PROTEOSTASIS THERAPEUTICS, INC. Item 8.01. Other Events.
Supplemental Disclosures
As previously disclosed, onAugust 22, 2020 ,Proteostasis Therapeutics, Inc. ("PTI" or the "Company"),Yumanity Therapeutics, Inc. , aDelaware corporation ("Yumanity"),Yumanity Holdings, LLC , aDelaware limited liability company ("Holdings") andPangolin Merger Sub, Inc. , aDelaware corporation and wholly-owned subsidiary of PTI ("Merger Sub"), entered into an Agreement and Plan of Merger and Reorganization, as amended (the "Merger Agreement"). Upon the terms and subject to the satisfaction or waiver of the conditions described in the Merger Agreement, including approval of the transaction by PTI's stockholders and Yumanity's stockholders and the consolidation of Yumanity and Holdings prior to the closing of the transaction, Merger Sub will be merged with and into Yumanity (the "Merger"), with Yumanity surviving the Merger as a wholly-owned subsidiary of PTI. OnNovember 12, 2020 , PTI filed a definitive proxy statement/prospectus/information statement (the "Definitive Proxy Statement"), as such may be supplemented from time to time, with theSecurities and Exchange Commission (the "SEC") with respect to the special meeting of PTI's stockholders scheduled to be held onDecember 16, 2020 (the "PTI Special Meeting").
Explanatory Note
Following the announcement of the proposed Merger and as of the filing of these Supplemental Disclosures, nine lawsuits were filed by purported stockholders of the Company challenging the proposed Merger. The first lawsuit, brought as a putative class action, is captioned Aniello v.Proteostasis Therapeutics, Inc. , et al., No. 1:20-cv-08578 (S.D.N.Y. filedOct. 14, 2020 ). The remaining lawsuits, brought by the plaintiffs individually, are captioned Culver v.Proteostasis Therapeutics, Inc. , et al., No. 1:20-cv-08595 (S.D.N.Y. filedOct. 15, 2020 ); Donolo v.Proteostasis Therapeutics, Inc. et al., No. 1:20-cv-01400 (D. Del. filedOct. 16, 2020 ); Straube v.Proteostasis Therapeutics, Inc. , et al., No. 1:20-cv-08653 (S.D.N.Y. filedOct. 16, 2020 ); Beck v.Proteostasis Therapeutics, Inc. , et al., No. 1:20-cv-08783 (S.D.N.Y. filedOct. 21, 2020 ); Dreyer v.Proteostasis Therapeutics, Inc. , et al., No. 1:20-cv-05193(E.D.N.Y. filedOct. 28, 2020 ); Kopkin v.Proteostasis Therapeutics, Inc. et al., No. 1:20-cv-12103 (D. Mass . filedNov. 23, 2020 ); Merritt v.Proteostasis Therapeutics, Inc. , et al., No. 1:20-cv-10275 (S.D.N.Y. filedDec. 6, 2020 ); and Koh v.Proteostasis Therapeutics, Inc. , et al., No. 1:20-cv-10296 (S.D.N.Y. filedDec. 7, 2020 ). The complaints name the Company and the Company's board of directors as defendants. The Aniello complaint names Yumanity as an additional defendant. The Donolo complaint names Yumanity and Merger Sub as additional defendants. While the Company believes that the disclosures set forth in the Definitive Proxy Statement comply fully with all applicable law and denies the allegations in the pending actions described above, in order to moot plaintiffs' disclosure claims, avoid nuisance and possible expense and business delays, and provide additional information to its stockholders, the Company has determined voluntarily to supplement certain disclosures in the Definitive Proxy Statement related to plaintiffs' claims with the supplemental disclosures set forth below (the "Supplemental Disclosures"). Nothing in the Supplemental Disclosures shall be deemed an admission of the legal merit, necessity or materiality under applicable laws of any of the disclosures set forth herein. To the contrary, the Company specifically denies all allegations in the complaints described above that any additional disclosure was or is required or material. All page references used herein refer to pages in the Definitive Proxy Statement before any additions or deletions resulting from the Supplemental Disclosures, and capitalized terms used below, unless otherwise defined, have the meanings set forth in the Definitive Proxy Statement. Underlined and bolded text shows text being added to a referenced disclosure in the Definitive Proxy Statement. Except as specifically noted herein, the information set forth in the Definitive Proxy Statement remains unchanged.
Supplemental Disclosures to Definitive Proxy Statement
The disclosure under the heading "Risk Factors - Risks Related to the Merger" is hereby amended and supplemented by replacing the fourth full paragraph on page 40 of the Definitive Proxy Statement in its entirety with the following: -------------------------------------------------------------------------------- In its instructions to MTS in connection with MTS's evaluation of its opinion regarding the fairness, from a financial point of view, of the Exchange Ratio, Proteostasis directed MTS to ascribe no value to Proteostasis' ongoing operations (including with respect to the CF Assets), and to assume that the only material asset of Proteostasis was its cash and that Proteostasis does not currently, and does not intend in the future to, conduct any activity that may result in the generation of revenue. In particular, in connection therewith with respect to the CF Assets, Proteostasis advised MTS that the changing competitive landscape for cystic fibrosis-related treatments had increased the complexity and costs associated with continuing Proteostasis' ongoing operations as a standalone entity, and that financing such ongoing operations through a variety of potential transaction structures would be challenging in the current environment. Nevertheless, the Proteostasis board negotiated for the CVR Agreement in case any value for the CF Assets could be obtained through any CF Asset Monetization, as doing so may provide any unexpected value to the Proteostasis stockholders. As discussions for the disposition of the CF Assets remain ongoing, and no agreement for the sale of the CF Assets has been reached currently, there can be no guarantee that any such arrangement will be reached, either prior to consummation of the Merger or after, or even if at all. The CF Assets also may or may not be commercially viable and Proteostasis may not find a purchaser for the CF Assets prior to the consummation of the Merger. The relative valuations of the parties used in arriving at the Exchange Ratio do not attribute any additional incremental value to Proteostasis for the CF Assets as such assets were intended to be disposed of prior to the Merger, or covered by the CVR Agreement post-Merger. If there is no disposition of the CF Assets prior to consummation of the Merger or during the time periods specified in the CVR Agreement, Proteostasis stockholders may not receive any separate consideration for the CF Assets.
The disclosure under the heading "The Merger - Background of the Merger" is hereby amended and supplemented by replacing the second full paragraph on page 108 of the Definitive Proxy Statement in its entirety with the following:
OnNovember 4, 2019 , the Proteostasis board of directors voted to establish a Transaction Committee, consisting of directorsFranklin Berger ,Kim Drapkin ,Jeffery Kelly andMeenu Chhabra , based on their experience with strategic transactions, existing roles with the Company, and willingness to serve on the Transaction Committee. The purpose of the Transaction Committee was to provide additional board oversight and assistance in completing a review of Proteostasis' strategic options.
The disclosure under the heading "The Merger - Background of the Merger" is hereby amended and supplemented by replacing the fourth full paragraph on page 111 of the Definitive Proxy Statement in its entirety with the following:
BetweenApril 21, 2020 andMay 5, 2020 , a total of 16 companies, including Yumanity, made non-confidential presentations to Proteostasis' management and advisors. The 16 companies, including Yumanity, were invited to submit preliminary non-binding proposals and 13 of those companies, including Yumanity, submitted bids. Yumanity'sMay 5, 2020 , bid contemplated that the board of the combined entity would be proportional to and based on the final ownership of the combined entity. FromMay 13 to May 21, 2020 , Proteostasis entered into confidential agreements without standstill provisions with seven companies, including Yumanity, that made confidential presentations to the Proteostasis board of directors, management and advisors.
The disclosure under the heading "The Merger - Background of the Merger" is hereby amended and supplemented by replacing the fifth paragraph on page 112 of the Definitive Proxy Statement in its entirety with the following:
OnJune 19, 2020 , Yumanity submitted a revised indication of interest and its comments to the bid draft merger agreement, which included a proposed valuation of$146 million for Yumanity and$69 million for Proteostasis, representing an equity split of 68%/32% between the parties for the combined organization, assuming that Proteostasis had$35 million in net cash as of the closing of the merger. Such draft also included as a closing condition the requirement that Proteostasis have net cash as of the closing of at least$35 million . Finally, the draft also included comments to other sections of the merger agreement including representations and warranties, covenants, closing conditions, non-solicitation and termination rights. The revised indication of interest contemplated that two Proteostasis directors would serve on the board of the combined entity in addition to the other terms mentioned above. The disclosure under the heading"The Merger - Proteostasis Reasons for the Merger" is hereby amended and supplemented by inserting the following disclosure as a new bullet point immediately following the fourth bullet point on page 118 of the Definitive Proxy Statement:
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• Proteostasis' inability to successfully develop and commercialize the CF
Assets given its current resources and changes in the competitive
landscape, and thus the risk that the CF assets may not be commercially
viable if Proteostasis remains a standalone company or is unable to reach
an agreement to license or sell the CF Assets;
The disclosure under the heading "The Merger - Opinion of Proteostasis' Financial Advisor" is hereby amended and supplemented by replacing the first full paragraph on page 123 of the Definitive Proxy Statement in its entirety with the following: In arriving at its opinion, MTS assumed and relied upon, without assuming liability or responsibility for independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information that was publicly available or was provided to, discussed with or reviewed by MTS and upon the assurances of the management of Proteostasis and Yumanity, respectively, that they are not aware of any material relevant developments or matters related to Proteostasis or Yumanity or that may affect the merger or the other transactions contemplated by the merger agreement or the contingent value rights agreement that were omitted or that remained undisclosed to MTS. The MTS Opinion does not address any legal, regulatory, tax, accounting or financial reporting matters, as to which MTS understood that Proteostasis had obtained such advice as it deemed necessary from experts, and MTS relied, with the consent of the Proteostasis board of directors, on any assessments made by such experts to Proteostasis with respect to such matters. For purposes of the immediately preceding sentence, the experts referred to in the MTS Opinion were intended by MTS and Proteostasis to be professional advisors to Proteostasis generally, without considering any particular meaning to the term "expert," including any meaning of such term under the Securities Act, or identifying specifically any particular assessment made by any such professional advisor for such purposes. Without limiting the foregoing, MTS did not consider any tax effects of the merger or the other transactions contemplated by the merger agreement or the contingent value rights agreement or the transaction structure on any person or entity. MTS did not conduct any independent verification of the Projections and expressed no view as to the Projections or the assumptions on which they were based. Without limiting the generality of the foregoing, with respect to the Projections, MTS assumed, with the consent of the Proteostasis board of directors, and based upon discussions with the management of Proteostasis, that they were reasonably prepared in good faith and that the Proteostasis Projections and the Adjusted Yumanity Projections reflected the best then-currently available estimates and judgments of the management of Proteostasis as to the future results of operations and financial performance of, and impact of the effects of the coronavirus pandemic (COVID-19) and related events on, Proteostasis and Yumanity. In addition, at the direction of the Proteostasis board of directions, MTS reviewed but did not rely upon the Proteostasis Projections, which projections assumed the conduct of revenue-generating activities in the future, because, as noted in "The Merger - Opinion of Proteostasis' Financial Advisor - Liquidation Analysis" below, MTS assumed that the only material asset of Proteostasis was its cash and that Proteostasis does not currently, and does not intend in the future to, conduct any activity that may result in the generation of revenue.
The disclosure under the heading "The Merger - Opinion of Proteostasis' Financial Advisor - Yumanity Valuation Analysis - Liquidation Analysis" is hereby amended by replacing the fourth full paragraph on page 126 of the Definitive Proxy Statement in their entirety with the following:
As noted above, at the direction of Proteostasis, MTS assumed that the only material asset of Proteostasis was its cash and that Proteostasis does not currently, and does not intend in the future to, conduct any activity that may result in the generation of revenue. In connection therewith, MTS was advised by Proteostasis that the changing competitive landscape for cystic fibrosis-related treatments had increased the complexity and costs associated with continuing Proteostasis' ongoing operations as a standalone entity, and that financing such ongoing operations through a variety of potential transaction structures would nonetheless be challenging in the current environment. Accordingly, Proteostasis instructed MTS to ascribe no value to Proteostasis' ongoing operations. Correspondingly, MTS reviewed the Proteostasis Projections, which assumed the availability of financing to support Proteostasis' ongoing operations, but did not rely upon such Proteostasis Projections and instead relied upon a liquidation analysis for purposes of valuing Proteostasis. -------------------------------------------------------------------------------- The disclosure under the heading "The Merger - Opinion of Proteostasis' Financial Advisor - Yumanity Valuation Analysis - Discounted Cash Flow Analysis" is hereby amended and supplemented by replacing the last paragraph on page 127 and continuing onto the first full paragraph on page 128 of the Definitive Proxy Statement in their entirety with the following: MTS calculated the present value of the cash flows to be generated by Yumanity based upon the performance of its lead asset, a small molecule with potential application in the treatment of Parkinson's disease, during the period beginning onOctober 31, 2020 and ending onDecember 31, 2039 based on the Adjusted Yumanity Projections and, at the direction of Proteostasis, assuming that the net present value of the cash flows payable to Yumanity in connection with Yumanity's collaboration and licensing agreement with Merck is equal to$31,000,000 . At the direction of Proteostasis, MTS conducted certain sensitivity analyses in connection with this discounted cash flow analysis using ranges of: (i) regulatory probabilities of success during Phase I with respect to Yumanity's lead asset of 30% to 70%, as provided by Proteostasis' management; (ii) regulatory probabilities of success during Phase II with respect to Yumanity's lead asset of 20% to 60%, as provided by Proteostasis' management; and (iii) an addressable market for Yumanity's lead asset equal to 9% to 17%, as provided by Proteostasis' management; as discounted back toOctober 31, 2020 based upon a weighted average cost of capital of 12% to 16%, reflecting estimates of Yumanity's weighted average cost of capital, based upon MTS's analysis of the cost of capital for Yumanity's publicly traded comparable companies and MTS's business and industry knowledge. For each such sensitivity analysis, MTS also calculated the present value of cash flows to be generated by Yumanity using the midpoint of the ranges set forth in the immediately preceding sentence. At the direction of Proteostasis, MTS did not conduct any sensitivity analysis in connection with its discounted cash flow analysis for regulatory probabilities of success during or after Phase III with respect to Yumanity's lead asset. MTS utilized the unlevered free cash flows (defined as earnings before interest and taxes (or operating income), less income tax expense, less changes in net working capital (capital expenditures and associated depreciation and amortization were deemed to be de minimis for Yumanity and were therefore not included), and disclosed in "The Merger - Financial Projections Used in Connection With the MTS Opinion" below, based on the Adjusted Yumanity Projections, that Proteostasis' management reasonably projected Yumanity will generate during the period beginning onOctober 31, 2020 and ending onDecember 31, 2039 , taking into account the sensitivity metrics described above, and assuming no terminal value based on the patent expiry date ofDecember 31, 2039 for YTX-7739 for the Parkinson's disease market only. The unlevered free cash flows were then discounted to present values using a range of discount rates based on Yumanity's estimated weighted average cost of capital. The disclosure under the heading "The Merger - Opinion of Proteostasis' Financial Advisor - Yumanity Valuation Analysis - Publicly Trading Comparable Companies Analysis" is hereby amended and supplemented by replacing the last paragraph on page 128 and continuing onto the first table on page 129 of the Definitive Proxy Statement in their entirety with the following: Although none of the selected companies is directly comparable to Yumanity, MTS included these companies in its analysis because they are publicly traded companies with certain characteristics that, for purposes of analysis, may be considered similar to certain characteristics of Yumanity based on considerations that MTS deemed relevant in its professional judgment and experience. MTS calculated the enterprise value for the selected companies, as ofAugust 20, 2020 , by multiplying the closing price per share of common stock of such company on such date by the number of such company's fully diluted outstanding shares, using the treasury stock method, and deducting from that result such company's total cash and cash equivalents. The table below shows the share price, enterprise values, and total cash and equivalents calculated for each comparable company as ofAugust 20, 2020 : -------------------------------------------------------------------------------- Total
Cash &
Enterprise Equivalents
Share Price
Avidity Biosciences, Inc. $ 863 $ 352 $ 32.28
Stoke Therapeutics, Inc. $ 757 $ 202 $ 28.84
Passage Bio, Inc. $ 308 $ 353 $ 14.54
Homology Medicines, Inc. $ 287 $ 207 $ 10.92
Cabaletta Bio, Inc. $ 161 $ 120 $ 11.69
LogicBio Therapeutics, Inc. $ 162 $ 37 $ 7.97
Alterity Therapeutics Ltd. $ 37 $ 9 $ 2.54
The disclosure under the heading "The Merger - Opinion of Proteostasis'
Financial Advisor - Yumanity Valuation Analysis - Publicly Trading Comparable
Companies Analysis" is hereby amended and supplemented by replacing the second
full paragraph and the table underneath it on page 129 of the Definitive Proxy
Statement in their entirety with the following:
MTS also analyzed the pre-money enterprise valuations of the following companies
that focus on preclinical through Phase I development for orphan / rare disease
focused companies (along with the corresponding initial public offering date),
each of which had completed an initial public offering in 2017 or later and had
not released any clinical data at the time of its initial public offering, which
MTS chose based on considerations that MTS deemed relevant in its professional
judgment and experience:
Pre-Money Pre-Money
Enterprise Equity
Stage at Valuation Valuation
Company Date IPO (million) (Millions)
Avidity Biosciences, Inc. 6/12/2020 Preclinical $ 336 $ 421
Passage Bio, Inc. 2/28/2020 Preclinical $ 417 $ 576
Cabaletta Bio, Inc. 10/25/2019 Preclinical $ 122 $ 197
Fulcrum Therapeutics, Inc. 7/18/2019 Phase I $ 252 $ 314
Stoke Therapeutics, Inc. 6/19/2019 Preclinical $ 403 $ 492
Kaleido BioSciences, Inc. 2/27/2019 Preclinical $ 359 $ 420
Alector, Inc. 2/7/2019 Phase Ia $ 866 $ 1,174
LogicBio Therapeutics, Inc. 10/19/2018 Preclinical $ 151 $ 169
Scholar Rock, Inc. 5/23/2018 Phase I $ 228 $ 275
BioXcel Therapeutics, Inc. 3/8/2018 Phase Ia $ 135 $ 136
Solid Biosciences Inc. 1/25/2018 Phase I/II $ 340 $ 424
Denali Therapeutics Inc. 12/8/2017 Phase I $ 1,236 $ 1,427
The disclosure under the heading "The Merger - Financial Projections Used in
Connection With the MTS Opinion" is hereby amended and supplemented by replacing
the fourth paragraph and the bullet point list underneath it on page 133 of the
Definitive Proxy Statement in their entirety with the following:
The Yumanity Projections reflect projected
• Patent expiry date of
disease market only (and no revenue beyond 2039) and no additional
revenues and expenses associated with YTX-7739 in other indications, or
the development of Yumanity's other pipeline programs;
• Parkinson's disease target addressable market of 12.6%;
• YTX-7739 product for Parkinson's disease would be launched in 2025 and
peak market share achieved in the sixth year of commercialization;
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• No Yumanity net operating losses taken into account and assumes
in annual Proteostasis net operating losses; and
• The exclusion of stock-based compensation.
The disclosure under the heading "The Merger - Financial Projections Used in
Connection With the MTS Opinion" is hereby amended and supplemented by replacing
the table on page 134 of the Definitive Proxy Statement in its entirety with the
following:
Adjusted Yumanity Projections 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 Total Revenue
$ - $ - $ - $
- $ -
- - - - - 65 142 224 311 403
500 515 530 546 562 579 596 614 633 63 Total Operating Costs
(5 ) (13 ) (3 ) (17 ) (4 ) (28 ) (49 ) (78 ) (108 ) (140 )
(174 ) (97 ) (100 ) (103 ) (107 ) (110 ) (113 ) (116 ) (120 ) (12 ) Operating Income (2)
(5 ) (13 ) (3 ) (17 ) (4 ) 37 93 146 203 263
326 417 430 442 456 469 483 498 513 51 Taxes
- - - - - (2 ) (20 ) (38 ) (53 ) (68 )
(85 ) (108 ) (111 ) (115 ) (118 ) (122 ) (125 ) (129 ) (133 ) (13 ) Net Income (3)
($ 5 ) ($ 13 ) ($ 3 ) ($
17 ) (
- - - - - (14 ) (16 ) (17 ) (18 ) (19 )
(20 ) (3 ) (3 ) (3 ) (3 ) (4 ) (4 ) (4 ) (4 ) 120
Unlevered Free Cash Flow (4) (
The disclosure under the heading "The Merger - Interests of the Proteostasis Directors and Executive Officers in the Merger - Retention Incentive Awards" is hereby amended and supplemented by replacing the second paragraph on page 136 of the Definitive Proxy Statement in its entirety with the following: OnSeptember 11, 2020 , the non-employee directors of the Proteostasis Transaction Committee of the Proteostasis board of directors approved a Key Employee Retention Program (the "Retention Program"), pursuant to which the remaining five Proteostasis employees, includingMs. Chhabra andDr. Zecevic , will receive one-time retention incentive awards (the "Retention Awards"). The purpose of the Retention Awards is to ensure the retention and continued focus of these employees, both during the pendency of and following the Closing of the Merger. The Retention Awards amounts forMs. Chhabra andDr. Zecevic are listed below.
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Forward-Looking Statements
This Current Report on Form 8-K contains forward-looking statements (including within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended) concerning PTI, PTI's expected cash, cash equivalents and marketable securities balance as ofSeptember 30, 2020 ;Yumanity Therapeutics, Inc. ("Yumanity") and the proposed merger between PTI, Yumanity and certain other entities. These statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial condition, or otherwise, based on current beliefs of the management of PTI, as well as assumptions made by, and information currently available to, management. Forward-looking statements generally include statements that are predictive in nature and depend upon or refer to future events or conditions, and include words such as "may," "will," "should," "would," "expect," "anticipate," "plan," "likely," "believe," "estimate," "project," "intend," and other similar expressions. Statements that are not historical facts are forward-looking statements. Forward-looking statements are based on current beliefs and assumptions that are subject to risks and uncertainties and are not guarantees of future performance. Actual results could differ materially from those contained in any forward-looking statement as a result of various factors, including, without limitation: the risk that the conditions to the closing of the proposed merger are not . . .
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