UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 2)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): December 20, 2011
SYNAGEVA BIOPHARMA CORP.
(Exact Name of Registrant as Specified in Charter)
Delaware | 0-23155 | 56-1808663 | ||
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
128 Spring Street, Suite 520, Lexington, Massachusetts 02421
(Address of Principal Executive Offices) (Zip Code)
Registrants telephone number, including area code: (781) 357-9900
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Introduction
On November 3, 2011, Synageva BioPharma Corp. (the Company) filed a Current Report on Form 8-K (the November 3 Report) announcing that Tesla Merger Sub, Inc., a Delaware corporation (Merger Sub), a wholly owned subsidiary of Trimeris, Inc., a Delaware corporation (Trimeris), completed its previously announced merger (the Merger) with and into Synageva BioPharma Corp., a Delaware corporation (Private Synageva). The November 3 Report is incorporated herein by reference and this Current Report supplements the information contained in Item 9.01 of the November 3 Report.
Prior to the Merger, the Private Synagevas financial statements for fiscal year 2010, which are incorporated herein by reference to Exhibit 99.1 to this Current Report, were included as part of the Registration Statement on Form S-4 filed by Trimeris with the Securities and Exchange Commission on July 13, 2011.
Item 9.01. | Financial Statements and Exhibits. |
(a) Financial Statements of Businesses Acquired.
The audited balance sheets of Private Synageva as of December 31, 2010 and 2009, the audited Statements of Operations and Statements of Changes in Convertible Preferred Stock and Stockholders Deficit for the years ended December 31, 2010 and 2009, and the Statements of Cash Flows for the years ended December 31, 2010 and 2009 are incorporated herein by reference to Exhibit 99.1 to this current report.
The unaudited pro forma condensed combined balance sheet as of September 30, 2011, the unaudited pro forma condensed combined Statements of Operations for the nine months ended September 30, 2011 and the unaudited pro forma condensed combined Statements of Operations for the year ended December 31, 2010 are incorporated herein by reference to Exhibit 99.2 to this current report.
(d) Exhibits
Exhibit Number |
Description | |
99.1 | Audited Financial Statements of Private Synageva Report of Independent Registered Public Accounting Firm Balance Sheets as of December 31, 2010 and 2009 Statements of Operations for the Years Ended December 31, 2010 and 2009 Statements of Changes in Convertible Preferred Stock and Stockholders Deficit for the Years Ended December 31, 2010 and 2009 Statements of Cash Flows for the Years Ended December 31, 2010 and 2009 Notes to the Audited Financial Statements | |
99.2 | Unaudited Pro Forma Condensed Combined Financial Statements of Synageva BioPharma Corp. Balance Sheet as of September 30, 2011 Statements of Operations for the Nine Months Ended September 30, 2011 Statements of Operations for the Year Ended December 31, 2010 Notes to the Unaudited Pro Forma Condensed Combined Financial Statements |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
SYNAGEVA BIOPHARMA CORP. | ||
By: | /s/ Sanj K. Patel | |
Sanj K. Patel President and Chief Executive Officer |
Date: December 20, 2011
Exhibit Number |
Description | |
99.1 | Audited Financial Statements of Private Synageva Report of Independent Registered Public Accounting Firm Balance Sheets as of December 31, 2010 and 2009 Statements of Operations for the Years Ended December 31, 2010 and 2009 Statements of Changes in Convertible Preferred Stock and Stockholders Deficit for the Years Ended December 31, 2010 and 2009 Statements of Cash Flows for the Years Ended December 31, 2010 and 2009 Notes to the Audited Financial Statements | |
99.2 | Unaudited Pro Forma Condensed Combined Financial Statements of Synageva BioPharma Corp. Balance Sheet as of September 30, 2011 Statements of Operations for the Nine Months Ended September 30, 2011 Statements of Operations for the Year Ended December 31, 2010 Notes to the Unaudited Pro Forma Condensed Combined Financial Statements |
Exhibit 99.1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Synageva BioPharma Corp.:
In our opinion, the accompanying balance sheets and the related statements of operations, of changes in convertible preferred stock and stockholders deficit and of cash flows present fairly, in all material respects, the financial position of Synageva BioPharma Corp. at December 31, 2010 and December 31, 2009, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
July 12, 2011
F-1
Balance Sheets
December 31, 2010 and 2009
2010 | 2009 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 14,714,571 | $ | 25,850,711 | ||||
Prepaid expenses and other current assets |
1,136,173 | 247,593 | ||||||
|
|
|
|
|||||
Total current assets |
15,850,744 | 26,098,304 | ||||||
Other assets |
61,971 | 52,797 | ||||||
Property and equipment, net |
1,068,986 | 867,775 | ||||||
|
|
|
|
|||||
Total assets |
$ | 16,981,701 | $ | 27,018,876 | ||||
|
|
|
|
|||||
Liabilities, Convertible Preferred Stock and Stockholders Deficit |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 427,256 | $ | 196,913 | ||||
Accrued expenses |
1,138,880 | 766,046 | ||||||
|
|
|
|
|||||
Total current liabilities |
1,566,136 | 962,959 | ||||||
Other noncurrent liabilities |
12,278 | 32,464 | ||||||
|
|
|
|
|||||
Total liabilities |
1,578,414 | 995,423 | ||||||
|
|
|
|
|||||
Commitments and contingencies (Note 11) |
||||||||
Convertible preferred stock: |
||||||||
Series D-2 convertible preferred stock, par value $0.001; 18,000,000 shares authorized and outstanding at December 31, 2010 and 2009 (liquidation preference of $45,000,000 at December 31, 2010 and 2009) |
44,863,380 | 44,854,261 | ||||||
Series C-2 convertible preferred stock, par value $0.001; 3,658,500 shares authorized, 3,583,040 shares issued and outstanding at December 31, 2010 and 2009 (liquidation preference of $17,176,735 at December 31, 2010 and 2009) |
17,193,028 | 17,176,735 | ||||||
Series B-2 convertible preferred stock, par value $0.001; 4,168,700 shares authorized, 4,168,674 shares issued and outstanding at December 31, 2010 and 2009 (at liquidation preference) |
21,094,741 | 21,094,741 | ||||||
Series A-2 convertible preferred stock, par value $0.001; 245,650 shares authorized, 245,637 issued and outstanding at December 31, 2010 and 2009 (at liquidation preference) |
12,429,920 | 12,429,920 | ||||||
|
|
|
|
|||||
Total convertible preferred stock |
95,581,069 | 95,555,657 | ||||||
|
|
|
|
|||||
Stockholders deficit |
||||||||
Common stock, par value $0.001; 51,000,000 shares authorized; 147,743 and 56,235 shares issued and outstanding at December 31, 2010 and 2009 |
148 | 56 | ||||||
Additional paid-in capital |
10,355,962 | 10,177,976 | ||||||
Accumulated deficit |
(90,533,892 | ) | (79,710,236 | ) | ||||
|
|
|
|
|||||
Total stockholders deficit |
(80,177,782 | ) | (69,532,204 | ) | ||||
|
|
|
|
|||||
Total liabilities, convertible preferred stock and stockholders deficit |
$ | 16,981,701 | $ | 27,018,876 | ||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-2
Statements of Operations
Years Ended December 31, 2010 and 2009
2010 | 2009 | |||||||
Revenues |
$ | 595,421 | $ | 161,830 | ||||
|
|
|
|
|||||
Operating expenses |
||||||||
Research and development |
9,865,809 | 6,583,032 | ||||||
General and administrative |
3,852,607 | 3,843,185 | ||||||
|
|
|
|
|||||
Total operating expenses |
13,718,416 | 10,426,217 | ||||||
|
|
|
|
|||||
Loss from operations |
(13,122,995 | ) | (10,264,387 | ) | ||||
Other income, net |
2,295,252 | 82,486 | ||||||
Interest income |
4,087 | 22,165 | ||||||
Interest expense |
| (1,260,318 | ) | |||||
|
|
|
|
|||||
Net loss |
$ | (10,823,656 | ) | $ | (11,420,054 | ) | ||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-3
Statements of Changes in Convertible Preferred Stock and Stockholders' Deficit
Years Ended December 31, 2010 and 2009
Series A-1 Convertible Preferred Stock |
Series B-1 Convertible Preferred Stock |
Series C-1 Convertible Preferred Stock |
Series D-1 Convertible Preferred Stock |
Series E-1 Convertible Preferred Stock |
Series A-2 Convertible Preferred Stock |
Series B-2 Convertible Preferred Stock |
||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
Balances December 31, 2008 |
104,486 | $ | 2,998,232 | 434,504 | $ | 12,424,444 | 4,750,222 | $ | 8,586,765 | 9,122,551 | $ | 16,951,894 | 5,650,547 | $ | 18,078,543 | | $ | | | $ | | |||||||||||||||||||||||||||||||||||
Accretion to redemption value of redeemable preferred stock |
| 36,148 | | 150,296 | | 106,395 | | 216,443 | | 267,509 | | | | | ||||||||||||||||||||||||||||||||||||||||||
Series A-1 and B-1 Conversion to A-2; Series C-1 and D-1 Conversion to B-2 and Series E-1 Conversion to C-2 |
(104,486 | ) | (3,034,380 | ) | (434,504 | ) | (12,574,740 | ) | (4,750,222 | ) | (8,693,160 | ) | (9,122,551 | ) | (17,168,337 | ) | (5,650,547 | ) | (18,346,052 | ) | 245,637 | 12,429,920 | 4,168,674 | 21,094,741 | ||||||||||||||||||||||||||||||||
Issuance of Series D-2 preferred stock, net of issuance costs of $170,775 |
| | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||
Issuance of Series D-2 preferred stock upon conversion of notes payable |
| | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options |
| | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
Balances December 31, 2009 |
| | | | | | | | | | 245,637 | 12,429,920 | 4,168,674 | 21,094,741 | ||||||||||||||||||||||||||||||||||||||||||
Accretion to redemption value of redeemable preferred stock |
| | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||
Issuance costs associated with Series D-2 preferred stock |
| | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options |
| | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
Balances December 31, 2010 |
| $ | | | $ | | | $ | | | $ | | | $ | | 245,637 | $ | 12,429,920 | 4,168,674 | $ | 21,094,741 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-4
Synageva BioPharma Corp.
Statements of Changes in Convertible Preferred Stock and Stockholders' Deficit
Years Ended December 31, 2010 and 2009
Series C-2 Convertible Preferred Stock |
Series D-2 Convertible Preferred Stock |
Total Convertible Preferred Stock |
|
Common Stock | Additional Paid-In Capital |
Accumulated Deficit |
Total Stockholders Deficit |
|||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||
Balances December 31, 2008 |
| $ | | | $ | | 20,062,310 | $ | 59,039,878 | 46,255 | $ | 46 | $ | 1,705,108 | $ | (68,290,182 | ) | $ | (66,585,028 | ) | ||||||||||||||||||||||||||
Accretion to redemption value of redeemable preferred stock |
| | | 25,036 | | 801,827 | | | (801,827 | ) | | (801,827 | ) | |||||||||||||||||||||||||||||||||
Series A-1 and B-1 Conversion to A-2; Series C-1 and D-1 Conversion to B-2 and Series E-1 Conversion to C-2 |
3,583,040 | 17,176,735 | | | (12,064,959 | ) | (9,115,273 | ) | | | 9,115,273 | | 9,115,273 | |||||||||||||||||||||||||||||||||
Issuance of Series D-2 preferred stock, net of issuance costs of $170,775 |
| | 15,276,453 | 38,046,197 | 15,276,453 | 38,046,197 | | | | | | |||||||||||||||||||||||||||||||||||
Issuance of Series D-2 preferred stock upon conversion of notes payable |
| | 2,723,547 | 6,783,028 | 2,723,547 | 6,783,028 | | | | | | |||||||||||||||||||||||||||||||||||
Exercise of stock options |
| | | | | | 9,980 | 10 | 5,232 | | 5,242 | |||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | | | | | 154,190 | | 154,190 | |||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | (11,420,054 | ) | (11,420,054 | ) | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Balances December 31, 2009 |
3,583,040 | 17,176,735 | 18,000,000 | 44,854,261 | 25,997,351 | 95,555,657 | 56,235 | 56 | 10,177,976 | (79,710,236 | ) | $ | (69,532,204 | ) | ||||||||||||||||||||||||||||||||
Accretion to redemption value of redeemable preferred stock |
| 16,293 | | 45,843 | | 62,136 | | | (62,136 | ) | | (62,136 | ) | |||||||||||||||||||||||||||||||||
Issuance costs associated with Series D-2 preferred stock |
| | | (36,724 | ) | | (36,724 | ) | | | | | | |||||||||||||||||||||||||||||||||
Exercise of stock options |
| | | | | | 91,508 | 92 | 36,340 | | 36,432 | |||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | | | | | 203,782 | | 203,782 | |||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | (10,823,656 | ) | (10,823,656 | ) | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Balances December 31, 2010 |
3,583,040 | $ | 17,193,028 | 18,000,000 | $ | 44,863,380 | 25,997,351 | $ | 95,581,069 | 147,743 | $ | 148 | $ | 10,355,962 | $ | (90,533,892 | ) | $ | (80,177,782 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-5
Statements of Cash Flows
Years Ended December 31, 2010 and 2009
2010 | 2009 | |||||||
Cash flows from operating activities |
||||||||
Net loss |
$ | (10,823,656 | ) | $ | (11,420,054 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities |
||||||||
Depreciation and amortization |
384,118 | 339,777 | ||||||
Interest expense paid through preferred stock issuance |
| 163,582 | ||||||
Amortization of debt discount and debt issuance costs |
| 250,772 | ||||||
Stock compensation expense |
203,782 | 154,190 | ||||||
Revaluation of preferred stock warrants |
(17,236 | ) | (82,486 | ) | ||||
Changes in assets and liabilities |
||||||||
Prepaid expenses and other current assets |
(888,580 | ) | (118,986 | ) | ||||
Other assets |
(9,174 | ) | 10,269 | |||||
Accounts payable |
230,343 | (1,635,656 | ) | |||||
Accrued expenses and other liabilities |
369,884 | (1,246,015 | ) | |||||
|
|
|
|
|||||
Net cash used in operating activities |
(10,550,519 | ) | (13,584,607 | ) | ||||
|
|
|
|
|||||
Cash flows from investing activities |
||||||||
Purchases of property and equipment |
(585,329 | ) | (162,909 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(585,329 | ) | (162,909 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities |
||||||||
Proceeds from issuance of convertible preferred stock, net of issuance costs |
(36,724 | ) | 38,046,197 | |||||
Proceeds from issuance of convertible notes |
| 6,619,446 | ||||||
Proceeds from issuance of common stock |
36,432 | 5,242 | ||||||
Principal payments on debt and capital leases |
| (7,766,041 | ) | |||||
|
|
|
|
|||||
Net cash (used in) provided by financing activities |
(292 | ) | 36,904,844 | |||||
|
|
|
|
|||||
Net (decrease) increase in cash and cash equivalents |
(11,136,140 | ) | 23,157,328 | |||||
Cash and cash equivalents |
||||||||
Beginning of year |
25,850,711 | 2,693,383 | ||||||
|
|
|
|
|||||
End of year |
$ | 14,714,571 | $ | 25,850,711 | ||||
|
|
|
|
|||||
Supplemental disclosure of cash flow information |
||||||||
Cash paid for interest |
$ | | $ | 662,101 | ||||
Supplemental schedule of noncash investing and financing activities |
||||||||
Accretion to redemption value of redeemable convertible preferred stock |
$ | 62,136 | $ | 801,827 | ||||
Conversion of convertible notes and interest into preferred stock |
| 6,783,028 |
The accompanying notes are an integral part of these financial statements.
F-6
Notes to Financial Statements
December 31, 2010 and 2009
1. | Nature of the Business |
Synageva BioPharma Corp. (referred to in these Notes to Financial Statements of Synageva BioPharma Corp. through page F-60 as the Company) was incorporated in the state of Delaware on February 5, 1996. The Company is a biopharmaceutical company dedicated to discovering, developing and delivering medicines for patients with rare diseases and unmet medical needs. Synageva BioPharmas lead program SBC-102 is an enzyme replacement therapy for Lysosomal Acid Lipase (LAL) Deficiency, also known as Wolman Disease, Cholesteryl Ester Storage Disease (CESD) or Acid Lipase Deficiency. LAL Deficiency is a serious and rare Lysosomal Storage Disorder (LSD) that is a progressive and often fatal condition. SBC-102 is under development to address the devastating effects of LAL Deficiency by replacing the deficient or absent lysosomal acid lipase enzyme with a recombinant form of the enzyme. In addition to SBC-102, the Company has several other programs in development to help patients with Lysosomal Storage Disorders and other life-threatening genetic conditions for which there are currently no approved treatments.
The accompanying financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The Company has incurred losses and negative cash flows from operations since inception and has an accumulated deficit of $90,533,892 at December 31, 2010. Through December 31, 2010, the Company has funded its operations primarily from proceeds of the sale of preferred stock, issuance of convertible notes and notes payable and proceeds from government grants and collaboration agreements. During the year ended December 31, 2009, the Company issued 18,000,000 shares of Series D-2 preferred stock (Note 6) for gross proceeds of approximately $45 million, including amounts from the conversion of convertible notes. In March 2011, the Company issued $12.5 million of convertible notes payable as the first tranche of a $25 million convertible note offering (see Note 12). The Company currently believes that existing cash and cash equivalent balances and the proceeds from the issuance of the $12.5 million of convertible notes will be sufficient cash resources to fund operations into the first half of 2012. The future viability of the Company beyond this point is largely dependent on its ability to raise additional capital to finance its operations. The Company may seek additional funding through new license arrangements or private financings. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into new license arrangements. If the Company needs additional funds and is unable to obtain funding on a timely basis, the Company may need to significantly curtail its research and development activities in an effort to continue its operations.
In April 2009, the Company amended its Certificate of Incorporation to affect a 5-for-1 reverse stock split of the Companys issued common stock which was effective as of the issuance of the Series D-2 preferred stock on April 1, 2009. All share and per share information has been restated to give effect to this reverse stock split.
2. | Summary of Significant Accounting Policies |
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
F-7
Synageva BioPharma Corp.
Notes to Financial Statements
December 31, 2010 and 2009
Cash and Cash Equivalents
The Company considers all highly liquid investments with a remaining maturity at the date of purchase of less than three months to be cash equivalents. At December 31, 2010 and 2009, substantially all cash and cash equivalents were held in money market accounts at commercial banks.
Subsequent Events
The Company has evaluated subsequent events through July 12, 2011, which is the date that the financial statements were available to be issued.
Fair Value of Financial Instruments
Under current accounting standards, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The current accounting guidance also establishes a hierarchy to categorize how fair value is measured and which is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:
Level 1 |
Quoted prices in active markets for identical assets or liabilities. | |
Level 2 |
Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
Level 3 |
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The following table presents information about the Companys financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2010:
December 31, 2010 |
Quoted Price Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant (Level 3) |
|||||||||||||
Assets |
||||||||||||||||
Cash equivalents |
$ | 14,510,308 | $ | 14,510,308 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities |
||||||||||||||||
Preferred stock warrants |
$ | 12,278 | $ | | $ | | $ | 12,278 | ||||||||
|
|
|
|
|
|
|
|
F-8
Synageva BioPharma Corp.
Notes to Financial Statements
December 31, 2010 and 2009
The following table presents information about the Companys financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2009:
December 31, 2009 |
Quoted Price in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
Assets |
||||||||||||||||
Cash equivalents |
$ | 25,780,835 | $ | 25,780,835 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities |
||||||||||||||||
Preferred stock warrants |
$ | 29,514 | $ | | $ | | $ | 29,514 | ||||||||
|
|
|
|
|
|
|
|
The change in the valuation of preferred stock warrants for the years ended December 31, 2010 and 2009, respectively, are summarized below.
Years ended December 31, | ||||||||
2010 | 2009 | |||||||
Fair value, beginning of year |
$ | 29,514 | $ | 112,000 | ||||
Change in fair value |
(17,236 | ) | (82,486 | ) | ||||
|
|
|
|
|||||
Fair value, end of year |
$ | 12,278 | $ | 29,514 | ||||
|
|
|
|
The Company accounts for the warrants outstanding to purchase 75,094 shares of Series C-2 convertible preferred stock according to accounting standards regarding freestanding financial instruments with the characteristics of both liabilities and equities. Due to the redemption feature of the Series C-2 convertible preferred stock, these warrants are classified as liabilities. The warrants are revalued at each balance sheet date and any change in fair value is recorded as a component of other income or other expense, until the earlier of their exercise or expiration.
Property and Equipment
Property and equipment are recorded at cost and are depreciated and amortized using the straight-line method over the assets expected useful lives. Property and equipment held under capital leases and leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the related asset. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to income. Repairs and maintenance costs are expensed as incurred.
Estimated | ||
Useful Life | ||
Asset Classification |
||
Software |
3 years | |
Vehicles |
5 years | |
Furniture and fixtures |
7 years | |
Lab and facility equipment |
57 years | |
Leasehold improvements |
shorter of estimated useful life or lease term |
F-9
Synageva BioPharma Corp.
Notes to Financial Statements
December 31, 2010 and 2009
Revenue Recognition
The Companys business strategy includes entering into collaborative agreements with biotechnology and pharmaceutical companies. Revenue under collaborations may include the receipt of non-refundable license fees, payments based on achievement of development objectives, reimbursement of research and development costs and royalties.
The Company recognizes revenue using the proportional performance method provided that the Company can reasonably estimate the level of effort required to complete its performance obligations under an arrangement and such performance obligations are provided on a best-efforts basis. Revenue recognized under the proportional performance method is determined by multiplying the total payments under the contract, excluding royalties and payments contingent upon achievement of development objectives, by the ratio of level of effort incurred to date to estimated total level of effort required to complete the Companys performance obligations under the arrangement. Payments contingent upon achievement of development objectives are included once the contingency is removed. Revenue is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined using the proportional performance method, as of each reporting period.
Significant management judgment is required in determining the level of effort required under an arrangement and the period over which the Company is expected to complete its performance obligations under an arrangement.
Reimbursement of costs is recognized as revenue provided the Company has determined that it is acting primarily as a principal in the transaction according to the provisions outlined in FASB Codification Topic 605-45, Revenue Recognition, Principal Agent Considerations, the amounts are determinable and collection of the related receivable is reasonably assured.
Grant Revenue
The Company recognizes revenues from grants in the period in which the Company has incurred the expenditures in compliance with the specific restrictions of the grant.
Revenue from grants was recognized in the period in which the related expenditures were incurred and totaled approximately $315,000 and $82,000 for the years ended December 31, 2010 and 2009, respectively.
Research and Development
Research and development costs are charged to operations when incurred and include personnel and facility-related expenses, outside contracted services including clinical trial costs, manufacturing and process development costs, research costs, outside consulting services and other external costs.
Clinical development costs are a significant component of the Companys research and development expenses. The Company contracts with third parties that perform various clinical trial activities on its behalf in the ongoing development of its product candidates. The financial terms of these contracts are subject to negotiations and may vary from contract to contract and may result in uneven payment flow. The Company accrues and expenses costs for clinical trial activities performed by third parties based upon estimates of the work completed. Estimates are developed through discussions with internal clinical personnel and outside service providers based on the progress or stage of completion of trials or services and the agreed upon fee to be paid for such services.
F-10
Synageva BioPharma Corp.
Notes to Financial Statements
December 31, 2010 and 2009
Income Taxes
Deferred income taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and operating loss carryforwards and credits. Valuation allowances are recorded to reduce the net deferred tax assets to amounts the Company believes are more likely than not to be realized.
In June 2006, the Financial Accounting Standards Board issued authoritative guidance which changes the accounting for uncertainty in tax positions. This requires that the Company recognize in its financial statements the impact of tax positions, if that position is more likely than not of being sustained on audit based on the technical merits of position. Effective January 1, 2009, the Company adopted this guidance and there was no liability for unrecognized benefits at adoption. Refer to Note 9 for further discussion of income taxes.
Stock-Based Compensation
The Companys share-based compensation awards to employees, including grants of employee stock options, are valued at fair value on the date of grant, and are expensed over the requisite service period. The requisite service period is the period during which an employee is required to provide service in exchange for an award, which generally is the vesting period.
Concentration of Credit Risk and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents. The Company places its cash and cash equivalents in bank deposits and money market funds, which are maintained at one financial institution. Deposits in these institutions may exceed the amount of insurance provided on such deposits. Management believes it has established guidelines relative to credit quality, diversification and maturities that maintain security and liquidity.
The Company is subject to risks and uncertainties common to the biotechnology industry. Such risks and uncertainties include, but are not limited to: (a) results from current and planned clinical trials, (b) scientific data collected on the Companys technologies currently in preclinical research and development, (c) decisions made by the FDA or other regulatory bodies with respect to the initiation of human clinical trials, (d) decisions made by the FDA or other regulatory bodies with respect to approval and commercial sale of any of the Companys proposed products, (e) the commercial acceptance of any products approved for sale and the ability of the Company to manufacture, distribute and sell for a profit any products approved for sale, (f) the Companys ability to obtain the necessary patents and proprietary rights to effectively protect its technologies, (g) the outcome of any collaborations or alliances entered into by the Company in the future with pharmaceutical or other biotechnology companies, (h) dependence on key personnel, (i) competition with better capitalized companies and (j) ability to raise additional funds.
Comprehensive Loss
The Company accounts for comprehensive loss as prescribed by Accounting Standards Update (ASU) 220, Comprehensive Income. Comprehensive income (loss) is the total net income (loss), plus all changes in equity during the period, except those changes resulting from investment by and distribution to owners. Total comprehensive loss is equal to the net loss for all periods presented.
F-11
Synageva BioPharma Corp.
Notes to Financial Statements
December 31, 2010 and 2009
Recently Issued and Proposed Accounting Pronouncements
In October 2009, the FASB issued an amendment to the accounting for multiple-deliverable revenue arrangements. This amendment provides guidance on whether multiple deliverables exist, how the arrangements should be separated, and how the consideration paid should be allocated. As a result of this amendment, entities may be able to separate multiple-deliverable arrangements in more circumstances than under existing accounting guidance. This guidance amends the requirement to establish the fair value of undelivered products and services based on objective evidence and instead provides for separate revenue recognition based upon managements best estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. The existing guidance previously required that the fair value of the undelivered item reflect the price of the item either sold in a separate transaction between unrelated third parties or the price charged for each item when the item is sold separately by the vendor. If the fair value of all of the elements in the arrangement was not determinable, then revenue was deferred until all of the items were delivered or fair value was determined. This amendment will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company adopted the provisions of this guidance on a prospective basis on January 1, 2011, the effect of which will be dependent on the terms of any new or materially modified arrangements subsequent to adoption.
In April 2010, the FASB issued ASU 2010-17, Revenue Recognition Milestone Method (Topic 605): Milestone Method of Revenue Recognition (ASU 2010-17). ASU 2010-17 provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. Consideration that is contingent on achievement of a milestone in its entirety may be recognized as revenue in the period in which the milestone is achieved only if the milestone is judged to meet certain criteria to be considered substantive. The new rule was adopted by the Company on January 1, 2011. Adoption of this new standard did not materially affect the Companys financial statements.
In May 2011, the FASB issued an amendment to the accounting guidance for fair value to develop common requirements between GAAP and International Financial Reporting Standards. The amendment changes the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements, including (i) application of the highest and best use and valuation premise concepts solely for nonfinancial assets and liabilities; (ii) measuring the fair value of an instrument classified in a reporting entitys shareholders equity; and (iii) disclosing quantitative information about unobservable inputs used in the fair value measurement within Level 3 of the fair value hierarchy. For public entities, the amendment is effective for interim and annual periods beginning after December 15, 2011. Early application is not permitted. The Company is currently evaluating the disclosure requirements related to providing quantitative information about unobservable inputs used to measure the fair value of the warrant liability.
In June 2011, the Financial Accounting Standards Board, or FASB, issued an amendment to the accounting guidance for presentation of comprehensive income. Under the amended guidance, a company may present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In either case, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. Regardless of choice in presentation, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the
F-12
Synageva BioPharma Corp.
Notes to Financial Statements
December 31, 2010 and 2009
components of net income and the components of other comprehensive income are presented. For public entities, the amendment is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and shall be applied retrospectively. Early adoption is permitted. Other than a change in presentation, the adoption of this update is not expected to have a material impact on the Companys financial statements.
3. | Property and Equipment |
December 31, | ||||||||
2010 | 2009 | |||||||
Laboratory equipment |
$ | 2,044,987 | $ | 1,598,711 | ||||
Leasehold improvements |
355,100 | 296,974 | ||||||
Computer, software and office equipment |
479,888 | 423,157 | ||||||
Vehicles |
93,890 | 77,726 | ||||||
|
|
|
|
|||||
2,973,865 | 2,396,568 | |||||||
|
|
|
|
|||||
Less: Accumulated depreciation and amortization |
(1,904,879 | ) | (1,528,793 | ) | ||||
|
|
|
|
|||||
$ | 1,068,986 | $ | 867,775 | |||||
|
|
|
|
Depreciation and amortization expense approximated $384,000 and $340,000 for the years ended December 31, 2010 and 2009, respectively.
4. | Accrued Expenses |
Accrued expenses consist of the following:
December 31, | ||||||||
2010 | 2009 | |||||||
Accrued benefits and compensation |
$ | 459,376 | $ | 416,431 | ||||
Clinical and scientific costs |
288,691 | 221,218 | ||||||
Professional fees |
159,573 | 33,919 | ||||||
Facility-related costs |
48,524 | 19,907 | ||||||
Other |
182,716 | 74,571 | ||||||
|
|
|
|
|||||
$ | 1,138,880 | $ | 766,046 | |||||
|
|
|
|
5. | Loan and Security Agreement |
On March 31, 2008, the Company entered into an $8.0 million term loan agreement consisting of a $5.0 million term loan with Oxford Finance Corp. and a $3.0 million term loan with Silicon Valley Bank. Pursuant to the Loan and Security Agreement (the Loan Agreement), the Company received $4.0 million on March 31, 2008 and $4.0 million on July 31, 2008. The principal balance of each advance under the Loan Agreement bore interest of 11.00%. The Loan Agreement allowed for interest-only payments on a monthly basis for six months for each tranche followed by 30 months of interest and principal payments and allowed the Company to prepay the outstanding principal amount and all accrued but unpaid interest and fees, subject to a payment of a prepayment premium equal to (i) 6.0% of the principal prepaid if paid during the first 12 months of the term, (ii) 4.0% of the principal prepaid if prepaid during the second 12 months of the term, and (iii) 3.0% of the principal prepaid if prepaid thereafter. The Companys obligations under the
F-13
Synageva BioPharma Corp.
Notes to Financial Statements
December 31, 2010 and 2009
Loan Agreement were secured by substantially all of its assets other than its intellectual property. The Loan Agreement contained customary covenants that, among other things, restricted the Companys ability to incur indebtedness and pay cash dividends on its capital stock. The Loan Agreement also provided for customary events of default, following which the lenders may have, at its option, accelerated the amounts outstanding under the Loan Agreement. Events of default included, but were not limited to, an event that has a material adverse change, as described in the Loan Agreement. In connection with the Loan Agreement, the Company issued Oxford Finance Corp. and Silicon Valley Bank fully exercisable, ten-year warrants to purchase 46,934 and 28,160 shares, respectively, of its Series C-2 Convertible Preferred Stock, at an exercise price of $4.79 per share, respectively (see Note 2).
In connection with the Loan Agreement, the Company also incurred $197,000 of financing fees and legal costs.
In October 2009, the Company repaid the outstanding loan amounts of $5.6 million in addition to an early payment penalty of $223,000. The early payment penalty was recorded to interest expense for the year ended December 31, 2009.
6. | Convertible Notes and Convertible Preferred Stock |
Convertible Notes
In January 2009, the Company entered into a convertible notes payable (2009 Convertible Notes) with 20 previously existing investors for proceeds of $6.6 million. The terms of the 2009 Convertible Notes included interest at 11%. In April 2009, the $6.6 million plus $164,000 in accrued interest converted into Series D-2 preferred stock as part of the Series D-2 preferred stock financing.
Series D-2 Preferred Stock Purchase Agreement
On April 1, 2009, the Company entered into an agreement (the Series D-2 Preferred Stock Purchase Agreement) to issue and sell 18,000,000 shares of Series D-2 redeemable convertible preferred stock (Series D-2 preferred stock) at a price of $2.50 per share, for total proceeds of approximately $45 million. The issuance and the proceeds included the 2009 Convertible Notes, which were converted into Series D-2 preferred stock at principal plus accrued interest. The Company received the proceeds in four separate closings during the year ended December 31, 2009.
Under the Amended and Restated Information and Registration Rights Agreement dated April 1, 2009, certain investors in Series D-2 preferred stock have the first right of refusal on future financing undertaken by the Company and have certain rights for determining the composition of the eight (8) members Board of Directors. Holders of Series D-2 preferred stock, voting together as a separate class, shall have the right to elect four (4) members of the Companys Board of Directors; the holders of Common Stock, voting as a separate class, shall have the right to elect one (1) member of the Companys Board of Directors, and the holders of the preferred stock and Common Stock, voting together as a single class, shall be entitled to elect all remaining members of the Companys Board of Directors.
Convertible Preferred Stock
The Company was authorized to issue 51,000,000 shares of common stock and 28,000,000 shares of preferred stock as of December 31, 2010.
F-14
Synageva BioPharma Corp.
Notes to Financial Statements
December 31, 2010 and 2009
As of December 31, 2010, of the 28,000,000 authorized shares of preferred stock, 245,650 shares have been designated as Series A-2 convertible preferred stock (Series A-2 preferred stock), 4,168,700 shares have been designated as Series B-2 convertible preferred stock (Series B-2 preferred stock), 3,658,500 shares have been designated as Series C-2 convertible preferred stock (Series C-2 preferred stock), and 18,000,000 shares have been designated as Series D-2 preferred stock. The rights, preferences and privileges of the preferred stockholders are as follows:
Dividends
The holders of shares of Series D-2 preferred stock shall be entitled to receive dividends (Series D-2 Dividends) on each outstanding share of Series D-2 preferred stock at an annual rate of $0.20 for each share held, payable when and if declared by the Board of Directors, in preference and priority to the payment of dividends on any shares of common stock, Series A-2 preferred stock, Series B-2 preferred stock and Series C-2 preferred stock. Such dividends shall not be cumulative.
After payment in full of the Series D-2 Dividends, the holders of shares of Series C-2 preferred stock shall be entitled to receive dividends (Series C-2 Dividends) on each outstanding share of Series C-2 preferred stock at an annual rate of $0.3835 for each share held, payable when and if declared by the Board of Directors, in preference and priority to the payment of dividends on any shares of common stock, Series A-2 preferred stock and Series B-2 preferred stock. Such dividends shall not be cumulative.
After payment in full of the Series D-2 Dividends and Series C-2 Dividends, the holders of shares of Series B-2 preferred stock shall be entitled to receive dividends (Series B-2 Dividend) on each outstanding share of Series B-2 preferred stock at an annual rate of $0.4048 for each share held, payable when and if declared by the Board of Directors, in preference and priority to the payment of dividends on any shares of common stock and Series A-2 preferred stock. Such dividends shall not be cumulative.
After payment in full of the Series D-2 Dividends, Series C-2 Dividends and Series B-2 Dividends, the holders of shares of Series A-2 preferred stock shall be entitled to receive dividends on each outstanding share of Series A-2 preferred stock at an annual rate of $4.0482 for each share held, payable when and if declared by the Board of Directors, in preference and priority to the payment of dividends on any shares of common stock. Such dividends shall not be cumulative.
The Board of Directors has never declared a dividend.
Liquidation
Definition
A Liquidation Event (as defined below) shall include (unless waived by the holders of at least 70% of the outstanding shares of preferred stock voting together as a single class): (i) (a) any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, other than any such consolidation, merger or reorganization in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, continue to hold at least a majority of the voting power of the surviving entity in substantially the same proportions immediately after such consolidation, merger or reorganization; or (b) any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Companys voting power is transferred; provided that an acquisition shall not include any transaction principally for equity financing purposes in which cash is received by the Company or indebtedness of the Company is cancelled or converted or a combination thereof; and (ii) a sale of all or substantially all of the assets of the Company.
F-15
Synageva BioPharma Corp.
Notes to Financial Statements
December 31, 2010 and 2009
Preferred Stock Distribution Preference
In the event of any liquidation, dissolution, or winding up of the Company (a Liquidation Event), the holders of Series D-2 preferred stock would be entitled to receive payments in preference to other stockholders. Holders of Series D-2 preferred stock would receive $2.50 per share plus all declared and unpaid dividends with respect to such shares of Series D-2 preferred stock (the Series D-2 Preference).
Upon a Liquidation Event, after payment of the Series D-2 Preference, the holders of Series C-2 preferred stock would be entitled to receive payments before any payment to the holders of Series B-2 preferred stock, Series A-2 preferred stock or common stock. Holders of Series C-2 preferred stock receive $4.79 per share plus all declared and unpaid dividends with respect to such shares of Series C-2 preferred stock (the Series C-2 Preference).
Upon a Liquidation Event, after payment of the Series D-2 Preference and the Series C-2 Preference, the holders of Series B-2 preferred stock would be entitled to receive payments before any payment to the holders of Series A-2 preferred stock or common stock. Holders of Series B-2 preferred stock receive $5.06 per share plus all declared and unpaid dividends with respect to such shares of Series B-2 preferred stock (the Series B-2 Preference).
Upon a Liquidation Event, after payment of the Series D-2 Preference, the Series C-2 Preference and the Series B-2 Preference, the holders of Series A-2 preferred stock would be entitled to receive payments before any payment to the holders common stock. Holders of Series A-2 preferred stock receive $50.60 per share plus all declared and unpaid dividends with respect to such shares of Series A-2 preferred stock (the Series A-2 Preference).
The amounts of these liquidation preferences for all classes of preferred stock are subject to adjustment for stock splits, combinations or similar events. After payment of the full amounts to which the preferred stockholders are entitled, any remaining funds and assets would be distributed to the common stockholders.
Conversion Rights at Liquidation
In the event of a conversion immediately prior to a Liquidation Event of any outstanding shares of preferred stock to common stock (including all declared but unpaid dividends), holders of such shares would be entitled to receive distribution amounts as holders of common stock as a result of a Liquidation Event.
Voting Rights
The holder of each share of common stock issued and outstanding shall have one vote and the holder of each share of preferred stock shall be entitled to the number of votes equal to the number of shares of common stock into which such share of preferred stock could be converted on the record date for the vote or consent of shareholders, except as otherwise required by law, and has voting rights and powers equal to the voting rights and powers of common stock.
Preferred Stock Conversion
Conversion Rate
Each share of Series D-2, C-2, B-2 and A-2 preferred stock, shall be convertible into the number of fully paid shares of common stock which results from dividing $2.50, $4.79, $5.06 and $50.60, respectively, by the respective preferred stock conversion price. The per share conversion price of Series D-2, C-2, B-2 and A-2 preferred stock is currently $2.50, $4.79, $5.06 and $50.60, respectively. The number of shares for each series of preferred stock shall be adjusted for stock dividends payable immediately prior to conversion, if applicable.
F-16
Synageva BioPharma Corp.
Notes to Financial Statements
December 31, 2010 and 2009
Automatic Conversion
Conversion is automatic at its then effective conversion rate upon the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of common stock to the public at a price per share of not less than $7.00 and an aggregate offering price to the public of greater than $50,000,000.
Redemption
Prior to April 2009, all series of the Companys preferred stock included a 6% annual dividend which increased the redemption value of the applicable preferred stock shares. The Company accounted for these amounts by accreting the 6% increase in the carrying value of the redeemable preferred stock as an adjustment to preferred stock and additional paid in capital or accumulated deficit. In April 2009, as part of the Series D-2 preferred stock financing, the Company amended its Certificate of Incorporation to remove the 6% annual dividend and the Company ceased the accretion of these amounts.
In July 2010, the Company further amended its Certificate of Incorporation to remove any remaining redemption features on all classes of preferred stock. Accordingly, the Company ceased accreting to the carrying value of preferred stock. Prior to the July 2010 amendment, shares of preferred stock were redeemable and the Company accounted for the difference between the initial carrying value of redeemable convertible preferred stock and the redemption amount through recognition of ratable accretion adjustments over the period from the date of issuance to the first redemption date, such that the carrying amount of the redeemable convertible preferred stock would equal the redemption amount at the redemption date. These increases or decreases in carrying value were previously recorded through adjustments to additional paid in capital or accumulated deficit.
7. | Share Based Payments |
The Companys Board of Directors adopted in November 1996 the 1996 Stock Option Plan (1996 Plan) under which options designated as either incentive or non-qualified stock options may be issued to employees, officers, directors, consultants and independent contractors of the Company or any parent, subsidiary or affiliate of the Company. Options granted under the 1996 Plan are at prices not less than the fair market value at the time of grant and may be exercised for a period of ten years from the grant date. Options granted under the 1996 Plan have vesting periods ranging from immediate to four years. The 1996 Plan includes a provision for options to accelerate and become immediately and fully exercisable upon a 50% or more change in control as defined in the 1996 Plan. In November 2006, the 1996 Plan was terminated in accordance with its ten-year expiration provision.
On June 7, 2005, a new stock plan (the 2005 Stock Plan) was adopted by the Companys Board of Directors and approved by the Companys shareholders. Any employee, officer, consultant, independent contractor or director is eligible to participate in the 2005 Stock Plan. The 2005 Stock Plan permits the granting of incentive and non-qualified stock options and stock purchase rights for restricted stock. Options granted under the 2005 Stock Plan are at prices not less than the fair market value at the time of grant and may be exercised for a period of ten years from the grant date. Options granted under the 2005 Stock Plan have vesting periods ranging from immediate to four years. The 2005 Stock Plan includes a provision for options to accelerate and become immediately and fully exercisable upon a 50% or more change in control as defined in the incentive and non-qualified stock option agreements. Under the 2005 Stock Plan, the Board of Directors has the authority to determine to whom options will be granted, the number of shares, the term,
F-17
Synageva BioPharma Corp.
Notes to Financial Statements
December 31, 2010 and 2009
and the exercise price. If an individual owns stock representing more than 10% of the outstanding shares at the time of grant, the exercise price of each share shall be at least 110% of fair market value, as determined by the Board of Directors. Options granted under the 2005 Stock Plan generally become exercisable over a four year period.
The Company uses the Black-Scholes option pricing model to measure the fair value of its option awards. The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option-pricing model. The expected life assumption is based on the limited exercise historical experience at the Company, managements expectations based on the length of time that an employee will stay at the Company, the vesting period of 4 years and the contractual term of 10 years. Volatility has been determined based on an analysis of reported data for a peer group of companies that granted options with substantially similar terms. The risk-free interest rate is based on the rate of U.S. Treasury zero coupon rate with a remaining term approximating the expected term used as the input to the Black-Scholes option pricing model.
The weighted average assumptions used in the option pricing model for stock option grants were as follows:
Year Ended December 31, | ||||
2010 | 2009 | |||
Expected dividend yield |
None | None | ||
Expected volatility in stock price |
52% | 62% | ||
Weighted average risk-free interest rate |
1.71% | 2.50% | ||
Expected life of stock awards-years |
5 years | 5 years |
Option activity under the 2005 Stock Plan was as follows:
Number of Shares |
Weighted Average Exercise Price |
|||||||
Outstanding at December 31, 2009 |
3,382,262 | $ | 0.50 | |||||
Granted |
83,500 | 0.45 | ||||||
Exercised |
(91,508 | ) | 0.40 | |||||
Cancelled |
(358,398 | ) | 0.48 | |||||
|
|
|
|
|||||
Outstanding at December 31, 2010 |
3,015,856 | $ | 0.52 | |||||
|
|
|
|
|||||
Vested and unvested expected to vest at December 31, 2010 |
3,015,856 |
F-18
Synageva BioPharma Corp.
Notes to Financial Statements
December 31, 2010 and 2009
The options for the 2005 Stock Plan outstanding and currently exercisable by exercise price at December 31, 2010 are as follows:
Options Outstanding |
Options Exercisable | |||||||
Number Outstanding |
Weighted Average Contractual Life |
Weighted Average Exercise Price |
Number Exercisable |
Weighted Average Exercise Price | ||||
375,914 |
4.86 | $0.25 | 375,914 | $0.25 | ||||
427,723 |
7.70 | 1.45 | 256,143 | 1.45 | ||||
2,129,219 |
8.62 | 0.39 | 736,663 | 0.39 | ||||
83,000 |
9.90 | 0.45 | | 0.45 | ||||
|
|
| ||||||
3,015,856 |
$0.52 | 1,368,720 | $0.55 | |||||
|
|
|
|
As of December 31, 2010, the unamortized compensation expense related to outstanding unvested options approximated $433,000 and is expected to be recognized over a weighted average period of 1.9 years.
The aggregate intrinsic value of shares outstanding and shares exercisable at December 31, 2010 is approximately $203,000 and $119,000 respectively, which represents the total intrinsic value (the excess of the estimated fair value of the Companys stock on December 31, 2010 over the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2010.
The Company recognized stock-based compensation expense on all stock option awards for the years ended December 31, 2010 and 2009 in the following categories:
2010 | 2009 | |||||||
Research and development |
$ | 44,541 | $ | 25,938 | ||||
General and administrative |
159,241 | 128,252 | ||||||
|
|
|
|
|||||
$ | 203,782 | $ | 154,190 | |||||
|
|
|
|
8. | Defined Contribution Plan |
The Company has a defined contribution plan that is intended to qualify under Section 401(k) of the Internal Revenue Code. All employees, except part-time employees, are eligible to participate in the plan. Participants may contribute through payroll deductions, amounts not to exceed Internal Revenue Code limitations. During the years ended December 31, 2010 and 2009, the Company recognized expense for 401(k) matching contributions of $137,000 and $102,000, respectively.
F-19
Synageva BioPharma Corp.
Notes to Financial Statements
December 31, 2010 and 2009
9. | Income Taxes |
The Company has not recorded a benefit for income taxes related to its operating losses for the years ended December 31, 2010 and 2009. Significant components of the Companys net deferred tax asset as December 31, 2010 and 2009 are as follows:
2010 | 2009 | |||||||
Deferred tax assets/ (liabilities) |
||||||||
Net operating losses |
$ | 29,745,051 | $ | 27,674,111 | ||||
Capitalized research and development |
4,650,902 | 2,251,397 | ||||||
Accrued expenses |
64,762 | (4,360 | ) | |||||
Depreciation and amortization |
20,325 | (29,566 | ) | |||||
Tax credit carryforwards |
3,656,132 | 3,573,123 | ||||||
Other |
7,488 | 4,028 | ||||||
|
|
|
|
|||||
38,144,660 | 33,468,733 | |||||||
Deferred tax asset valuation allowance |
(38,144,660 | ) | (33,468,733 | ) | ||||
|
|
|
|
|||||
Net deferred tax asset |
$ | | $ | | ||||
|
|
|
|
At December 31, 2010, the Company had federal and state net operating loss carry forwards of $78,278,159 and $78,261,923, respectively, which begin to expire in 2016 and 2012. The Company also has federal and state research and development tax credit carryforwards of $3,016,665 and $968,905, respectively, available to reduce future tax liabilities, which begin to expire in 2016 and 2023, respectively.
Management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, and has determined that it is more likely than not that the Company will not recognize the benefits of its deferred tax asset. Accordingly, a valuation allowance of $38,144,660 and $33,468,733 has been established at December 31, 2010 and 2009, respectively.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations.
Below is a table of the earliest tax years that remain subject to examination by jurisdictions:
Earliest Tax Year Subject to Examination |
||||
Jurisdiction |
||||
U.S Federal |
2007 | |||
State of Georgia |
2007 | |||
Commonwealth of Massachusetts |
2007 |
All years including and subsequent to the above years remain open to examination by the taxing authorities. The resolution of tax matters is not expected to have a material effect on the Companys financial statements. The Companys policy is to record interest and penalties related to income taxes as part of the tax provision. There were no interest and penalties pertaining to uncertain tax positions in 2010 and 2009.
A provision included in the health care reform bill created a temporary tax credit for businesses with less than 250 employees who engage in qualifying therapeutic discovery projects for the tax years 2009 and 2010. The program permitted applicants to elect to receive a cash grant in lieu of the tax credit. The amount
F-20
Synageva BioPharma Corp.
Notes to Financial Statements
December 31, 2010 and 2009
of the tax credit or grant was equal to 50% of the qualified investment for the taxable year for any qualifying therapeutic discovery project. The total amount awarded by the U.S. Treasury Department to the Company was $2,288,900. The Company elected to receive the award as a cash grant and has recorded the award as other income within the accompanying statement of operations for the year ended December 31, 2010. Amounts received in cash in 2010 totaled $1,535,719 and $753,181 is reflected in prepaids and other current assets in the accompanying balance sheet at December 31, 2010.
The Company adopted the authoritative guidance on accounting for and disclosure of uncertainty in tax positions on January 1, 2009, which required the Company to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals of litigation processes, based on the technical merits of the position. The tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. If a tax position does not meet the more likely than not recognition threshold, the benefit of that position is not recognized in the financial statements. The adoption of this authoritative guidance did not have a material effect on the financial statements.
Utilization of the net operating loss (NOL) and research and development (R&D) credit carry forwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL and R&D credit carry forwards that can be utilized annually to offset future taxable income and tax, respectively. The Company has not completed a study to assess whether an ownership change has occurred, or whether there have been multiple ownership changes since its formation, due to the significant complexity and related cost associated with such a study. There also could be additional ownership changes in the future which may result in additional limitations on the utilization of NOL carryforwards and credits.
10. | Collaborations and License Agreements |
2009 and 2010 Collaborations
In March 2009 and March 2010, the Company entered into collaboration agreements with a third-party to develop antibodies using the Companys proprietary expression platform. The collaboration agreements included up-front payments totaling $200,000, potential future milestone payments to the Company totaling $400,000 and potential option payments payable to the Company. Revenue recognized under the collaboration agreements was $280,000 and $80,000 during the years ended December 31, 2010 and 2009, respectively. Revenue was recognized using the proportional performance method.
Amended and Restated License Agreement
On April 5, 2007, the Company amended and restated its technology license agreement with the University of Georgia Research Foundation (UGARF). This agreement replaces the previous license agreement dated April 11, 1996, in its entirety. In consideration for exclusive worldwide rights to the same patents, know-how and related technology under the original agreement, the Company provided 9,024 shares of its common stock to UGARF in addition to sublicense royalties, if applicable, and product royalties to be payable upon future commercialization and sale of any products subject to the license.
F-21
Synageva BioPharma Corp.
Notes to Financial Statements
December 31, 2010 and 2009
11. | Commitments and Contingencies |
Occupancy Arrangements
The Company leases office, laboratory and facility space under operating lease agreements expiring through 2013. Minimum future rentals under non-cancelable operating leases are as follows:
Year Ending December 31, |
||||
2011 |
$ | 433,000 | ||
2012 |
266,000 | |||
2013 |
164,500 |
Rental expense for the years ended December 31, 2010 and 2009 approximated $489,000 and $388,000, respectively.
Licensing Agreements
The Company has licensing and sponsored research agreements with certain scientific and research institutions. The Company incurred expenses under these agreements in the approximate amounts of $30,000 and $44,000 for the years ended December 31, 2010 and 2009, respectively. At December 31, 2010, the Company had approximately $120,000 of potential milestone payments or other commitments payable over the next four years under agreements that are cancelable by either party under certain circumstances. These agreements also specify the payment of certain percentage royalties based on net sales of developed technologies.
12. | Subsequent Events |
Issuance of Notes Payable
In March 2011 the Company issued $12.5 million of Convertible Notes Payable as the first tranche of a $25 million convertible note offering. The investors of the first tranche may, at any time after September 30, 2011 and on or before December 31, 2011, purchase from the Company their pro rata share of an additional $12.5 million in convertible notes under the same terms and conditions, provided that shares of Series D-2 Preferred Stock are still outstanding and the Convertible Notes from the first tranche have not been converted at the time the second tranche is purchased. If the noteholders fail to fully fund the second tranche, the Convertible Notes will convert into fully paid and nonassessable shares of the Companys common stock. The Convertible Notes are convertible into shares of Series D-2 Preferred Stock at the conversion price then applicable to the Series D-2 Preferred shares or into a future series of Preferred Stock at its then applicable conversion price issued in conjunction with the next Qualified Offering, at the election of the holders. All Convertible Notes shall be automatically converted at the then applicable conversion price: (i) in the event that the holders of at least 70% of the outstanding Convertible Notes voting as a single class consent to such conversion; (ii) upon the closing of a Qualified Offering; (iii) upon an initial public offering of the Companys stock (whether by a public offering of the Companys stock or a combination of the Company with another company the result of which is that the surviving companys shares are public traded); or (iv) upon a change of control of the Company. In connection with an automatic conversion of the Convertible Notes upon a Qualified Offering, the Convertible Notes will be converted into shares of Series D-2 Preferred Stock or Qualified Offering Stock, the series to be elected by the Note holder as described above. In all other cases of an automatic conversion of the Convertible Notes, the Convertible Notes will be
F-22
Synageva BioPharma Corp.
Notes to Financial Statements
December 31, 2010 and 2009
converted into shares of Series D-2 Preferred Stock at the then applicable conversion price of the Series D-2 Preferred Stock. Each holder of Convertible Notes will be entitled to vote such holders shares of Series D-2 Preferred Stock as if the Convertible Notes held by such holder had been convertible into shares of Series D-2 Preferred Stock immediately prior to any such vote in addition to the vote that such holder of shares of Series D-2 Preferred Stock would otherwise have. The Convertible Notes bear no interest rate and do not mature other than in a conversion as described above. Any Note holder who fails to fund the 2nd tranche on or before December 31, 2011 will immediately have their current Note holdings converted into that number of Common Shares as that holder would be entitled to receive if that Note holder converted their notes to Series D-2 Preferred Stock and then immediately converted those shares of D-2 Preferred Stock into Common Shares.
Increase to Option Pool
In May 2011, the Company increased its pool of stock options available for grant under the 2005 Stock Option Plan by 900,000 shares.
Merger with Trimeris, Inc.
In June 2011, Synageva announced that the Company had entered into a definitive agreement under which the Company will merge with Trimeris, Inc. (Trimeris) in an all-stock transaction. Certain of the Companys significant investors are also significant investors in Trimeris and a certain board member of the Company is also a board member of Trimeris prior to the merger. Upon closing, the combined company will be named Synageva BioPharma Corp., and will operate under the leadership of the Companys current management team with Sanj K. Patel serving as the President and Chief Executive Officer. In addition, the combined companys board of directors will have representatives from both the existing Company and Trimeris boards. The merger will create a publicly-traded company focused on the development of novel therapeutics for patients with rare diseases and unmet medical need. The merger will take the form of a stock-for-stock merger intended to qualify as a tax-free reorganization. Under the terms of the agreement, which has been approved by the boards of directors of both the Company and Trimeris, upon completion of the merger, Trimeris will issue to the Companys stockholders shares of Trimeris common stock such that the Companys stockholders will own approximately 75% of the combined companys shares outstanding, and Trimeris stockholders will own approximately 25%. Options and warrants of both the Company and Trimeris will be assumed by the combined company and become options and warrants to acquire stock of the combined company. The closing is subject to the satisfaction of certain conditions, including Synageva and Trimeris stockholder approvals and receipt of all necessary regulatory approvals.
F-23
Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial data is intended to show how the Merger might have affected historical financial statements if the Merger had been completed on January 1, 2010 for the purpose of the statement of operations and September 30, 2011 for the purposes of the balance sheet, and was prepared based on the historical financial results reported by Trimeris and Synageva. The following should be read in conjunction with the audited and unaudited historical financial statements of each of Trimeris Inc., (Trimeris) and Synageva BioPharma Corp. (Synageva) and the notes thereto, and the sections entitled Trimeris Managements Discussion and Analysis of Financial Condition and Results of Operations and Synagevas Managements Discussion and Analysis of Financial Condition and Results of Operations, and the other information contained in the registration statement on Form S-4, dated October 12, 2011, that was filed with the SEC. The following information incorporates the 1 for 5 reverse stock split of Trimeris common stock completed November 2, 2011 as part of the Merger.
The Merger will be accounted for as a reverse acquisition under the acquisition method of accounting. Under the acquisition method of accounting, Synageva will be treated as the accounting acquiror and Trimeris will be treated as the acquired company for financial reporting purposes because, immediately upon completion of the Merger, Synageva stockholders prior to the Merger held a majority of the voting interest of the combined company. In addition, the nine member board of directors of the combined company is comprised of seven of the former members of the Synageva board of directors and therefore Synagevas former board of directors possess majority control of the current board of directors of the combined company. Members of the former management of Synageva will be responsible for the management of the combined company and the majority of the combined companys activities are activities related to Synagevas former business.
The unaudited pro forma condensed combined financial statements were prepared in accordance with the regulations of the SEC. The pro forma adjustments reflecting the completion of the Merger are based upon the acquisition method of accounting in accordance with GAAP, and upon the assumptions set forth in the notes to the unaudited pro forma condensed combined financial statements.
The unaudited pro forma condensed combined balance sheet as of September 30, 2011 combines the historical balance sheets of Trimeris and Synageva as of September 30, 2011 and gives pro forma effect to the Merger as if it had been completed on September 30, 2011.
The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2011 combine the unaudited historical statements of operations of Trimeris and Synageva for their respective nine-month periods ended September 30, 2011 and gives pro forma effect to the Merger as if it had been completed on January 1, 2010. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2010 combine the historical statements of operations of Trimeris and Synageva for their respective twelve months ended December 31, 2010 and gives pro forma effect to the Merger as if it had been completed on January 1, 2010.
The historical financial data has been adjusted to give pro forma effect to events that are (i) directly attributable to the Merger, (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined results. The pro forma adjustments are preliminary and based on managements estimates of the fair value and useful lives of the assets acquired and liabilities assumed and have been prepared to illustrate the estimated effect of the acquisition and certain other adjustments.
The unaudited pro forma condensed combined financial data is presented for illustrative purposes only and is not necessarily indicative of the financial condition or results of operations of future periods or the financial condition or results of operations that actually would have been realized had the entities been combined during the periods presented. In addition, as explained in more detail in the accompanying notes to the unaudited pro forma condensed combined financial statements, the preliminary acquisition-date fair value of the identifiable assets acquired and liabilities assumed reflected in the unaudited pro forma condensed combined financial statements is subject to adjustment and may vary from the final amounts that will be recorded from completion of the Merger.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2011
(Amounts in thousands)
Trimeris | Synageva | Pro Forma Adjustments |
Note Reference |
Pro Forma Combined |
||||||||||||||||
Assets |
||||||||||||||||||||
Current assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 52,388 | $ | 14,940 | $ | | $ | 67,328 | ||||||||||||
Prepaid expenses and other current assets |
82 | 503 | | 585 | ||||||||||||||||
Accounts receivable |
2,047 | 31 | | 2,078 | ||||||||||||||||
Taxes receivable |
1,136 | | | 1,136 | ||||||||||||||||
Deferred tax asset |
160 | | (160 | ) | B | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
55,813 | 15,474 | (160 | ) | 71,127 | |||||||||||||||
Patent costs, net |
1,665 | | (1,665 | ) | B | | ||||||||||||||
Deferred tax asset |
320 | | (320 | ) | B | | ||||||||||||||
Developed technology |
| | 9,300 | C | 9,300 | |||||||||||||||
Other assets |
152 | 60 | | 212 | ||||||||||||||||
Property and equipment, net |
| 1,229 | | 1,229 | ||||||||||||||||
Goodwill |
| | 9,842 | F | 9,842 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 57,950 | $ | 16,763 | $ | 16,997 | $ | 91,710 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities, Convertible Preferred Stock and Stockholders Equity |
||||||||||||||||||||
Current liabilities |
||||||||||||||||||||
Accounts payable |
$ | | $ | 952 | $ | | $ | 952 | ||||||||||||
Accrued expenses |
880 | 2,216 | 1,961 | G | 5,057 | |||||||||||||||
Accrued compensationshort-term |
400 | | 1,587 | H | 1,987 | |||||||||||||||
Deferred revenue |
| 1,681 | | 1,681 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
1,280 | 4,849 | 3,548 | 9,677 | ||||||||||||||||
Deferred revenuelong-term |
| 1,246 | | 1,246 | ||||||||||||||||
Other noncurrent liabilities |
| 195 | | 195 | ||||||||||||||||
Notes payable, long-term |
| 12,500 | (12,500 | ) | E | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
1,280 | 18,790 | (8,952 | ) | 11,118 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Commitments and contingencies |
||||||||||||||||||||
Convertible preferred stock |
| 95,581 | (95,581 | ) | E | | ||||||||||||||
Stockholders equity (deficit) |
||||||||||||||||||||
Common stock |
4 | 1 | (4 | ) | D | 18 | ||||||||||||||
17 | A | |||||||||||||||||||
Additional paid-in capital |
359,235 | 10,754 | (359,235 | ) | D | 189,237 | ||||||||||||||
95,581 | E | |||||||||||||||||||
70,402 | A | |||||||||||||||||||
12,500 | E | |||||||||||||||||||
Accumulated deficit |
(302,743 | ) | (108,362 | ) | 302,743 | D | (108,662 | ) | ||||||||||||
(300 | ) | G | ||||||||||||||||||
Accumulated other comprehensive income |
174 | (1 | ) | (174 | ) | D | (1 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total stockholders equity (deficit) |
56,670 | (97,608 | ) | 121,530 | 80,592 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities, convertible preferred stock and stockholders equity (deficit) |
$ | 57,950 | $ | 16,763 | $ | 16,997 | $ | 91,710 | ||||||||||||
|
|
|
|
|
|
|
|
See the accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements, which are an integral part of these financial statements.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011
(Amounts in thousands, except per share amounts)
Trimeris | Synageva | Pro Forma Adjustments |
Note Reference |
Pro Forma Combined |
||||||||||||||||
Revenue: |
||||||||||||||||||||
Milestone revenue |
$ | 1,039 | $ | | $ | | $ | 1,039 | ||||||||||||
Collaboration and royalty revenue |
6,034 | 193 | | 6,227 | ||||||||||||||||
Grant revenue |
| 292 | | 292 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total revenue and collaboration income |
7,073 | 485 | | 7,558 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Operating expenses |
||||||||||||||||||||
Research and development |
| 12,197 | 2,145 | I | 14,342 | |||||||||||||||
General and administrative |
6,419 | 5,906 | (2,442 | ) | G | 9,883 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expenses |
6,419 | 18,103 | (297 | ) | 24,225 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Income/(loss) from operations |
654 | (17,618 | ) | 297 | (16,667 | ) | ||||||||||||||
Other income (expense), net |
| (183 | ) | | (183 | ) | ||||||||||||||
Interest income |
5 | 2 | | 7 | ||||||||||||||||
Interest expense |
| (29 | ) | | (29 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Income/(loss) before taxes |
659 | (17,828 | ) | 297 | (16,872 | ) | ||||||||||||||
Income tax provision |
| | | K | | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net income/(loss) |
$ | 659 | $ | (17,828 | ) | $ | 297 | $ | (16,872 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Basic and diluted net income/(loss) per share |
$ | 0.15 | $ | (0.94 | ) | |||||||||||||||
|
|
|
|
|||||||||||||||||
Weighted average shares used in basic and diluted per share computations |
4,480 | 13,440 | J | 17,920 | ||||||||||||||||
|
|
|
|
|
|
See the accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements, which are an integral part of these financial statements.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 2010
(Amounts in thousands, except per share amounts)
Trimeris | Synageva | Pro Forma Adjustments |
Note Reference |
Pro Forma Combined |
||||||||||||||||
Revenue: |
||||||||||||||||||||
Milestone revenue |
$ | 265 | $ | | $ | | $ | 265 | ||||||||||||
Royalty revenue |
1,569 | | | 1,569 | ||||||||||||||||
Collaboration income |
24,883 | 280 | | 25,163 | ||||||||||||||||
Grant revenue |
| 315 | | 315 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total revenue and collaboration income |
26,717 | 595 | | 27,312 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Operating expenses |
||||||||||||||||||||
Research and development |
| 9,866 | 2,860 | I | 12,726 | |||||||||||||||
General and administrative |
5,779 | 3,852 | | 9,631 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expenses |
5,779 | 13,718 | 2,860 | 22,357 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Income/(loss) from operations |
20,938 | (13,123 | ) | (2,860 | ) | 4,955 | ||||||||||||||
Other income (expense), net |
| 2,295 | | 2,295 | ||||||||||||||||
Interest expense |
(130 | ) | | | (130 | ) | ||||||||||||||
Interest income |
71 | 4 | | 75 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Income/(loss) before taxes |
20,879 | (10,824 | ) | (2,860 | ) | 7,195 | ||||||||||||||
Income tax provision |
925 | | | K | 925 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net income/(loss) |
$ | 19,954 | $ | (10,824 | ) | $ | (2,860 | ) | $ | 6,270 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Basic and diluted net income per share |
$ | 4.47 | $ | 0.35 | ||||||||||||||||
|
|
|
|
|||||||||||||||||
Weighted average shares used in basic and diluted per share computations |
4,464 | 13,392 | J | 17,856 | ||||||||||||||||
|
|
|
|
|
|
See the accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements, which are an integral part of these financial statements.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. | DESCRIPTION OF TRANSACTION AND BASIS OF PRESENTATION |
Description of Transaction
On June 13, 2011, Trimeris entered into the Merger Agreement with Synageva and Merger Sub. Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, on November 2, 2011 Merger Sub merged with and into Synageva. As a result Synageva was renamed Abbey BioPharma and survived as a wholly owned subsidiary of Trimeris which was renamed Synageva BioPharma Corp.
At the Effective Time, each outstanding share of Synageva capital stock was converted into the right to receive that number of shares of Trimeris common stock as determined pursuant to the Exchange Ratio, as calculated pursuant to the terms of the Merger Agreement. In addition, at the Effective Time (i) all outstanding options to purchase shares of Synageva common stock were assumed by Trimeris and converted into options to purchase shares of Trimeris common stock, in each case appropriately adjusted based on the Exchange Ratio (such options, the Assumed Options) and (ii) all outstanding warrants to purchase shares of the capital stock of Synageva were assumed by Trimeris and converted into warrants to purchase shares of Trimeris common stock, in each case appropriately adjusted based on the Exchange Ratio. Immediately upon completion of the Merger, Synageva received shares of Trimeris common stock representing an aggregate of approximately 75% of the outstanding shares of common stock of the combined company calculated on a fully diluted basis. Trimeris stockholders continue to own their existing shares of Trimeris common stock, which were not affected by the Merger, and did not receive any additional shares of Trimeris common stock as a result of the Merger. As a result, such shares represent an aggregate of approximately 25% of the outstanding shares of common stock of the combined company calculated on a fully diluted basis.
Basis of Presentation
The unaudited pro forma condensed combined financial statements were prepared in accordance with the regulations of the SEC and are intended to show how the Merger might have affected the historical financial statements if the Merger had been completed on January 1, 2010 for the purposes of the statements of operations and September 30, 2011 for the purposes of the balance sheet. The pro forma adjustments reflecting the completion of the Merger are based upon the acquisition method of accounting in accordance with GAAP, and upon the assumptions set forth herein. Based on the terms of the Merger, Synageva is deemed to be the accounting acquiror.
Under the acquisition method of accounting, the identifiable assets acquired and liabilities assumed of Trimeris are recorded at the acquisition date fair values and added to those of Synageva. The pro forma adjustments are preliminary and based on managements estimates of the fair value and useful lives of the assets acquired and liabilities assumed and have been prepared to illustrate the estimated effect of the acquisition. These estimates are based on the most recently available information. To the extent there are significant changes to the combined companys business following the completion of the Merger, the assumptions and estimates set forth in the unaudited pro forma condensed combined financial statements could change significantly. The allocation is dependent upon certain valuation and other studies that will not be completed until following the Merger. Accordingly, the pro forma purchase price adjustments are subject to further adjustments as additional information becomes available and as additional analyses and final valuations are conducted following the completion of the Merger. There can be no assurances that these additional analyses and final valuations will not result in material changes to the estimates of fair value set forth below under Note 2.
The unaudited pro forma condensed combined balance sheet as of September 30, 2011 combines the historical balance sheets of Trimeris and Synageva as of September 30, 2011 and gives pro forma effect to the Merger as if it had been completed on September 30, 2011.
The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2011 combine the historical statements of operations of Trimeris and Synageva for their respective nine-month periods ended September 30, 2011 and gives pro forma effect to the Merger as if it had been completed on January 1, 2010. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2010 combine the historical statements of operations of Trimeris and Synageva for their respective twelve months ended December 31, 2010 and gives pro forma effect to the Merger as if it had been completed on January 1, 2010.
The unaudited pro forma condensed combined financial statements assume an Exchange Ratio of approximately 0.413. Such ratio was calculated using the fully diluted capitalization for Trimeris and Synageva, in each case as of November 2, 2011, the date on which the Merger was finalized. The Exchange Ratio was determined immediately prior to the completion of the Merger by dividing (i) the product of (a) three times (b) the total number of outstanding shares of Trimeris common stock calculated on a fully diluted basis (in other words, inclusive of all shares of Trimeris common stock issuable upon conversion of any securities convertible into or exercisable or exchangeable for shares of Trimeris common stock) as of immediately prior to the completion of the Merger (but after giving effect to the 1 for 5 reverse stock split described elsewhere in the joint proxy statement/ prospectus), by (ii) the total number of outstanding shares of Synageva common stock calculated on a fully diluted basis (in other words, inclusive of all shares of Synageva capital stock issuable upon conversion of any securities, including Synageva preferred stock, convertible into or exercisable or exchangeable for shares of Synageva common stock) as of immediately prior to the completion of the Merger.
Immediately prior to the Merger, all Synageva notes payable converted into shares of Synagevas Series D-2 preferred stock, which then converted into shares of common stock.
2. | PURCHASE PRICE |
The purchase price, based on the stock price as of the Merger date, is as follows (table in thousands):
Fair value of Trimeris shares outstanding |
$ | 68,767 | ||
Fair value of vested Trimeris stock options |
1,652 | |||
|
|
|||
Purchase price |
$ | 70,419 | ||
|
|
For pro forma purposes, the fair value of the Trimeris common stock used in determining the purchase price was $15.35 per share based on the average of the closing price of Trimeris common stock on November 2, 2011. The fair value of the Trimeris stock options was determined by using the Black-Scholes option pricing model with the following assumption: (i) stock price of $15.35, which is the value ascribed to the Trimeris common stock in determining the purchase price, (ii) volatility of 50%; risk-free interest rate of 1.8%, and (iii) a weighted average expected life of 4.9 years. All outstanding Trimeris options fully vested upon completion of the Merger. The combined company will expense all transaction costs as incurred.
The estimated acquired tangible and intangible assets and liabilities assumed based on their estimated fair values as of September 30, 2011 comprises (table in thousands):
Cash and cash equivalents |
$ | 52,388 | ||
Receivables and other current assets |
3,265 | |||
Other assets |
152 | |||
Developed technology |
9,300 | |||
Goodwill |
9,842 | |||
Assumed liabilities |
(4,528 | ) | ||
|
|
|||
Total |
$ | 70,419 | ||
|
|
The allocation of the purchase price is preliminary. The final determination of the purchase price allocation will be based on the fair values of assets acquired, other identifiable intangibles and the fair values of liabilities assumed as of November 2, 2011, the date that the Merger was completed. The excess of the purchase price over the fair value of assets and liabilities acquired is allocated to goodwill. The preliminary valuation analysis conducted by Trimeris and Synageva determined that the fair value of identifiable assets acquired less the fair value of identifiable liabilities assumed by the combined company were less than the purchase price. The purchase price exceeds the fair value of assets and liabilities acquired/assumed resulting in residual goodwill. The estimates of assets acquired and assumed liabilities will remain preliminary until the combined company completes a valuation of significant identifiable intangible assets acquired and determines the fair values of other assets and liabilities acquired. The final determination of the fair values is expected to be completed as soon as practicable after the completion of the Merger. The final amounts could differ from the amounts presented in the unaudited pro forma condensed combined financial statements, because the amounts allocated will not be determined until the date of the Merger.
The amount allocated to acquired identifiable intangible assets has been attributed to the following categories (table in thousands):
FUZEON developed technology |
$ | 9,300 | ||
|
|
|||
Total |
$ | 9,300 | ||
|
|
The estimated fair value attributed to FUZEON developed technology, which relates to Trimeris existing approved HIV product, FUZEON, was determined based on a discounted forecast of the estimated net future cash flows to be generated from the technology. FUZEON is marketed in the U.S. and Canada and in over 55 other countries around the world, including all the major countries in Europe. The estimated fair value attributed to developed technology will be amortized in proportion to expected cash flows for the product over 10 years which is the estimated useful life of the technology from the closing date of the Merger, based on the contractual provisions of the Roche License Agreement.
3. | PRO FORMA ADJUSTMENTS |
(A) | Represents the fair value of Trimeris outstanding common stock and stock options assumed in connection with the Merger. Cash paid in lieu of fractional shares will be from existing cash balances which has not been reflected due to immateriality. |
(B) | Represents the elimination of Trimeris historical intangible assets and deferred tax asset amounts. |
(C) | Represents the estimated fair value of developed technology acquired in the Merger. |
(D) | Represents the elimination of Trimeris historical stockholders equity accounts. |
(E) | Represents the conversion of Synagevas convertible notes and preferred stock to Synageva common stock in connection with the Merger. |
(F) | Represents the goodwill resulting from the Merger. |
(G) | To reflect the Synageva and Trimeris estimated transaction costs payable in cash that have not been incurred as of September 30, 2011. The amounts include $0.3 million of anticipated costs for Synageva and $1.7 million of anticipated costs for Trimeris. The $1.7 million of anticipated Trimeris costs are included in assumed liabilities in allocating the purchase price. Trimeris has incurred $2.4 million of transaction costs through September 30, 2011. |
(H) | Represents the accrual of retention, change of control and severance obligations for certain employees of Trimeris that will become due at the closing of the merger, totaling $1.6 million as of September 30, 2011. |
(I) | Represents the amortization of developed technology over the useful life. Amortization expense is recognized based on the ratio of period cash flows divided by total estimated cash flows related to royalty income associated with Fuzeon developed technology. |
(J) | Represents the issuance of Trimeris common stock to Synageva common and preferred stockholders in connection with the Merger at the expected exchange rate. |
(K) | Represents the tax effect of the above pro forma adjustments as calculated at the statutory rate. The tax effect of the adjustment is determined to be zero because it relates to a non-deductible expense for tax purposes. In addition, the combined company will have available NOL carryforwards and research and development carryforwards that may be utilized to offset any current income and related taxes. Utilization of the NOL and research and development carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by Section 382 of the Code, as well as similar state provisions. It is expected that the combined company will continue to provide a full valuation allowance on its deferred taxes. |