UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________________ to ___________________
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 31, 2022, the registrant had
Table of Contents
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Page |
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PART I. |
1 |
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Item 1. |
1 |
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1 |
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2 |
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3 |
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4 |
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5 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 |
Item 3. |
25 |
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Item 4. |
25 |
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PART II. |
27 |
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Item 1. |
27 |
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Item 1A. |
27 |
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Item 2. |
80 |
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Item 3. |
80 |
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Item 4. |
80 |
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Item 5. |
80 |
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Item 6. |
81 |
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82 |
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i
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
HilleVax, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and par value data)
(unaudited)
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March 31, |
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December 31, |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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— |
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Operating lease right-of-use assets |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Deficit |
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Current liabilities: |
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Accounts payable (includes related party amounts of $ |
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$ |
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$ |
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Accrued expenses (includes related party amounts of $ |
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Accrued interest (includes related party amounts of $ |
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Convertible promissory notes payable at fair value (includes related party |
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Current portion of operating lease liability |
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Warrant liabilities - related party |
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Total current liabilities |
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Operating lease liability, net of current portion |
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Other long-term liabilities |
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Total liabilities |
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Stockholders’ deficit: |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
) |
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( |
) |
Total stockholders’ deficit |
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( |
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( |
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Total liabilities and stockholders’ deficit |
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$ |
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$ |
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See accompanying notes.
1
HilleVax, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(unaudited)
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Three Months Ended |
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2022 |
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2021 |
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Operating expenses: |
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Research and development (includes related party amounts of $ |
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$ |
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$ |
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In-process research and development |
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— |
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General and administrative (includes related party amounts of $ |
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Total operating expenses |
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Loss from operations |
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( |
) |
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( |
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Other income (expense): |
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Interest income |
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— |
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Interest expense (includes related party amounts of $ |
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( |
) |
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( |
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Change in fair value of convertible promissory notes (includes related party |
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( |
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( |
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Change in fair value of warrant liabilities - related party |
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( |
) |
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— |
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Other income (expense) |
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( |
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Total other income (expense) |
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( |
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( |
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Net loss |
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$ |
( |
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$ |
( |
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Net loss per share, basic and diluted |
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$ |
( |
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$ |
( |
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Weighted-average shares of common stock outstanding, basic and diluted |
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See accompanying notes.
2
HilleVax, Inc.
Condensed Consolidated Statements of Stockholders’ Deficit
(in thousands, except share data)
(unaudited)
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Common Stock |
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Shares |
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Amount |
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Additional |
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Accumulated |
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Total |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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Vesting of restricted shares |
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— |
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— |
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— |
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— |
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Stock–based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at March 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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Balance at December 31, 2020 |
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$ |
— |
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$ |
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$ |
( |
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$ |
( |
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Issuance of common stock |
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— |
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— |
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— |
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— |
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Vesting restrictions placed on |
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( |
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— |
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( |
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— |
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( |
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Vesting of restricted shares |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance at March 31, 2021 |
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$ |
— |
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$ |
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$ |
( |
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$ |
( |
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See accompanying notes.
3
HilleVax, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
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Three Months Ended |
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2022 |
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2021 |
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Cash flows from operating activities |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation |
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— |
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Change in fair value of convertible promissory notes (includes related party |
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Change in fair value of warrant liabilities - related party |
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— |
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Acquired in-process research and development |
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— |
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Loss on disposal of property and equipment |
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— |
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Changes in operating assets and liabilities: |
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Prepaid expenses and other current assets (includes related party amounts of $ |
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( |
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Accounts payable and accrued expenses (includes related party amounts |
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( |
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Accrued interest (includes related party amounts of $ |
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Operating lease right-of-use assets and liabilities |
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— |
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Net cash used in operating activities |
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( |
) |
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( |
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Cash flows from investing activities |
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Cash paid for purchased in-process research and development |
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( |
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— |
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Net cash used in investing activities |
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( |
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— |
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Cash flows from financing activities |
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Payment of initial public offering costs |
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( |
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— |
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Net cash used in financing activities |
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( |
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— |
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Net decrease in cash and cash equivalents |
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( |
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( |
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Cash and cash equivalents—beginning of period |
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Cash and cash equivalents—end of period |
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$ |
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$ |
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Supplemental disclosure of noncash investing and financing activities |
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Unpaid initial public offering costs |
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$ |
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$ |
— |
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See accompanying notes.
4
HilleVax, Inc.
Notes to Condensed Consolidated Financial Statements
1. Organization, Basis of Presentation and Summary of Significant Accounting Policies
Organization
HilleVax, Inc. (the “Company” or “HilleVax”) was incorporated in the state of Delaware in March 2020 under the name MokshaCo, Inc. (“MokshaCo”). On February 8, 2021, MokshaCo changed its name to HilleVax and merged with North Bridge V, Inc. (“North Bridge V”) and YamadaCo III, Inc. (“YamadaCo III”), each a Delaware corporation formed in 2019, with HilleVax being the surviving entity (the “Merger”). The Company is a biopharmaceutical company focused on developing and commercializing novel vaccines.
Forward Stock Split
On April 22, 2022, the Company effected a
Basis of Presentation
The Company, North Bridge V and YamadaCo III were entities under the common control of Frazier Life Sciences X, L.P. or its affiliates (“Frazier”) as a result of, among others, Frazier’s; (i) ownership of a majority of the outstanding capital stock of each of the companies, (ii) financing of each of the companies, (iii) control of board of directors of each of the companies, and (iv) management of each of the companies. As the merged entities were under common control, the financial statements prior to the Merger report the financial position, results of operations and cash flows of these merged companies. The financial statements also include, subsequent to its formation in May 2021, the accounts of HilleVax GmbH, a wholly-owned subsidiary formed in Zurich, Switzerland. The functional currency of both the Company and HilleVax GmbH is the U.S. dollar. The Company’s assets and liabilities that are not denominated in the functional currency are remeasured into U.S. dollars at foreign currency exchange rates in effect at the balance sheet date except for nonmonetary assets, which are remeasured at historical foreign currency exchange rates in effect at the date of transaction. Net realized and unrealized gains and losses from foreign currency transactions and remeasurement are reported in other income (expense), in the condensed consolidated statements of operations and were not material for the periods presented. All intercompany transactions have been eliminated in consolidation.
Liquidity and Capital Resources
From inception to March 31, 2022, the Company has devoted substantially all of its efforts to organizing and staffing the Company, business planning, raising capital, in-licensing its initial vaccine candidate, HIL-214, preparing for its planned clinical trials of HIL-214, and providing other general and administrative support for these operations. The Company has a limited operating history, has never generated any revenue, and the sales and income potential of its business is unproven. The Company has incurred net losses and negative cash flows from operating activities since its inception and expects to continue to incur net losses into the foreseeable future as it continues the development and potential commercialization of HIL-214. From inception to March 31, 2022, the Company has funded its operations through the issuance of convertible promissory notes.
The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of this uncertainty. Management is required to perform a two-step analysis over the Company’s ability to continue as a going concern. Management must first evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern (Step 1). If management concludes that substantial doubt is raised, management is also required to consider whether its plans alleviate that doubt (Step 2). Management believes that it has sufficient working capital on hand, including the net proceeds from the Company’s initial public offering ("IPO") in May 2022 (see Note 6), to fund operations through at least the next twelve months from the date these financial statements were issued. There can be no assurance that the Company will be successful in acquiring additional funding, if needed,
5
that the Company’s projections of its future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years.
Unaudited Interim Financial Information
The unaudited condensed consolidated financial statements as of March 31, 2022, and for the three months ended March 31, 2022 and 2021, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”), and with U.S. generally accepted accounting principles (“GAAP”) applicable to interim financial statements. These unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s audited financial statements and include all adjustments, consisting of only normal recurring accruals, which in the opinion of management are necessary to present fairly the Company’s financial position as of the interim date and results of operations for the interim periods presented. Interim results are not necessarily indicative of results for a full year or future periods. The condensed consolidated balance sheet data as of December 31, 2021 was derived from the Company’s audited financial statements but does not include all disclosures required by GAAP. These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2021, included in the Company’s prospectus filed with the SEC on April 29, 2022 pursuant to Rule 424(b) under the Securities Act of 1933, as amended.
Use of Estimates
The preparation of the Company’s unaudited condensed consolidated financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the Company’s condensed consolidated financial statements and accompanying notes. The most significant estimates in the Company’s unaudited condensed consolidated financial statements relate to accruals for research and development expenses, and the valuation of convertible promissory notes, warrant liabilities and various other equity instruments. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results could differ materially from those estimates and assumptions.
Fair Value Option
As permitted under Accounting Standards Codification (“ASC”) 825, Financial Instruments, (“ASC 825”), the Company has elected the fair value option to account for its convertible promissory notes issued through December 31, 2021. In accordance with ASC 825, the Company records these convertible promissory notes at fair value with changes in fair value recorded in the condensed consolidated statements of operations. As a result of applying the fair value option, direct costs and fees related to the convertible promissory notes were recognized in earnings as incurred and not deferred.
Fair Value Measurements
The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets.
Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The carrying amounts of the Company’s financial instruments, including cash and cash equivalents classified within the Level 1 designation discussed above, prepaid and other current assets, accounts payable, and accrued liabilities, approximate fair value due to their short maturities. Warrant liabilities and convertible notes are recorded at fair value on a recurring basis.
6
The Company has
Liabilities measured at fair value on a recurring basis are as follows (in thousands):
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Fair Value Measurements at |
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Total |
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Quoted Prices in |
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Significant |
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Significant |
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As of March 31, 2022: |
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Warrant liabilities |
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$ |
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$ |
— |
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$ |
— |
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$ |
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Convertible promissory notes |
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— |
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— |
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Total |
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$ |
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$ |
— |
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$ |
— |
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$ |
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As of December 31, 2021: |
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Warrant liabilities |
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$ |
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$ |
— |
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$ |
— |
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$ |
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Convertible promissory notes |
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— |
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— |
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Total |
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$ |
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$ |
— |
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$ |
— |
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$ |
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The warrant liabilities consist of an issued and outstanding common stock warrant (the “Takeda Warrant”) and a right to receive an additional common stock warrant (the “Takeda Warrant Right”, and together with the Takeda Warrant, the “Takeda Warrants”) issued to Takeda Vaccines, Inc. (“Takeda”) in connection with a July 2021 license agreement. The Takeda Warrants are accounted for as liabilities as they do not meet all the conditions for equity classification due to (i) insufficient authorized shares for the Takeda Warrant and (ii) the Takeda Warrant Right is not indexed to the Company’s own stock. The fair value of the Takeda Warrants is derived from the model used to estimate the fair value of the Company’s common stock (see Note 5).
The Company issued convertible promissory notes to Frazier (the “Frazier Notes”) from April 2019 to July 2021 and issued unsecured convertible promissory notes in August 2021 (the “August 2021 Notes”) to investors including Frazier. The Company has elected the fair value option for each of its convertible promissory note issuances due to certain embedded features within the notes. The fair value of the Frazier Notes and the August 2021 Notes was estimated using a scenario-based analysis that estimated the fair value of the convertible promissory notes based on the probability-weighted present value of expected future investment returns, considering possible outcomes available to the noteholders, including various IPO, settlement, equity financing, corporate transactions and dissolution scenarios. The Frazier Notes were exchanged for August 2021 Notes in August 2021.
The Company adjusts the carrying value of its warrant liabilities and convertible promissory notes to their estimated fair value at each reporting date, with any related increases or decreases in the fair value recorded as change in fair value of warrant liabilities and as change in fair value of convertible promissory notes, respectively, in the condensed consolidated statements of operations.
The following table summarizes information about the significant unobservable inputs used in the fair value measurements for the Takeda Warrants and the August 2021 Notes as of March 31, 2022:
Liability |
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Key Unobservable Inputs |
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Range |
Takeda Warrants |
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Transaction prices per share |
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$ |
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Estimated time to liquidity |
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Discount rate |
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August 2021 Notes |
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Estimated time to liquidity |
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Volatility |
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Discount rate |
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Risk-free interest rate |
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7
The following table summarizes information about the significant unobservable inputs used in the fair value measurements for the Takeda Warrants and the August 2021 Notes as of December 31, 2021:
Liability |
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Key Unobservable Inputs |
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Range |
Takeda Warrants |
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Transaction prices per share |
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$ |
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Estimated time to liquidity |
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Discount rate |
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August 2021 Notes |
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Estimated time to liquidity |
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Volatility |
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Discount rate |
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Risk-free interest rate |
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There are significant judgments, assumptions and estimates inherent in the determination of the fair value of each of the instruments described above. These include determination of a valuation method and selection of the possible outcomes available to the Company, including the determination of timing and expected future investment returns for such scenarios. The related judgments, assumptions and estimates are highly interrelated and changes in any one assumption could necessitate changes in another. In particular, any changes in the probability of a particular outcome would require a related change to the probability of another outcome. In the future, depending on the valuation approaches used and the expected timing and weighting of each, the inputs described above, or other inputs, may have a greater or lesser impact on the Company’s estimates of fair value.
The following table provides a reconciliation of all liabilities measured at fair value using Level 3 significant unobservable inputs (in thousands):
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Warrant |
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Convertible |
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Balance at December 31, 2021 |
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$ |
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$ |
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Change in fair value |
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Balance at March 31, 2022 |
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$ |
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$ |
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Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Cash and cash equivalents include cash in readily available checking accounts and money market funds.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.
Property and Equipment, Net
Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful life of the related assets (generally
Deferred Offering Costs
The Company has deferred offering costs consisting of legal, accounting and other fees and costs directly attributable to its planned IPO. The deferred offering costs will be offset against the proceeds received upon the completion of the planned IPO. As of March 31, 2022 and December 31, 2021, respectively, $
8
Leases
At the inception of a contractual arrangement, the Company determines whether the contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. Lease terms are determined at the commencement date by considering whether renewal options and termination options are reasonably assured of exercise. For its long-term operating leases, the Company recognizes a lease liability and a right-of-use (“ROU”) asset on its balance sheet and recognizes lease expense on a straight-line basis over the lease term. The lease liability is determined as the present value of future lease payments using the discount rate implicit in the lease or, if the implicit rate is not readily determinable, an estimate of the Company’s incremental borrowing rate. The ROU asset is based on the lease liability, adjusted for any prepaid or deferred rent. The Company aggregates all lease and non-lease components for each class of underlying assets into a single lease component and variable charges for common area maintenance and other variable costs are recognized as expense as incurred. The Company has elected to not recognize a lease liability or ROU asset in connection with short-term operating leases and recognizes lease expense for short-term operating leases on a straight-line basis over the lease term. The Company does not have any financing leases.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, such as property and equipment, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value would be assessed using discounted cash flows or other appropriate measures of fair value. The Company has not recognized any impairment losses through March 31, 2022.
Research and Development Expenses and Accruals
All research and development costs are expensed in the period incurred and consist primarily of salaries, payroll taxes, employee benefits, stock-based compensation charges for those individuals involved in research and development efforts, external research and development costs incurred under agreements with contract research organizations and consultants to conduct and support the Company’s planned clinical trials of HIL-214.
The Company has entered into various research and development contracts with clinical research organizations, clinical manufacturing organizations and other companies. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and payments made in advance of performance are reflected in the accompanying balance sheets as prepaid expenses. The Company records accruals for estimated costs incurred for ongoing research and development activities. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the services, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be made in determining the prepaid or accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates.
In-Process Research and Development
The Company evaluates whether acquired intangible assets are a business under applicable accounting standards. Additionally, the Company evaluates whether the acquired assets have a future alternative use. Intangible assets that do not have future alternative use are considered acquired in-process research and development. When the acquired in-process research and development assets are not part of a business combination, the value of the consideration paid is expensed on the acquisition date.
Patent Costs
Costs related to filing and pursuing patent applications are recorded as general and administrative expenses and expensed as incurred since recoverability of such expenditures is uncertain.
Stock-Based Compensation
Stock-based compensation expense represents the cost of the grant date fair value of equity awards recognized over the requisite service period of the awards (generally the vesting period) on a straight-line basis. The Company recognizes forfeitures as they occur.
9
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the condensed consolidated statements of operations in the period that includes the enactment date.
The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions on the basis of a two-step process whereby (i) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense in the condensed consolidated statements of operations. Any accrued interest and penalties are included within the related tax liability in the condensed consolidated balance sheets. The Company did not recognize any interest or penalties during the periods presented.
Comprehensive Loss
Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive loss was the same as its reported net loss for all periods presented.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business as one operating segment.
Net Loss Per Share
Basic net loss per share is computed by dividing the consolidated net loss by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities. The Company has excluded weighted-average unvested shares of
Emerging Growth Company Status
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has irrevocably elected to avail itself of this exemption from new or revised accounting standards and, therefore, will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
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Recently Adopted Accounting Standards
There were no recently adopted accounting standards which would have a material impact on the Company's financial statements.
Recently Issued Accounting Pronouncements
The Company assesses the adoption impacts of recently issued accounting standards by the Financial Accounting Standards Board or other standard setting bodies on the Company's condensed consolidated financial statements as well as material updates to previous assessments, if any. There were no new material accounting standards issued in the first quarter of 2022 that impacted the Company.
2. Related Party Transactions
Frazier is a principal stockholder of the Company and is represented on the Company’s board of directors. From January 8, 2019 (inception) to March 31, 2022, the Company and Frazier reimbursed each other for various goods and services, including personnel related expenses, travel, insurance, facilities and other various overhead and administrative expenses. As of March 31, 2022 and December 31, 2021, the Company had outstanding amounts due to Frazier of $
Mountain Field LLC (“Mountain Field”) is an entity owned by a former member of the Company’s board of directors. From January 8, 2019 (inception) to March 31, 2022, the Company charged Mountain Field for various personnel related and other administrative expenses associated with the operations of Mountain Field. These shared expenses were allocated based on time incurred by personnel. For the three months ended March 31, 2022 and 2021, the Company charged Mountain Field $
On July 2, 2021, the Company entered into a license agreement with Takeda pursuant to which it was granted an exclusive sublicensable, royalty-bearing license (the “Takeda License”) to commercialize HIL-214 pharmaceutical products for all human uses on a worldwide basis outside of Japan. In connection with the Takeda License, Takeda became a related party stockholder with representation on the Company’s board of directors. In March 2022, the Company paid Takeda an aggregate $
The Company and Takeda are party to a Transitional Services Agreement (“TSA”) under which the Company is obligated to pay Takeda for certain services, including pass-through costs, related to research and development and regulatory assistance services, oversight and management of ongoing clinical and research studies, and maintenance of third party vendor contracts. For the three months ended March 31, 2022, the Company incurred $
3. Commitments and Contingencies
Operating Lease
In August 2021, the Company entered into a
As of March 31, 2022, the remaining lease term of the Company’s operating lease was
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Future minimum noncancelable operating lease payments, which commenced in October 2021, are as follows (in thousands):
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March 31, |
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Years ending December 31: |
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2022 (remaining 9 months) |
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$ |
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2023 |
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2024 |
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2025 |
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2026 |
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Total undiscounted operating lease payments |
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|
Present value adjustment |
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( |
) |
Operating lease liability |
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|
Less current portion of operating lease liability |
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Operating lease liability, net of current portion |
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$ |
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|
In March 2022, the Company entered into a lease for office and laboratory space located in Boston, Massachusetts (the “Boston Lease”). The initial lease term is
Contingencies
In the event the Company becomes subject to claims or suits arising in the ordinary course of business, the Company would accrue a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.
4. Convertible Promissory Notes
Frazier Convertible Note Financings
During 2019, 2020 and 2021, the Company issued the Frazier Notes for an aggregate of $
August 2021 Convertible Note Financing
On August 31, 2021, the Company entered into a note purchase agreement under which it issued the August 2021 Notes for an aggregate of $
12
5. Stockholders’ Deficit
A summary of the Company’s unvested shares is as follows:
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Number of |
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Balance at December 31, 2021 |
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|
Share vesting |
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( |
) |
Balance at March 31, 2022 |
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|
For accounting purposes, unvested shares of common stock are considered issued, but not outstanding until they vest. As of March 31, 2022 and December 31, 2021, the Company had no material repurchase liability related to the unvested shares in the table above.
2021 Equity Incentive Plan
On February 8, 2021, the Company’s board of directors and stockholders approved and adopted the HilleVax, Inc. 2021 Equity Incentive Plan (the “2021 Plan”). The term of the 2021 Plan is
Valuation of Common Stock and Stock-Based Compensation Expense
Prior to obtaining the Takeda License on July 2, 2021, the fair value of the Company’s common stock was nominal since the Company was not sufficiently capitalized and held no assets that could be used to generate future revenues. Subsequent to obtaining the Takeda License, the Company estimated the fair value of its common stock using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Accounting and Valuation Guide: Valuation of Privately Held Company Equity Securities Issued as Compensation (the “Practice Aid”). The Practice Aid prescribes several valuation approaches for setting the value of an enterprise, such as the cost, income and market approaches, and various methodologies for allocating the value of an enterprise to its common stock. The Company’s 2021 and 2022 valuations utilized a scenario-based analysis that estimated the fair value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to the Company, including various IPO, stay private and dissolution scenarios, and applying a discount for lack of marketability for certain equity holders. The Company considered various stay private scenarios using the income approach and allocated the indicated equity value, adjusted for the expected impact of the convertible notes, to each class of equity on a fully-diluted basis, considering option value for certain option classes. The Company also considered various IPO scenarios based on expected equity values in an IPO and allocated the indicated equity value to each class of equity on a fully-diluted basis considering the dilutive impacts of the convertible notes.
Since all restricted stock awards from inception were issued prior to obtaining the Takeda License on July 2, 2021, the Company has recorded no material stock-based compensation expense and has no material unrecognized stock-based compensation related to these awards.
A summary of the Company’s stock option activity under the 2021 Plan is as follows (in thousands, except share and per share data):
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Number of |
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Weighted |
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Weighted |
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Aggregate |
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Balance at December 31, 2021 |
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$ |
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$ |
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Granted |
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Cancelled |
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( |
) |
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Balance at March 31, 2022 |
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$ |
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$ |
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Vested and expected to vest at March 31, 2022 |
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$ |
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$ |
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Exercisable at March 31, 2022 |
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— |
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$ |
— |
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— |
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$ |
— |
|
13
Stock-Based Compensation Expense
The assumptions used in the Black-Scholes option pricing model to determine the fair value of stock option grants were as follows:
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Three Months Ended |
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2022 |
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2021 (1) |
Risk-free interest rate |
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— % |
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Expected volatility |
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— % |
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Expected term (in years) |
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— |
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Expected dividend yield |
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Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities similar to the expected term of the awards.
Expected volatility. Since the Company is not yet a public company and does not have a trading history for its common stock, the expected volatility assumption is based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the biotechnology industry. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.
Expected term. The expected term represents the period of time that options are expected to be outstanding. Because the Company does not have historical exercise behavior, it determines the expected life assumption using the simplified method, for employees, which is an average of the contractual term of the option and its vesting period.
Expected dividend yield. The Company bases the expected dividend yield assumption on the fact that it has never paid cash dividends and has no present intention to pay cash dividends and, therefore, used an expected dividend yield of
Stock-based compensation expense has been reported in the condensed consolidated statements of operations as follows (in thousands):
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Three Months Ended |
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2022 |
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2021 |
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Research and development |
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$ |
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|
$ |
— |
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|
General and administrative |
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|
|
|
|
— |
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|
Total |
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$ |
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|
$ |
— |
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|
The weighted average grant date fair value per share of option grants for the three months ended March 31, 2022 was $
Common Stock Reserved for Future Issuance
Common stock reserved for future issuance consists of the following:
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March 31, |
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Common stock warrants |
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Common stock options outstanding |
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Shares available for issuance under the 2021 Plan |
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6. Subsequent Events
Term Loan Facility
On April 18, 2022, the Company entered into a Loan and Security Agreement (“Loan Agreement”) with Hercules Capital, Inc. (“Hercules”), as administrative and collateral agent, and the lenders party thereto¸ providing for term loans (“Term Loans”) of up to $
The Term Loans bear (a) cash interest at a floating rate of the higher of (i) the Wall Street Journal prime rate (or
The Loan Agreement contains certain customary affirmative and negative covenants and events of default. The affirmative covenants include, among others, covenants requiring the Company to maintain its legal existence and governmental approvals, deliver certain financial reports, maintain insurance coverage and satisfy certain requirements regarding its operating accounts. The negative covenants include, among others, limitations on the Company’s ability to incur additional indebtedness and liens, merge with other companies or consummate certain changes of control, acquire other companies or businesses, make certain investments, pay dividends, transfer or dispose of assets, amend certain material agreements, including the Takeda License, or enter into various specified transactions. Upon the occurrence of an event of default, subject to any specified cure periods, all amounts owed by the Company would begin to bear interest at a rate that is
2022 Incentive Award Plan
In April 2022, the Company’s board of directors and stockholders approved the 2022 Incentive Award Plan (the “2022 Plan”) under which the Company may grant stock options, restricted stock, dividend equivalents, restricted stock units, stock appreciation rights, and other stock or cash-based awards to its employees, consultants and directors.
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an aggregate of
2022 Employee Stock Purchase Plan
In April 2022, the Company’s board of directors and stockholders approved the 2022 Employee Stock Purchase Plan (the “2022 ESPP”). The 2022 ESPP became effective in connection with the Company’s IPO. The 2022 ESPP permits eligible employees who elect to participate in an offering under the ESPP to have up to a specified percentage of their eligible earnings withheld, subject to certain limitations, to purchase shares of common stock pursuant to the 2022 ESPP. The price of common stock purchased under the 2022 ESPP is e