References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Panacea Acquisition Corp. II. References to our "management"
or our "management team" refer to our officers and directors, and references to
the "Sponsor" refer to EcoR1 Panacea Holdings II, LLC. The following discussion
and analysis of the Company's financial condition and results of operations
should be read in conjunction with the 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.
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 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 Quarterly
Report including, without limitation, statements in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
regarding the completion of the Proposed Business Combination (as defined
below), 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, including that the
conditions of the Proposed Business Combination are not satisfied. 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") on March
31, 2022 and Quarterly Report on Form 10-Q filed with the SEC on May 16, 2022.
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.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations has been amended and restated to give effect to the restatement of
our financial statements as of June 30, 2021. Management identified errors made
in its historical financial statements where, at the closing of our Initial
Public Offering, we improperly classified our Class A ordinary shares subject to
possible redemption. We previously determined the Class A ordinary shares
subject to possible redemption to be equal to the redemption value of $10.00 per
Class A ordinary share while also taking into consideration a redemption cannot
result in net tangible assets being less than $5,000,001. Management determined
that the Class A ordinary shares issued during the Initial Public Offering can
be redeemed or become redeemable subject to the occurrence of future events
considered outside of the Company's control. Therefore, management concluded
that the redemption value should include all Class A ordinary shares subject to
possible redemption, resulting in the Class A ordinary shares subject to
possible redemption being equal to their redemption value. As a result,
management has noted a reclassification error related to temporary equity and
permanent equity. This resulted in a restatement to the initial carrying value
of the Class A ordinary shares subject to possible redemption with the offset
recorded to additional paid-in capital (to the extent available), accumulated
deficit and Class A ordinary shares.
Overview
We are a blank check company incorporated in the Cayman Islands on January 14,
2021 formed 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 derived from the proceeds of the Initial Public Offering
and the sale of the Private Placement Shares, our 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.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from January 14, 2021 (inception) through September 30, 2022
were organizational activities, those necessary to prepare for the 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 Business Combination. We generate non-operating
income in the form of interest income on marketable securities held in the Trust
Account. We will 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.
For the three months ended September 30, 2022, we had net income of $649,837,
which consisted of interest earned on investments held in Trust Account of
$864,413, offset by operating and formation costs of $214,576.
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For the nine months ended September 30, 2022, we had net income of $193,372,
which consisted of interest earned on investments held in Trust Account of
$946,834, offset by operating and formation costs of $753,462.
For the three months ended September 30, 2021, we had net loss of $212,308,
which consisted of formation and operating costs of $215,853 offset by interest
earned on investments held in Trust Account of $3,545.
For the period from January 14, 2021 (inception) through September 30, 2021, we
had net loss of $442,252, which consisted of formation and operating costs of
$447,546 offset by interest earned on investments held in Trust Account of
$5,294.
Liquidity and Going Concern
On April 9, 2021, we consummated the Initial Public Offering of 17,250,000 Class
A ordinary shares, which includes the full exercise by the underwriter of its
over-allotment option in the amount of 2,250,000 Public Shares, at $10.00 per
Public Share, generating gross proceeds of $172,500,000. Simultaneously with the
closing of the Initial Public Offering, we consummated the sale of 545,000
Private Placement Shares at a price of $10.00 per Private Placement Share in a
private placement to Sponsor, generating gross proceeds of $5,450,000.
Following the Initial Public Offering and the sale of the Private Placement
Shares, a total of $172,500,000 was placed in the Trust Account. We incurred
$10,017,468 in Initial Public Offering related costs, including $3,450,000 of
underwriting fees, net of reimbursement, $6,037,500 of deferred underwriting
fees and $529,968 of other costs.
For the nine months ended September 30, 2022, cash used in operating activities
was $252,074. Net income of $193,372 was affected by interest earned on
investments held in the Trust Account of $946,834. Changes in operating assets
and liabilities provided $501,388 of cash for operating activities.
For the period from January 14, 2021 (inception) through September 30, 2021,
cash used in operating activities was $1,199,124. Net loss of $442,252 was
affected by interest earned on investments held in the Trust Account of $5,294,
and payment of formation costs through promissory note by sponsor of $5,000.
Changes in operating assets and liabilities used $756,578 of cash for operating
activities.
As of September 30, 2022, we had marketable securities held in the Trust Account
of $173,456,415 (including approximately $956,415 of interest income and
unrealized gains) consisting of U.S. Treasury Bills with a maturity of 185 days
or less. We may withdraw interest from the Trust Account to pay taxes, if any.
We intend to use substantially all of the funds held in the Trust Account,
including any amounts representing interest earned on the Trust Account (less
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.
As of September 30, 2022, we had cash held outside the Trust Account of
$101,040. We intend to use 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, the Sponsor, or certain of our officers
and directors or their 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. Up to $1,500,000 of such loans may be convertible into Class A
ordinary shares at a price of $10.00 per share, at the option of the lender. The
shares would be identical to the Class A ordinary shares.
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In connection with the Company's assessment of going concern considerations in
accordance with ASU 2014-15, "Disclosures of Uncertainties about an Entity's
Ability to Continue as a Going Concern," the Company has until April 9, 2023, to
consummate a Business Combination. It is uncertain that the Company 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 of the Company. Management has determined that the
mandatory liquidation, should a Business Combination not occur, and potential
subsequent dissolution raises substantial doubt about the Company's ability to
continue as a going concern. No adjustments have been made to the carrying
amounts of assets or liabilities should the Company be required to liquidate
after April 9, 2023.
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 the Sponsor a monthly fee of $10,000 for office space,
administrative and support services. We began incurring these fees on April 6,
2021 and will continue to incur these fees monthly until the earlier of the
completion of the Business Combination and our liquidation.
The underwriters are entitled to a deferred fee of $0.35 per share, or
$6,037,500 in the aggregate. 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.
We entered into a forward purchase agreement pursuant to which the funds
affiliated with EcoR1 Capital, LLC (the "forward purchase investors") have
agreed to purchase an aggregate of up to 2,500,000 shares (the "forward purchase
shares"), for a purchase price of $10.00 per share, or an aggregate of
$25,000,000, in a private placement to close concurrently with the closing of a
Business Combination. The obligations under the forward purchase agreements will
not depend on whether any Class A ordinary shares are redeemed by the public
shareholders. The forward purchase shares will be identical to the Class A
ordinary shares included in the Public Shares being sold in the Initial Public
Offering, except that they will be subject to certain registration rights.
The proceeds from the sale of the forward purchase shares may be used as part of
the consideration to the sellers in a Business Combination, expenses in
connection with a Business Combination or for working capital. This purchase
will be required to be made regardless of whether any Public Shares are redeemed
by the Public Shareholders and are intended to provide the Company with a
minimum funding level for a Business Combination.
Critical Accounting Policies
The preparation of condensed 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 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.
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 ASC Topic 480, "Distinguishing Liabilities from
Equity." Class A ordinary shares subject to mandatory redemption are classified
as a liability instrument and are measured at fair value. Conditionally
redeemable ordinary shares (including ordinary shares that features redemption
rights that are either within the control of the holder or subject to redemption
upon the occurrence of uncertain events not solely within our control) are
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 are presented as temporary equity, outside of the
shareholders' deficit section of our condensed balance sheets.
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The Company has elected to recognize changes in redemption value immediately as
they occur and adjusts the carrying value of redeemable ordinary shares to equal
the redemption value at the end of each reporting period. Immediately upon the
closing of the Initial Public Offering, the Company recognized the accretion
from initial book value to redemption amount value. The change in the carrying
value of redeemable Class A ordinary shares resulted in charges against
additional paid-in capital and accumulated deficit.
Net Loss Per Ordinary Share
Net loss per ordinary share is computed by dividing net loss by the weighted
average number of ordinary shares outstanding for the period. The Company has
three classes of ordinary shares, which are referred to as Class A ordinary
shares, Class B ordinary shares, and Class F ordinary shares. Losses are shared
pro rata between the three classes of ordinary shares. Accretion associated with
the redeemable shares of Class A ordinary share is excluded from earnings per
share as the redemption value approximates fair value.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
condensed financial statements.
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