Asset Acquisition

6 Months Ended

Jun. 30, 2024

Asset Acquisition

Asset Acquisition

3. Asset Acquisition

On April 1, 2024, the Company acquired Trawsfynydd, in accordance with the terms of an Agreement and Plan of Merger, dated April 1, 2024 (the “Merger Agreement), pursuant to which the Company acquired Trawsfynydd’s TRX100 and TRX01 programs and assumed certain liabilities associated with the acquired assets. The upfront consideration included (i) the issuance of 3,549,538 shares of common stock of the Company at an aggregate fair value of $3,550,000, (ii) the issuance of 10,359 shares of Series C Preferred Stock at an aggregate fair value of $93,232,000, and (iii) the assumption of all Trawsfynydd stock options (the “assumed options”) immediately outstanding prior to the transaction at an aggregated fair value of $7,085,000.

Each share of Series C Preferred Stock is convertible into 10,000 shares of common stock, subject to shareholder approval and beneficial ownership limitations. The fair value of the shares issued to Trawsfynydd and options assumed was based on the closing stock price of the Company’s common stock on April 1, 2024 of $1.00, less a discount 10.0% related to unregistered share restrictions of the preferred shares.

The Company accounted for the transaction as an asset acquisition as the Company acquired inputs and no substantive processes or outputs. The assets acquired in the transaction were measured based on the estimated fair value of the consideration paid of $112,543,000, which included direct transactions costs of $8,676,000. Tungsten Partners LLC (“Tungsten”) acted as financial advisor to the Company in connection with the Merger. As partial compensation for services rendered by Tungsten, the Company issued to Tungsten and its affiliates and designees an aggregate of 168,601 shares of Common Stock and 535 shares of Series C Preferred Stock.

The consideration paid and the relative fair values of the assets acquired and liabilities assumed were as follows (in thousands):

Consideration transferred:
Common stock	$	3,550,000
Series C Preferred stock		93,232,000
Assumed options		7,085,000
Company transaction costs settled in equity		4,984,000
Company transaction costs paid in cash		3,692,000
Total consideration transferred	$	112,543,000
Assets acquired:
Cash and cash equivalents	$	44,000
Total assets acquired		44,000
Liabilities assumed:
Accrued expenses and other current liablities		4,965,000
Total liabilities assumed		4,965,000
Net assets acquired		(4,921,000)
In-process research and development		117,464,000
Net assets acquired	$	112,543,000

Under the asset acquisition model, an entity that acquires IPR&D assets follows the guidance in ASC 730, Research and Development, which requires that both tangible and intangible identifiable research and development assets with no alternative future use be initially allocated a portion of the consideration transferred and then charged to expense at the acquisition date. As the Trawsfynydd IPR&D assets acquired have no alternative future use to the Company, the Company charged $117,464,000 to expense within its consolidated statement of operations and comprehensive loss for three and six months ended June 30, 2024.

Pursuant to the Merger Agreement, the Company agreed to hold a stockholders’ meeting to submit the following matters to its stockholders for their consideration: (i) the approval of the conversion of shares of Series C Preferred Stock into shares of Common Stock in accordance with the rules of the Nasdaq Stock Market LLC (the “Conversion Proposal”) and (ii) if deemed necessary or appropriate by the Company or as otherwise required by applicable law or contract, the approval of an amendment to the Company’s certificate of incorporation, as amended (the “Charter”), to authorize sufficient shares of Common Stock for the conversion of Series C Preferred Stock issued pursuant to the Merger Agreement (the “Share Increase Proposal” and together with the Conversion Proposal, the “Meeting Proposals”). In connection with these matters, the Company agreed to file a proxy statement on Schedule 14A with the SEC.

The Board of Directors of the Company (the “Board”) approved the Merger Agreement and the related transactions, and the consummation of the Merger was not subject to approval of Company stockholders. In accordance with the Merger Agreement, three directors were appointed to the Board of Directors of the Company and there were several changes to management, each effective as of the Closing.

Concurrently with the Closing of the Merger, the Company entered into a contingent value rights agreement (the “CVR Agreement”) with a rights agent (the “Rights Agent”), pursuant to which each holder of Common Stock as of the applicable record date (April 15, 2024), including those holders receiving shares of Common Stock in connection with the Merger, is entitled to one contractual contingent value right (each, a “CVR”) entitling the holder to certain distributions of net proceeds and net sales of Traws Pharma’s two leading cancer candidates, subject to and in accordance with the terms and conditions of the CVR Agreement, for each share of Common Stock held by such holder as of the applicable record time.

The distributions in respect of the CVRs will be made on a quarterly basis, and will be subject to a number of deductions, subject to certain exceptions or limitations, including but not limited to for certain taxes and certain out-of-pocket expenses incurred by Traws Pharma. At the time of Merger and again at June 30, 2024, the value ascribed to the CVR liability was de minimis given the uncertainty related to the success of the underlying oncology programs.