fusion inhibitor product for treatment of RSV as a single active pharmaceutical product in Mainland China, assume all costs in the Territory, and will waive LianBio’s milestone payment and royalty payment obligations previously due to ReViral pursuant to the Co-Development and License Agreement dated March 1, 2021, by and between LianBio Respiratory Limited and ReViral, which was superseded in its entirety by the Pfizer Commercial Agreement.
The Company has accounted for the Pfizer Commercial Agreement under ASC 450-30 and the consideration received under the agreement will be recognized as other income as they become realizable.
License Agreement with Tarsus
In March 2021, the Company entered into an exclusive license agreement (the “Tarsus License Agreement”) with Tarsus Pharmaceuticals, Inc. (“Tarsus”). Pursuant to the license agreement, Tarsus granted to the Company an exclusive, sublicensable license under the licensed patent rights and know-how to develop, manufacture and commercialize TP-03 for the treatment of patients with Demodex blepharitis and Meibomian Gland Disease in Mainland China, Macau, Hong Kong and Taiwan. Under the license agreement, Tarsus received a nonrefundable upfront payment of $15.0 million and was granted three warrants to purchase 125,000 ordinary shares in Lian Ophthalmology, a subsidiary of LianBio, valued at $9.4 million (the “Tarsus Warrants”). Pursuant to ASC 505-50, as the fair value of the warrants were more reliably determinable than the fair value of the benefits received from the licensing agreement, the Company valued the warrants using the Black-Scholes Model and the underlying assumptions are discussed in further detail in Note 10 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The warrants were issued in three tranches with the aggregate number of shares across all tranches equaling 12.5% of the fully diluted equity of Lian Ophthalmology as of the issue date. Vesting of the warrant shares are linked to regulatory milestones and the warrants expire 10 years from the issue date. Pursuant to a related option agreement (the “Tarsus Option Agreement”), Tarsus also had the option to convert the warrants into ordinary shares of the Company (“Parent Company Shares”) or warrants to purchase a certain number of the Company’s ordinary shares (“Parent Company Warrants”) based on appreciation of the value in the Lian Ophthalmology since the inception of the Tarsus License Agreement. This conversion feature was not required to be bifurcated as it was clearly and closely related to the equity host instrument, pursuant to ASC 815. On October 18, 2021, Tarsus exercised its options to convert the Tarsus Warrants under the Tarsus Option Agreement and the Company subsequently issued to Tarsus 78,373 of its ordinary shares and two warrants to purchase an aggregate of 156,746 of its ordinary shares at an exercise price of $0.000017100448 per share. Following the issuances, the Tarsus Warrants were irrevocably terminated. On June 6, 2022, Tarsus exercised one warrant and the Company subsequently issued 78,373 of its ordinary shares at an exercise price of $0.000017100448 per share. Additionally, Tarsus is entitled to receive a nonrefundable second milestone payment of $10.0 million due and payable within forty-five days following the effective date. Additionally, Tarsus is entitled to receive payments from the Company totaling an aggregate of up to $175.0 million upon the achievement of specified development and commercial milestones, up to $75.0 million and $100.0 million, respectively, plus tiered royalties at percentage rates ranging from the low- to high-teens on net sales. During the twelve months ended December 31, 2022, the Company paid $25.0 million to Tarsus as a result of the achievement of these milestones. No payments were made under this agreement during the three months ended March 31, 2023.
In February 2023, the Company entered into a clinical supply agreement (the “Tarsus Supply Agreement”) with Tarsus. Upon the execution of the Tarsus Supply Agreement, Tarsus was entitled to receive a one-time payment of $2.5 million from the Company which has been recorded as a payable as of March 31, 2023.
License Agreement with Landos
In May 2021, the Company entered into an exclusive license agreement (the “Landos License Agreement”) with Landos BioPharma, Inc. (“Landos”). Pursuant to the license agreement, Landos granted to the Company an exclusive, sublicensable license under the licensed patent rights and know-how to develop, manufacture and commercialize novel, gut-restricted small molecule omilancor (formerly known as BT-11) and NX-13 for the treatment of inflammatory bowel disease, that targets the NLRX1 pathway in Mainland China, Hong Kong, Macau, Taiwan, Cambodia, Indonesia, Myanmar, Philippines, Singapore, South Korea, Thailand and Vietnam. Under the license agreement, Landos received a nonrefundable upfront payment of $18.0 million. Additionally, Landos is entitled to receive payments from the Company totaling an aggregate of up to $200.0 million upon the achievement of specified development and commercial milestones, up to $95.0 million and $105.0 million, respectively, plus tiered royalties at percentage rates ranging from the low- to the mid-teens on net sales. No payments were made under this agreement during the three months ended March 31, 2023.
In February 2023, the Company entered into an amendment to the Landos License Agreement, reflecting that Landos has transferred and assigned substantially all of its rights in omilancor to NImmune Biopharma, Inc (“NImmune”). As a result, the Landos License Agreement will relate only to NX-13, and the Company has entered into a direct license agreement with NImmune setting forth the terms of its continued development and commercialization of omilancor in its licensed territories. No payments were made under this agreement during the three months ended March 31, 2023.
License Agreement with NImmune
In February 2023, the Company entered into a license and collaboration agreement with NImmune, under which it obtained an exclusive license with the right to sublicense to affiliates and specified third parties under certain patents and know-how of NImmune to develop, manufacture, commercialize and otherwise, make and have made, use, offer for sale, sell, have sold, and import NImmune’s proprietary compound, omilancor, in the licensed regions of Mainland China, Hong Kong, Macau, Taiwan, Cambodia, Indonesia, Myanmar, Philippines, Singapore, South Korea, Thailand and Vietnam. NImmune is entitled to receive payments from the Company totaling an aggregate of up to $150.0 million upon the achievement of certain development and sales milestone events, up to $45.0 million and $105.0 million, respectively, plus tiered royalties at percentage rates ranging from the low- to the mid-teens on net sales. No payments were made under this agreement during the three months ended March 31, 2023.
License Agreement with Nanobiotix
In May 2021, the Company entered into an exclusive license agreement with Nanobiotix S.A. (“Nanobiotix”). Pursuant to the license agreement, Nanobiotix granted to the Company an exclusive, sublicensable license under the licensed patent rights and know-how to develop and commercialize NBTXR3, a potential first-in-class radioenhancer in Mainland China, Hong Kong, Taiwan, Macau, South Korea, Singapore and Thailand. Under the license agreement, Nanobiotix received a nonrefundable upfront payment of $20.0 million. Additionally, Nanobiotix is entitled to receive payments from the Company totaling an aggregate of up to $220.0 million upon the achievement of specified development and commercial milestones, up to $65.0 million and $155.0 million, respectively, plus tiered royalties of 10-13% of net sales. No payments were made under this agreement during the three months ended March 31, 2023.
License Agreement with Lyra
In May 2021, the Company entered into an exclusive license agreement (the “Lyra License Agreement”) with Lyra Therapeutics, Inc. (“Lyra”). Pursuant to the license agreement, Lyra granted to the Company an exclusive, sublicensable license under the licensed patent rights and know-how to develop and commercialize LYR-210, an anti-inflammatory, intra-nasal drug matrix in late-stage development that is designed to treat chronic rhinosinusitis in Mainland China, Hong Kong, Taiwan, Macau, South Korea, Singapore and Thailand. Under the license agreement, Lyra received a nonrefundable upfront payment of $12.0 million. Additionally, Lyra is entitled to receive payments from the Company totaling an aggregate of up to $135.0 million upon the achievement of specified development and commercial milestones, up to $40.0 million and $95.0 million, respectively, plus tiered royalties from the low- to high-teens on net sales. During the twelve months ended December 31, 2022, the Company paid $5.0 million to Lyra upon the completion of the first development milestone under the Lyra License Agreement. No payments were made under this agreement during the three months ended March 31, 2023.
4. Marketable Securities and Fair Value Measurements
The following is a summary of marketable securities accounted for as available-for-sale securities at March 31, 2023 and December 31, 2022: | | | | | | | | | | | | | | | | | | | | | | | |
As of March 31, 2023 (in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
Commercial paper | $ | 94,260 | | | $ | 9 | | | $ | (122) | | | $ | 94,147 | |
| | | | | | | |
Government obligations & agency securities | 90,338 | | | 13 | | | (295) | | | 90,056 | |
Total | $ | 184,598 | | | $ | 22 | | | $ | (417) | | | $ | 184,203 | |
| | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2022 (in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
Commercial paper | $ | 120,570 | | | $ | 5 | | | $ | (313) | | | $ | 120,262 | |
Corporate debt securities | 14,146 | | | — | | | (16) | | | 14,130 | |
Government obligations | 89,265 | | | 4 | | | (519) | | | 88,750 | |
Total | $ | 223,981 | | | $ | 9 | | | $ | (848) | | | $ | 223,142 | |
The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period of less than and greater than 12 months as of March 31, 2023 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of March 31, 2023 (in thousands) | Securities in an unrealized loss position less than 12 months | | Securities in an unrealized loss position greater than 12 months | | Total |
| Unrealized losses | | Fair Value | | Unrealized losses | | Fair Value | | Unrealized losses | | Fair Value |
Commercial paper | $ | (122) | | | $ | 66,054 | | | $ | — | | | $ | — | | | $ | (122) | | | $ | 66,054 | |
| | | | | | | | | | | |
Government obligations & agency securities | (295) | | | 73,455 | | | — | | | — | | | (295) | | | 73,455 | |
Total | $ | (417) | | | $ | 139,509 | | | $ | — | | | $ | — | | | $ | (417) | | | $ | 139,509 | |
The unrealized losses and fair values of available-for-sale securities that have been in an unrealized loss position for a period of less than and greater than 12 months as of December 31, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2022 (in thousands) | Securities in an unrealized loss position less than 12 months | | Securities in an unrealized loss position greater than 12 months | | Total |
| Unrealized losses | | Fair Value | | Unrealized losses | | Fair Value | | Unrealized losses | | Fair Value |
Commercial paper | $ | (313) | | | $ | 110,370 | | | $ | — | | | $ | — | | | $ | (313) | | | $ | 110,370 | |
Corporate debt securities | (16) | | | 14,130 | | | — | | | — | | | (16) | | | 14,130 | |
Government obligations | (455) | | | 70,771 | | | (64) | | | 14,897 | | | (519) | | | 85,668 | |
Total | $ | (784) | | | $ | 195,271 | | | $ | (64) | | | $ | 14,897 | | | $ | (848) | | | $ | 210,168 | |
Marketable securities on the balance sheet at March 31, 2023 and December 31, 2022 are as follows:
| | | | | | | | | | | |
| March 31, 2023 |
| Less than 12 Months | | More Than 12 Months |
Commercial paper | $ | 94,147 | | | $ | — | |
| | | |
Government obligations & agency securities | 90,056 | | | — | |
Total Marketable securities | $ | 184,203 | | | $ | — | |
| | | | | | | | | | | |
| December 31, 2022 |
| Less than 12 Months | | More Than 12 Months |
Commercial paper | $ | 120,262 | | | $ | — | |
Corporate debt securities | 14,130 | | | — | |
Government obligations | 70,771 | | | 17,979 | |
Total Marketable securities | $ | 205,163 | | | $ | 17,979 | |
The Company classifies all of its securities as current as they are all available for sale and are available for current operations.
The following tables present information about the Company's financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:
| | | | | | | | | | | | | | | | | | | | | | | |
As of March 31, 2023 (in thousands) | Level 1 | | Level 2 | | Level 3 | | Total |
Cash equivalents: | | | | | | | |
Money market funds | $ | 45,665 | | | $ | — | | | $ | — | | | $ | 45,665 | |
| | | | | | | |
| | | | | | | |
Marketable securities: | | | | | | | |
Commercial paper | — | | | 94,147 | | | — | | | 94,147 | |
Corporate debt securities | — | | | — | | | — | | | — | |
Government obligations & agency securities | — | | | 90,056 | | | — | | | 90,056 | |
Total | $ | 45,665 | | | $ | 184,203 | | | $ | — | | | $ | 229,868 | |
| | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2022 (in thousands) | Level 1 | | Level 2 | | Level 3 | | Total |
Cash equivalents: | | | | | | | |
Money market funds | $ | 11,242 | | | $ | — | | | $ | — | | | $ | 11,242 | |
| | | | | | | |
| | | | | | | |
Marketable securities: | | | | | | | |
Commercial paper | — | | | 120,262 | | | — | | | 120,262 | |
Corporate debt securities | — | | | 14,130 | | | — | | | 14,130 | |
Government obligations | — | | | 88,750 | | | — | | | 88,750 | |
Total | $ | 11,242 | | | $ | 223,142 | | | $ | — | | | $ | 234,384 | |
5. Property and Equipment, Net
Property and equipment, net consisted of the following:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Leasehold improvements | $ | 3,387 | | | $ | 3,372 | |
Furniture and fixtures | 113 | | | 113 | |
Computer equipment and software | 1,142 | | | 1,111 | |
Construction in progress | 71 | | | 67 | |
| 4,713 | | | 4,663 | |
Accumulated depreciation | (1,877) | | | (1,547) | |
Total property and equipment, net | $ | 2,836 | | | $ | 3,116 | |
Total depreciation related to property and equipment for the three months ended March 31, 2023 and 2022 was $0.3 million and $0.3 million, respectively.
6. Prepaid Expense and Other Current Assets
Prepaid expense and other current assets consist of the following:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Advance payments to suppliers and rent deposit | $ | 1,908 | | | $ | 1,957 | |
Prepaid insurance | 2,360 | | | 2,953 | |
VAT receivable | 2,939 | | | 2,640 | |
Other prepaid expenses | 1,293 | | | 1,090 | |
Total prepaid expenses and other current assets | $ | 8,500 | | | $ | 8,640 | |
7. Accrued Expenses
Accrued expenses consist of the following:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Employee compensation and related benefits | $ | 2,541 | | | $ | 7,833 | |
Professional fees | 5,176 | | | 4,438 | |
Consulting and contracted research | 8,734 | | | 7,379 | |
Other | 176 | | | 176 | |
Total accrued expenses | $ | 16,627 | | | $ | 19,826 | |
8. Commitments and Contingencies
The Company is subject to claims and assessments from time to time in the ordinary course of business. The Company will accrue a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. As of March 31, 2023 and December 31, 2022, there have been no such matters identified. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within the range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The Company is not currently party to any material legal proceedings.
9. Share-Based Compensation
In December 2019, the Company adopted a shareholder-approved share-based compensation plan (the “2019 Plan”), which permits the granting of incentive share options, nonqualified share options, share awards and certain other awards to its employees, members of its Board of Directors and consultants.
In connection with the IPO, the Company adopted a shareholder-approved share-based compensation plan (the “2021 Equity Plan”), which permits the granting of incentive share options, nonqualified share options, share awards and certain other awards to its employees, members of its Board of Directors and consultants. The maximum number of shares that may be delivered in satisfaction of awards under the 2021 Equity Plan is approximately 14.2 million shares, plus the number of shares that remain available for issuance under the 2019 Plan and that may again become available for issuance under such plan, not to exceed approximately 10.7 million shares in the aggregate, and an annual increase, to be added as of January 1st of each year from January 1, 2022, to January 1, 2031, equal to the lesser of (i) four percent (4%) of the number of shares outstanding as of such date; and (ii) the number of shares determined by the Board of Directors on or prior to such date for such year. Subsequent to the effectiveness of the 2021 Equity Plan, no additional awards will be made pursuant to the 2019 Plan. However, any outstanding awards granted under the 2019 Plan will remain outstanding, subject to the terms of the 2019 Plan and award agreements. Through March 31, 2023, there were awards outstanding for approximately 8.3 million ordinary shares under the 2019 Plan and approximately 12.0 million ordinary shares under the 2021 Equity Plan.
Share Option Awards
Share option grants provide the right to purchase a specified number of ordinary shares from the Company at a specified price during a specified period of time. The share option exercise price per share is the fair market value of the Company’s ordinary shares on the date of the grant of the share option.
During the three months ended March 31, 2023, the Company issued options to purchase a total of 4,167,173 ordinary shares to various employees, directors and board members with a weighted-average exercise price of $2.65 per share option and a weighted-average fair value of $1.87 per share option. The fair-value based method for valuing each share option grant on the grant date uses the Black-Scholes Model, which incorporates a number of valuation assumptions. The weighted-average fair value was estimated based on the following assumptions: risk-free interest rate of 3.53% - 3.64%; expected dividend yield of 0.00%; expected share price volatility of 78.84% - 79.25%; and expected term of 6.08 years.
During the three months ended March 31, 2022 the Company issued options to purchase 55,110 ordinary shares with a weighted-average exercise price of $2.94 per share option and a weighted-average fair value of $2.01 per share option. The fair-value based method for valuing each share option grant on the grant date uses the Black-Scholes Model, which incorporates a number of valuation assumptions. The weighted-average fair value was estimated based on the following assumptions: risk-free interest rate of 2.56%; expected dividend yield of 0.00%; expected share price volatility of 76.83%; and expected term of 6.08 years.
As of March 31, 2023, $32.5 million of total unrecognized expense related to non-vested share options is expected to be recognized over a weighted average period of 2.70 years from the date of grant. As of March 31, 2022, $46.1 million of total unrecognized expense related to non-vested share options is expected to be recognized over a weighted average period of 3.35 years from the date of grant. Options granted to senior management and employees generally vest in equal annual increments over four years and grants issued subsequent to the IPO generally vest over four years with 25% vesting over the first year and monthly thereafter.
Performance Share Awards
There were no performance share awards granted during the three months ended March 31, 2023 or 2022. As of March 31, 2023 and 2022, there was $4.9 million and $7.1 million of total unrecognized compensation cost related to outstanding performance share awards, respectively.
There were no performance-based share units (“PSUs”) granted during the three months ended March 31, 2023 or 2022. As of March 31, 2023 and 2022, there was $1.3 million and $2.8 million of total unrecognized compensation cost related to outstanding PSUs.
Restricted Share Units
During the three months ended March 31, 2023, the Company granted 2,917,361 non-vested restricted share units (“RSUs”) to certain employees, with a weighted-average grant date fair value of $1.72. As of March 31, 2023, there was $7.1 million of total unrecognized compensation expense related to non-vested RSUs. There were 10,270 RSUs granted during the three months ended March 31, 2022 and $2.8 million of total unrecognized compensation expense related to non-vested RSUs as of March 31, 2022.
During the three months ended March 31, 2023 and 2022, the company did not grant performance-based RSUs. As of March 31, 2023 and 2022, there was $0.6 million and $0.8 million of total unrecognized compensation expense related to non-vested performance-based RSUs.
10. Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted average number of ordinary shares outstanding. Diluted net loss per share is computed by dividing net loss by the weighted-average number of ordinary shares outstanding, plus all additional ordinary shares that would have been outstanding, assuming dilutive potential ordinary shares had been issued for other dilutive securities. For the three months ended March 31, 2023 and 2022, diluted and basic net loss per ordinary share were identical since potential ordinary shares were excluded from the calculation, as their effect was anti-dilutive.
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| Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2022 |
Numerator | | | |
Net loss attributable to ordinary shareholders | $ | (24,045) | | | $ | (27,726) | |
Denominator | | | |
Weighted-average shares – basic and diluted | 107,162,025 | | | 107,275,458 | |
Net loss per ordinary share – basic and diluted | $ | (0.22) | | | $ | (0.26) | |
The following outstanding potentially dilutive securities were excluded from the calculation of diluted net loss per share, because including them would have been anti-dilutive during each period.
| | | | | | | | | | | |
| As of |
| March 31, 2023 | | March 31, 2022 |
| | | |
Employee Share Options | 16,691,626 | | | 14,054,402 | |
Non-vested restricted share units | 3,627,023 | | | 635,393 | |
| | | |
MyoKardia Warrant | 170,000 | | | 170,000 | |
| | | |
Warrants in LianBio issued to QED and Tarsus | 425,942 | | | 504,315 | |