References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Biotech Acquisition Company References to our "management" or
our "management team" refer to our officers and directors, and references to the
"Sponsor" refer to Biotech Sponsor LLC. The following discussion and analysis of
the Company's financial condition and results of operations should be read in
conjunction with the unaudited condensed consolidated financial statements and
the notes thereto contained elsewhere in this Quarterly Report. Certain
information contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties. Certain
capitalized terms used but not defined in the below discussion and elsewhere in
this Quarterly Report have the meanings ascribed to them in the footnotes to the
accompanying financial statements included as part of this Quarterly Report.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Exchange Act that are not historical facts, and involve
risks and uncertainties that could cause actual results to differ materially
from those expected and projected. All statements, other than statements of
historical fact included in this Form 10-Q including, without limitation,
statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" regarding the Company's financial position, business
strategy and the plans and objectives of management for future operations, are
forward-looking statements. Words such as "expect," "believe," "anticipate,"
"intend," "estimate," "seek" and variations and similar words and expressions
are intended to identify such forward-looking statements. Such forward-looking
statements relate to future events or future performance, but reflect
management's current beliefs, based on information currently available. A number
of factors could cause actual events, performance or results to differ
materially from the events, performance and results discussed in the
forward-looking statements. For information identifying important factors that
could cause actual results to differ materially from those anticipated in the
forward-looking statements, please refer to the Risk Factors section of the
Company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange
Commission (the "SEC"). The Company's securities filings can be accessed on the
EDGAR section of the SEC's website at www.sec.gov. Except as expressly required
by applicable securities law, the Company disclaims any intention or obligation
to update or revise any forward-looking statements whether as a result of new
information, future events or otherwise.
Overview
We are a blank check company incorporated as a Cayman Islands exempted company
on September 3, 2020, for the purpose of effecting a merger, share exchange,
asset acquisition, share purchase, reorganization or other similar Business
Combination with one or more businesses. We intend to effectuate our Business
Combination using cash from the proceeds of our initial public offering and the
sale of the private placement warrants, our capital shares, debt or a
combination of cash, shares and debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete a Business
Combination will be successful.
Termination of Proposed Business Combination
On November 8, 2021, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Blade Therapeutics, Inc., a Delaware corporation
("Blade"), Blade Merger Subsidiary, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Company, Biotech Sponsor LLC, a Delaware limited
liability company, in the capacity as the representative from and after the
closing of the transactions contemplated in the Merger Agreement (the "Closing")
of the shareholders of the Company as of immediately prior to the Closing and
their successors and assignees, and Jean-Frédéric Viret in the capacity as the
representative of the Earnout Participants (as defined in the Merger Agreement)
from and after the Closing.
Recent Developments
On June 10, 2022, pursuant to Section 10.01(a) of the Merger Agreement, the
Company and Blade entered into a Termination and Release Agreement pursuant to
which the Merger Agreement was terminated effective as of June 10, 2022.
As a result of the termination of the Merger Agreement, the Merger Agreement is
of no further force and effect, and certain Transaction Agreements (as defined
in the Merger Agreement) entered into in connection with the Merger Agreement
were also automatically terminated in accordance with their terms and are of no
further force and effect.
On October 4, 2022, the Company issued a fourth unsecured promissory note to the
Sponsor (the "Fourth Promissory Note") for working capital and general corporate
purposes, including, but not limited to, in connection with a potential Business
Combination, to which the Company may borrow up to an aggregate principal amount
of $250,000. The Fourth Promissory Note is non-interest bearing and payment on
the earlier of (i) September 30, 2023 or (ii) the date on which the Company
consummates an initial Business Combination.
On October 4, 2022, the Company issued an unsecured promissory note to Cryfield
Investments Ltd. for working capital and general corporate purposes, including,
but not limited to, in connection with a potential Business Combination, to pay
a principal sum of up to $500,000 on the earlier of (i) September 30, 2023 or
(ii) the date on which the Company consummates an initial Business Combination.
The promissory note is non-interest bearing.
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Results of Operations
We classify the warrants issued in connection with our IPO and concurrent
private placement as liabilities at their fair value and adjust the warrant
liability to fair value at each reporting period. This liability is subject to
re-measurement at each consolidated balance sheet date until all the warrants
are exercised or expired, and any change in fair value is recognized in our
statements of operations.
We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities from inception through September 30, 2022 were
organizational activities and those necessary to prepare for our initial public
offering, described below, and identifying a target company for a Business
Combination. We do not expect to generate any operating revenues until after the
completion of our initial Business Combination. We generate non-operating income
in the form of interest income on marketable securities held in the trust
account. We incur expenses as a result of being a public company (for legal,
financial reporting, accounting and auditing compliance), as well as for due
diligence expenses in connection with searching for, and completing, a Business
Combination.
For the three months ended September 30, 2022, we had a net income of
$1,261,460, which consists of the change in fair value of warrant liabilities of
$492,751, interest earned from a bank of $25, and interest earned from
marketable securities held in the Trust Account of $1,015,256, offset by
operating and formation costs of $246,572.
For the nine months ended September 30, 2022, we had a net income of
$15,322,536, which consists of the change in fair value of warrant liabilities
of $17,457,982, interest earned from a bank of $29, and interest earned from
marketable securities held in the Trust Account of $1,272,744, offset by
operating and formation costs of $3,408,219.
For the three months ended September 30, 2021, we had a net income of
$2,941,970, which consists of the change in fair value of warrant liabilities of
$3,566,000, interest earned from the bank of $22, and interest earned from
marketable securities held in the Trust Account of $5,798, offset by formation
and operational costs of $629,850.
For the nine months ended September 30, 2021, we had a net income of $420,976,
which consists of the change in fair value of warrant liabilities of $2,166,000,
interest earned from the bank of $58, and interest earned from marketable
securities held in the Trust Account of $15,440, offset by formation and
operational costs of $1,240,203 and transaction costs associated with the
Initial Public Offering of $520,319.
Liquidity and Capital Resources
On January 28, 2021, we consummated our initial public offering of 23,000,000
units, at a price of $10.00 per unit, which included the full exercise of the
underwriter's over-allotment option in the amount of 3,000,000 units, generating
gross proceeds of $230,000,000. Simultaneously with the closing of our initial
public offering, we consummated the sale of 6,000,000 private placement warrants
to the sponsor at a price of $1.00 per private placement warrant generating
gross proceeds of $6,000,000.
Following our initial public offering, the full exercise of the over-allotment
option, and the sale of the private placement warrants, a total of $230,000,000
was placed in the trust account. We incurred $13,114,249 in transaction costs,
including $4,000,000 of underwriting fees, $8,650,000 of deferred underwriting
commission and $464,249 of other offering costs.
For the nine months ended September 30, 2022, net cash used in operating
activities was $385,742. Net income of $15,322,536 was affected by noncash
activity related to the change in fair value of the warrant liabilities of
$17,457,982, and interest earned on marketable securities held in the Trust
Account of $1,272,744. Changes in operating assets and liabilities provided
$3,022,448 of cash from operating activities.
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For the nine months ended September 30, 2021, net cash used in operating
activities was $1,154,224. Net income of $420,976 was affected by noncash
activity related to the change in fair value of the warrant liabilities of
$2,166,000, transaction costs associated with the IPO of $520,319, and interest
earned on marketable securities held in the Trust Account of $15,440. Changes in
operating assets and liabilities provided $85,921 of cash from operating
activities.
At September 30, 2022, we had marketable securities held in the trust account of
$231,293,983. We are using substantially all of the funds held in the trust
account, including any amounts representing interest earned on the trust account
(less deferred underwriting commission and income taxes payable), to complete
our Business Combination. To the extent that our share capital or debt is used,
in whole or in part, as consideration to complete our Business Combination, the
remaining proceeds held in the trust account will be used as working capital to
finance the operations of the target business or businesses, make other
acquisitions and pursue our growth strategies.
At September 30, 2022, we had cash and cash equivalents of $13,145 held outside
of the trust account. We are using the funds held outside the trust account
primarily to identify and evaluate target businesses, perform business due
diligence on prospective target businesses, travel to and from the offices,
plants or similar locations of prospective target businesses or their
representatives or owners, review corporate documents and material agreements of
prospective target businesses, and structure, negotiate and complete a Business
Combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, our sponsor or our officers, or
directors or any of their respective affiliates may, but are not obligated to,
loan us funds as may be required. If we complete a Business Combination, we
would repay such loaned amounts. In the event that a Business Combination does
not close, we may use a portion of the working capital held outside the trust
account to repay such loaned amounts but no proceeds from our trust account
would be used for such repayment. As of September 30, 2022, we borrowed $304,980
under the promissory note to fund ongoing working capital needs.
We may have insufficient funds available to operate our business prior to our
Business Combination if the costs of identifying a target business, undertaking
in-depth due diligence and negotiating a Business Combination exceed the funds
currently available to us. In such circumstances, our sponsor or our officers or
directors or any of their respective affiliates may, but are not obligated to,
loan us additional funds as may be required. However, the terms of any such
loans have not been determined, except to the extent described in the preceding
paragraph. Moreover, we may need to obtain additional financing either to
complete our Business Combination or because we become obligated to redeem a
significant number of our public shares upon consummation of our Business
Combination, in which case we may issue additional securities or incur debt in
connection with such Business Combination. Subject to compliance with applicable
securities laws, we would only complete such financing simultaneously with the
completion of our Business Combination. If we are unable to complete our
Business Combination because we do not have sufficient funds available to us, we
will be forced to cease operations and liquidate the trust account. In addition,
following our Business Combination, if cash on hand is insufficient, we may need
to obtain additional financing in order to meet our obligations.
Going Concern
We have until January 28, 2023 to consummate a Business Combination. It is
uncertain that we will be able to consummate a Business Combination by this
time. If a Business Combination is not consummated by this date, there will be a
mandatory liquidation and subsequent dissolution. It is uncertain that we will
have sufficient funds to operate our business prior to a Business Combination or
be able to consummate a Business Combination by this time. Management has
determined that the liquidity condition and mandatory liquidation, should a
Business Combination not occur, and potential subsequent dissolution raises
substantial doubt about our ability to continue as a going concern. No
adjustments have been made to the carrying amounts of assets or liabilities
should we be required to liquidate after January 28, 2023.
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Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 2022. We do not participate
in transactions that create relationships with unconsolidated entities or
financial partnerships, often referred to as variable interest entities, which
would have been established for the purpose of facilitating off-balance sheet
arrangements. We have not entered into any off-balance sheet financing
arrangements, established any special purpose entities, guaranteed any debt or
commitments of other entities, or purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay an
affiliate of our sponsor a monthly fee of $10,000 for office space and
administrative and support services. We began incurring these fees on January
26, 2021. On January 20, 2022, our sponsor agreed to return to us 11 months of
prior payments that we had made under this agreement, totaling $110,000. Our
sponsor has informed us that they will continue to provide us office space and
administrative and support services, but that we will no longer be charged.
The underwriters are entitled to a deferred fee of (i) 3.5% of the gross
proceeds of the initial 20,000,000 units sold in our IPO, or $7,000,000, and
(ii) 5.5% of the gross proceeds from the units sold pursuant to the
over-allotment option, representing a total deferred fee of $8,650,000. The
deferred fee will become payable to the underwriters from the amounts held in
the trust account solely in the event that we complete a Business Combination,
subject to the terms of the underwriting agreement.
Legal Fees
As of September 30, 2022, we had a total of $2,265,213 in deferred fees to be
paid to our legal advisors upon consummation of the Business Combination, which
is included in accrued expenses in the accompanying condensed consolidated
balance sheet as of September 30, 2022.
Critical Accounting Policies
The preparation of condensed consolidated financial statements and related
disclosures in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the condensed consolidated
financial statements, and income and expenses during the periods reported.
Actual results could materially differ from those estimates. We have identified
the following critical accounting policies:
Warrant Liabilities
We account for the warrants in accordance with the guidance contained in ASC
815-40, under which the warrants do not meet the criteria for equity treatment
and must be recorded as liabilities. Accordingly, we classify the warrants as
liabilities at their fair value and adjust the warrants to fair value in respect
of each reporting period. This liability is subject to re-measurement at each
balance sheet date until the warrants are exercised, and any change in fair
value is recognized in our statements of operations. The private placement
warrants and the public warrants for periods where no observable traded price
was available are valued using a lattice model, specifically a binomial lattice
model incorporating the Cox-Ross-Rubenstein methodology. For periods subsequent
to the severability of the public warrants from the units, the public warrant
quoted market price was used as the fair value as of each relevant date.
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Class A Ordinary Shares Subject to Possible Redemption
We account for our Class A ordinary shares subject to possible redemption in
accordance with the guidance in Accounting Standards Codification ("ASC") Topic
480 "Distinguishing Liabilities from Equity." Class A ordinary shares subject to
mandatory redemption is classified as a liability instrument and is measured at
fair value. Conditionally redeemable ordinary shares (including ordinary shares
that features redemption rights that is either within the control of the holder
or subject to redemption upon the occurrence of uncertain events not solely
within our control) is classified as temporary equity. At all other times,
ordinary shares are classified as shareholders' equity. Our ordinary shares
feature certain redemption rights that are considered to be outside of our
control and subject to occurrence of uncertain future events. Accordingly,
Class A ordinary shares subject to possible redemption is presented as temporary
equity, outside of the shareholders' deficit section of our unaudited condensed
consolidated balance sheets.
Net Income per Ordinary Share
Net income per ordinary shares is computed by dividing net income by the
weighted average number of ordinary shares outstanding for the period.
Remeasurement associated with the redeemable shares of Class A ordinary shares
is excluded from earnings per share as the redemption value approximates fair
value.
The calculation of diluted income per share does not consider the effect of the
warrants issued in connection with the (i) Initial Public Offering, and (ii) the
private placement since the exercise of the dilutive warrants is contingent upon
the occurrence of future events. Additionally, the private placement warrants
are excluded from the calculation due to being not-in-the-money, therefore,
anti-dilutive as of September 30, 2022. The warrants are exercisable to purchase
17,500,000 Class A ordinary shares in the aggregate. As of September 30, 2022
and 2021, we did not have any dilutive securities or other contracts that could,
potentially, be exercised or converted into ordinary shares and then share in
the earnings of the Company. As a result, diluted net income per ordinary shares
is the same as basic net income per ordinary share for the periods presented.
Recent Accounting Standards
In August 2020, the FASB issued ASU No. 2020-06, "Debt-Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in
Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity's Own Equity" ("ASU 2020-06"), which simplifies
accounting for convertible instruments by removing major separation models
required under current GAAP. ASU 2020-06 removes certain settlement conditions
that are required for equity contracts to qualify for the derivative scope
exception, and it also simplifies the diluted earnings per share calculation in
certain areas. ASU 2020-06 is effective for fiscal years beginning after
December 15, 2023, including interim periods within those fiscal years, with
early adoption permitted. The Company is currently assessing the impact, if any,
that ASU 2020-06 would have on its financial position, results of operations or
cash flows.
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on our condensed consolidated financial statements.
Factors That May Adversely Affect our Results of Operations
Our results of operations and our ability to complete an initial Business
Combination may be adversely affected by various factors that could cause
economic uncertainty and volatility in the financial markets, many of which are
beyond our control. Our business could be impacted by, among other things,
downturns in the financial markets or in economic conditions, increases in oil
prices, inflation, increases in interest rates, supply chain disruptions,
declines in consumer confidence and spending, the ongoing effects of the
COVID-19 pandemic, including resurgences and the emergence of new variants, and
geopolitical instability, such as the military conflict in the Ukraine. We
cannot at this time fully predict the likelihood of one or more of the above
events, their duration or magnitude or the extent to which they may negatively
impact our business and our ability to complete an initial Business Combination.
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BIOTECH ACQUISITION COMPANY 