Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the financial condition and results of operations of GreenLight Biosciences Holdings
PBC and its consolidated subsidiaries should be read together with the Company’s unaudited condensed consolidated financial statements, together with the related notes thereto, included elsewhere in this Quarterly Report on Form 10-Q (this “Report”) and the Company’s audited consolidated financial statements, together with the related notes thereto (the “2021 Consolidated Financial Statements”), included as Exhibit 99.1 to the Company’s Amendment No. 1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on March 31, 2022. This discussion contains forward-looking statements that involve numerous risks and uncertainties, including, but not limited to, those described under the heading “Risk Factors” in Item 1A of Part I of the Company’s Annual Report for the year ended December 31, 2021. See “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this Report. All references to years, unless otherwise noted, refer to the Company’s fiscal years, which end on December 31. For purposes of this section, all references to “we,” “us,” “our,” “New GreenLight” or the “Company” refer to GreenLight Biosciences Holdings PBC and its consolidated subsidiaries.
Overview
GreenLight Biosciences Holdings, PBC is a pre-commercial stage synthetic biology company with a proprietary cell- free ribonucleic acid (RNA) production platform for the discovery, development, and commercialization of high- performing products to promote healthier plants, foods, and people. Our vision is to pave the way for a sustainable planet through widely available and affordable RNA products. We are developing RNA products for plant and life science applications to advance crop management, plant protection, animal health, vaccine development and pandemic preparation. We have a pipeline of product candidates across various stages of development.
Since our inception in 2008, we have devoted substantially all of our efforts and financial resources to conducting research and development activities for our programs, acquiring, in-licensing, and discovering product candidates, securing related intellectual property rights, raising capital, and organizing and staffing our company. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations primarily with proceeds from the sale of preferred stock and to a lesser extent proceeds from the issuance of convertible notes and debt financing. From our founding through March 31, 2022, we have raised funds through proceeds from the sale of our preferred stock, from the Business Combination, from purchase of ENVI's Common Stock ("PIPE Prepayment"), and from the issuance of debt.
We have incurred significant operating losses since inception. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates. Our net losses were $38.2 million and $21.3 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022 and December 31, 2021 we had an accumulated deficit of $291.8 million and $253.6 million, respectively. We expect to continue to incur significant expenses and increasing operating losses. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:
•conduct field and clinical trials for our product candidates;
•continue to develop additional product candidates;
•maintain, expand, and protect our intellectual property portfolio;
•hire additional clinical, scientific manufacturing and commercial personnel;
•expand external and/or establish internal commercial manufacturing sources and secure supply chain capacity sufficient to provide commercial quantities of any product candidates for which we may obtain regulatory approval;
•acquire or in-license other product candidates and technologies;
•seek regulatory approvals for any product candidates that successfully complete field trials or clinical trials;
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•establish a sales, marketing, and distribution infrastructure to commercialize any products for which we may obtain regulatory approval; and
•add operational, financial and management information systems and personnel to support our product development, clinical execution and planned future commercialization efforts, as well as to support our operations as a public company.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. We expect to finance our operations through the sale of equity securities, debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements or arrangements as and when needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of one or more of our product candidates and delay or discontinue the pursuit of potential in-license or acquisition opportunities.
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. The Company expects that its existing cash and cash equivalents of $83.2 million as of March 31, 2022 will not be sufficient to fund its operations for twelve months from the date we issued our condensed consolidated financial statements for the three months ended March 31, 2022. We are evaluating a range of opportunities to extend cash runway, including management of program spending, platform licensing collaborations and potential financing activities.
Response to COVID-19
In response to the ongoing global COVID-19 pandemic, we established a cross-functional task force and have implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on our employees and our business. Our operations are considered an essential business and we have been allowed to continue operating under governmental restrictions during this period. We have taken measures to continue our research and development activities, while work in laboratories and facilities has been organized to reduce risk of COVID-19 transmission. The extent of the impact of the COVID-19 pandemic on our business, operations and product development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak and its impact on our field trial completion, clinical trial enrollment, trial sites, contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”), and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. While we are experiencing limited financial and operational impacts at this time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, our business, financial condition, and results of operations ultimately could be materially adversely affected. We continue to closely monitor the COVID-19 pandemic as we evolve our business continuity plans, clinical development plans and response strategy.
Recent Developments
Business Combination and Public Company Costs
On August 9, 2021, GreenLight entered into the Business Combination Agreement with ENVI and Merger Sub. On February 2, 2022, GreenLight consummated the Business Combination, pursuant to which Merger Sub merged with and into GreenLight, with GreenLight surviving the Merger as a wholly owned subsidiary of ENVI. On February 2, 2022, in connection with the consummation of the Merger, ENVI changed its name to GreenLight Biosciences Holdings, PBC and became a public benefit corporation.
Immediately before the closing of the Business Combination, ENVI held approximately $207.0 million in a trust account for its public stockholders. In connection with the Business Combination, ENVI’s public stockholders redeemed shares of public common stock for $194.9 million, and the funds remaining after such redemptions became available to finance transaction expenses and the future operations of New GreenLight. In connection with the Business Combination, ENVI entered into agreements with new investors and existing GreenLight investors to subscribe for and purchase an aggregate of approximately 12.4 million shares of ENVI Class A Common Stock (the “PIPE Financing”). The PIPE
36
Financing was consummated on February 2, 2022 and resulted in gross proceeds of approximately $124.3 million (of which $35.3 million was advanced to GreenLight by the Prepaying PIPE Investors).
The Merger was accounted for as a reverse recapitalization, whereby for accounting and financial reporting purposes, GreenLight was the acquirer. A reverse recapitalization does not result in a new basis of accounting, and the financial statements of the combined entity will represent the continuation of the consolidated financial statements of GreenLight in many respects. The shares of ENVI remaining after redemptions of shares of ENVI public common stock and the unrestricted net cash and cash equivalents on the date the Business Combination was consummated were accounted for as a capital infusion to GreenLight.
The most significant change in GreenLight’s financial position and results of operations resulting from the consummation of the Business Combination (including the PIPE Financing) was an estimated cash inflow (as compared to GreenLight’s balance sheet at December 31, 2021) of approximately $136.4 million, prior to payment of the transaction costs. Total direct and incremental transaction costs of $26.7 million was treated as a reduction of the cash proceeds with capital raising costs being deducted from GreenLight’s additional paid-in capital. Cash on hand after giving effect to the Merger will be used for general corporate purposes, including advancement of our product development efforts.
As a consequence of the Business Combination, GreenLight effectively became the successor to a publicly traded and Nasdaq-listed company, which is requiring GreenLight to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. GreenLight expects to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees.
Financial Overview
Components of Our Results of Operations
Revenue
Through March 31, 2022, we have not recognized any revenue from product sales, and we do not expect to generate any revenue from the sale of products in the next year. If our development efforts for our product candidates are successful and result in regulatory approval, or license agreements with third parties, we may generate revenue in the future from product sales or license agreements. However, there can be no assurance as to when we will generate such revenue, if at all.
All of our revenue through March 31, 2022 has been derived from private grants from the Bill & Melinda Gates Foundation. In March 2022, the Company entered into a License Agreement with Serum Institute of India Private Limited (“SIIPL”). The Company has not generated revenue to date from the License Agreement with SIIPL.
Grant Revenue
In July 2020, we entered into a grant agreement with the Bill & Melinda Gates Foundation to advance research in in vivo gene therapy for sickle cell disease and to explore new, low-cost capabilities for the in vivo functional cure of sickle cell and/or durable suppression of HIV in developing countries. We were approved to receive a grant of $3.3 million in the aggregate. As of March 31, 2022, we had received the entire grant amount, of which $0.7 million was recorded as deferred revenue as of that date. The grant agreement provides for payments to reimburse qualifying costs, including general and administrative costs, incurred to perform our obligations under the agreement. Revenue from this grant agreement is recognized as the qualifying costs related to the grant are incurred, and any amounts received in excess of revenue recognized are initially recorded as deferred revenue on our condensed consolidated balance sheets and later recognized as revenue when qualified costs are incurred. The revenue recognized through March 31, 2022 under the grant was related to qualifying research and development expenditures that we incurred. The research supported by this grant is expected be completed by the end of May 2022.
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Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates. We expense research and development costs as incurred. These expenses include:
Program expenses
•external research and development expenses incurred under agreements with CMOs, CROs, universities and research laboratories that conduct our field trials, preclinical studies and development services;
•costs related to manufacturing material for our field trials and preclinical studies;
•laboratory supplies and research materials;
•payments made in cash or equity securities under third-party licensing agreements and acquisition agreements;
•costs to fulfill our obligations under the grant agreement with the Bill & Melinda Gates Foundation; and
•costs related to compliance with regulatory requirements;
Personnel expenses
•employee-related expenses, including salaries, bonuses, benefits, stock-based compensation, and other related costs for employees involved in research and development efforts;
Facilities and other expenses
•costs of outside consultants engaged in research and development functions, including their fees and travel expenses; and
•facilities, depreciation, and other allocated expenses, which include direct and allocated expenses for rent, utilities, and insurance.
Costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks using data such as information provided to us by our vendors and analyzing the progress of our field trials and preclinical studies or other services performed.
This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered, or the services rendered.
Our direct research and development expenses are not tracked on a program-by-program basis for our product candidates and consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs and research laboratories in connection with our pre-clinical development, field trials, process development, manufacturing, and clinical development activities. Our direct research and development expenses by program also include fees incurred under license, acquisition, and option agreements. We do not allocate costs associated with our discovery efforts, laboratory supplies, employee costs or facility expenses, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to conduct our research and discovery as well as for managing our pre-clinical development, field trials, process development, manufacturing, and clinical development activities. We expect that our research and development
38
expenses will continue to increase as we continue our current discovery and research programs, initiate new research programs, continue development of our product candidates, and conduct future field and clinical trials for our product candidates.
General and Administrative Expenses
General and administrative expense consists primarily of employee-related costs, including salaries, bonuses, benefits, stock-based compensation, and other related costs. General and administrative expense also includes professional services, including legal, accounting and audit services, consulting fees and facility costs not otherwise included in research and development expenses, insurance, and other general administrative expenses.
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. We also anticipate that we will incur significantly increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.
Other (Expense) Income, Net
Other (expense) income, net consists of interest income, interest expense and any change in the fair value of our warrant liabilities.
Interest Income
Interest income consists of income earned in connection with our investments in money market funds.
Interest Expense
Interest expense consists of interest on outstanding borrowings under our loan agreements with Trinity Capital, Silicon Valley Bank and Horizon Technology Finance, our convertible debt and tenant improvement loans payable with our lessors. Interest expense also includes amortization of debt discount and debt issuance costs.
Fair value of Warrant Liabilities
Change in fair value of warrant liabilities consists of the remeasurement gains or losses associated with changes in the fair value of the warrant liabilities. Until settlement, fluctuations in the fair value of our warrant liabilities are based on the remeasurement at each reporting period.
Provision for Income Taxes
Our income tax provision consists of an estimate for U.S. federal and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities and changes in tax law. There is no provision for income taxes for the three months ended March 31, 2022 and 2021, as we have historically incurred net operating losses, and expect to continue to generate net operating losses. Based on this history of net operating losses, we also maintain a full valuation allowance against our deferred tax assets.
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Results of Operations
Comparison of the Three Months Ended March 31, 2022 and 2021
The following table summarizes our results of operations for the three months ended March 31, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
MARCH 31, |
|
|
INCREASE / |
|
Dollars (in thousands) |
|
2022 |
|
|
2021 |
|
|
(DECREASE) |
|
Grant revenue |
|
$ |
257 |
|
|
$ |
325 |
|
|
$ |
(68 |
) |
Total revenue |
|
|
257 |
|
|
|
325 |
|
|
|
(68 |
) |
Operating expenses: |
|
|
|
|
|
|
|
|
|
Research and development |
|
|
27,281 |
|
|
|
17,411 |
|
|
|
9,870 |
|
General and administrative |
|
|
9,755 |
|
|
|
3,898 |
|
|
|
5,857 |
|
Total operating expenses |
|
|
37,036 |
|
|
|
21,309 |
|
|
|
15,727 |
|
Loss from operations |
|
|
(36,779 |
) |
|
|
(20,984 |
) |
|
|
(15,795 |
) |
Other expenses: |
|
|
|
|
|
|
|
|
|
Interest income |
|
|
4 |
|
|
|
11 |
|
|
|
(7 |
) |
Interest expense |
|
|
(1,073 |
) |
|
|
(311 |
) |
|
|
(762 |
) |
Change in fair value of warrant liability |
|
|
(359 |
) |
|
|
1 |
|
|
|
(360 |
) |
Total other expense, net |
|
|
(1,428 |
) |
|
|
(299 |
) |
|
|
(1,129 |
) |
Net loss |
|
$ |
(38,207 |
) |
|
$ |
(21,283 |
) |
|
$ |
(16,924 |
) |
Grant Revenue
Grant revenue was $0.3 million for the March 31, 2022, compared to grant revenue of $0.3 million for the three months ended March 31, 2021. All of our grant revenue is derived from a grant made by the Bill & Melinda Gates Foundation in July 2020.
Research and Development Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
MARCH 31, |
|
|
INCREASE / |
|
Dollars (in thousands) |
|
2022 |
|
|
2021 |
|
|
(DECREASE) |
|
Program expense |
|
$ |
7,988 |
|
|
$ |
7,122 |
|
|
$ |
866 |
|
Personnel costs |
|
|
12,628 |
|
|
|
7,041 |
|
|
|
5,587 |
|
Other |
|
|
6,665 |
|
|
|
3,248 |
|
|
|
3,417 |
|
Total research and development expenses |
|
$ |
27,281 |
|
|
$ |
17,411 |
|
|
$ |
9,870 |
|
Research and development expense was $27.3 million for the three months ended March 31, 2022, compared to $17.4 million for the three months ended March 31, 2021. The increase of $9.9 million resulted primarily from increased program and personnel expenses, as well as facilities costs such as rent and depreciation expenses.
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Our headcount supporting research and development activities increased, which generated additional personnel-related costs of $5.6 million. Other research and development costs increased by approximately $3.4 million, primarily related to a $2.6 million increase in rental expense as we expanded our footprints and entered into multiple leases during 2021, and an increase of $0.9 million in depreciation expense due to an increase in capitalized spend in lab equipment and lab space leasehold improvement.
General and Administrative Expenses
General and administrative expense was $9.8 million for the three months ended March 31, 2022, compared to $3.9 million for the three months ended March 31, 2021. The increase of $5.9 million was primarily due to an increase of $2.7 million in personnel-related costs in general and administrative functions, which resulted from increased headcount supporting general and administrative activities; a $1.7 million increase in professional services fees to support the Business Combination Agreement; and an increase of $1.4 million related to facilities and other administrative expenses.
Interest Income
For the three months ended March 31, 2022, interest income decreased by an insignificant amount.
Interest Expense
Interest expense was $1.0 million for the three months ended March 31, 2022, compared to $0.3 million for the three months ended March 31, 2021. The increase of $0.7 million is primarily related to interest accrued on the various loan agreements we entered into during 2021.
Change in Fair Value of Warrant Liabilities
Expense attributable to the change in fair value of warrant liabilities was $0.3 million for the three months ended March 31, 2022, and zero for the three months ended March 31, 2021. The entire increase of $0.3 million in the fair value of our warrant liabilities was due to the increase in the estimated fair value of our common stock underlying the outstanding warrants.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have generated recurring net losses. We have not yet commercialized any product and we do not expect to generate revenue from sales of any products for several years, if at all. Since our inception, we have funded our operations primarily through proceeds from the issuance of preferred stock and to a lesser extent through the issuance of convertible notes and debt financings. From our founding through March 31, 2022, we have raised an aggregate of approximately $330.2 million of net proceeds from the sale of our preferred stock, the Business Combination, and from purchase of ENVI's Common Stock ("PIPE Prepayment"), and from from founding through March 31, 2022 we have raised $67.0 million from the issuance of debt and convertible notes. As of March 31, 2022, we had cash and cash equivalents of $83.2 million.
Business Combination and PIPE Financing .
In February 2022, GreenLight consummated the Business Combination with ENVI, which generated gross proceeds to New GreenLight of approximately $136.4 million, including $124.3 million from the PIPE Financing and $12.1 million from the trust account (after redemptions). The gross proceeds do not reflect transaction costs of $26.7 million. For more information, see “—Recent Developments—Business Combination and Public Company Costs” above.
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Horizon Loan Agreement
In December 2021, we entered into a loan and security agreement with Horizon Technology Finance Corporation and Powerscourt Investments XXV, LP (together, “Horizon”), which provided for a term loan facility in an aggregate principal amount of up to $25.0 million, $15.0 million of which was borrowed at the closing and the remainder of which may be borrowed following the achievement of certain milestones, but not after June 30, 2022. Under the agreement, in January 2022 the lenders were granted 10-year warrants to purchase shares of common stock of GreenLight. The warrants are exercisable in the aggregate for a number of shares equal to 3% of the total term loan facility (assuming we borrow the full facility amount of $25.0 million) divided by the exercise price of the warrants. Upon the closing of the Business Combination, the warrants became warrants to purchase shares of New GreenLight Common Stock based on the exchange ratio under the Business Combination Agreement.
Accrued interest is payable monthly. The principal of each term loan must be repaid in equal monthly installments beginning February 1, 2023 (or August 1, 2023 if we borrow any of the remaining $10.0 million), with a scheduled final maturity date of July 1, 2025. We may prepay the term loans in full, but not in part, without premium or penalty, other than a premium equal to (i) 3% of the principal amount of any prepayment made within 12 months after the applicable funding date, (ii) 2% of the principal amount of any prepayment made between 12 and 24 months after the applicable funding date and (iii) 1% of the principal amount of any prepayment made more than 24 months after the applicable funding date. On the earlier of the scheduled final maturity date and the prepayment in full of the term loans, we must pay a final payment fee equal to 3.0% of the original principal amount of the funded term loans.
The agreement contains customary affirmative and negative covenants (including an obligation to maintain certain amounts of cash in accounts subject to springing control in favor of the lenders) and customary events of default; it does not contain a financial covenant. We granted a second-priority, perfected security interest in substantially all of our present and future personal property and assets, excluding intellectual property, to secure our obligations to the lenders, which security interest is subordinated to the security interest granted to Silicon Valley Bank.
In April 2021, we entered into a joinder agreement with Horizon pursuant to which the Company became a party to the Horizon loan agreements as a co-borrower. Under the joinder agreement, the Company also granted Horizon a continuing security interest in its existing and after-acquired personal property and assets, excluding intellectual property.
Silicon Valley Bank Loan Agreement
In September 2021, we entered into a loan and security agreement with Silicon Valley Bank, or SVB, providing for a term loan facility in an aggregate principal amount of up to $15.0 million, $10.0 million of which we borrowed at the closing and the remainder of which we may borrow following the achievement of certain milestones, but not after March 31, 2022. We have not borrowed any additional amounts from SVB at the time of this filing. At the closing, we granted SVB a 10-year warrant to purchase up to 51,724 shares of GreenLight Common Stock (assuming we borrow the entire $15.0 million from SVB). Upon the closing of the Business Combination, the warrants became warrants to purchase shares of New GreenLight Common Stock based on the exchange ratio under the Business Combination Agreement.
Accrued interest is payable monthly. The principal of each term loan must be repaid in equal monthly installments beginning April 1, 2022 (or October 1, 2022, if the Company borrows any of the remaining $5.0 million), with a scheduled final maturity date of September 1, 2024. On the earlier of the scheduled final maturity date and the prepayment in full of the term loans, the Company must pay a final payment fee equal to 4.0% of the original principal amount of the term loans. The Company may prepay the term loans in increments of $5.0 million and without premium or penalty, other than a premium equal to (i) with respect to any prepayment made on or before September 22, 2022, 3% of the principal so prepaid, (ii) with respect to any prepayment made after September 22, 2022 and on or before September 22, 2023, 2% of the principal so prepaid and (iii) with respect to any prepayment made after September 22, 2023 and on or before September 1, 2024, 1% of the principal so prepaid.
The loan and security agreement with SVB contains customary affirmative and negative covenants (including an obligation to maintain cash in accounts at SVB sufficient to repay all loan obligations) and customary events of default; it does not contain a financial covenant. We granted a first-priority, perfected security interest in substantially all of our present and future personal property and assets, excluding intellectual property, to secure our obligations to SVB.
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In April 2021, we entered into a joinder agreement and first amendment to loan and security agreement with SVB pursuant to which the Company became a party to the SVB loan agreements as a borrower. Under these agreements, the Company also granted SVB a continuing security interest in its existing and after-acquired personal property and assets, excluding intellectual property. These agreements also amended certain terms of the original SVB loan agreement to, among other things, add representations, affirmative and negative covenants, and events of default regarding the Company’s obligations as a public benefit corporation. Under the amended terms, it is an event of default for there to be any pending or threatened litigation by a shareholder alleging that we or our directors failed to satisfy any obligations under Delaware law regarding our status as a public benefit corporation, if the litigation is likely to result in a final monetary judgment against us in excess of $250,000. In addition, if any action, investigation, or proceeding is pending or known to be threatened in writing against us with respect to such a claim, the bank may not need to make further loans to us.
Trinity Capital Equipment Financing Agreement
In March 2021, we entered into a master equipment financing agreement with Trinity Capital (Trinity) authorizing equipment financing with an aggregate borrowing capacity of $11.3 million, with up to $5.0 million available immediately and the remaining principal balance available to be drawn before September 2021. We entered into this loan to finance our capital purchases associated primarily with our research and manufacturing programs. The monthly payment factors for each draw are determined by Trinity based on the Prime Rate reported in the Wall Street Journal on the first day of the month in which an equipment financing schedule for such draw is executed. As of December 31, 2021, the Company had drawn the entire $11.3 million, which is repayable in monthly installments starting April 2021.
Funding Future Operations; Going Concern
The Company expects that its existing cash and cash equivalents of $83.2 million as of March 31, 2022 will not be sufficient to fund its operations for twelve months from the date we issued our audited consolidated financial statements. As a result, there is substantial doubt about our ability to continue as a going concern for at least one year from the date of issuance of our financial statements, as discussed in Note 1 of the notes to our condensed consolidated financial statements for the three months ended March 31, 2022 and 2021, included elsewhere herein.
Based on our existing cash and cash equivalents, we are evaluating a range of opportunities to extend cash runway, including management of program spending, platform licensing collaborations and potential financing activities.
We expect to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates through preclinical and clinical development and field trials, seek regulatory approval, and pursue commercialization of any approved product candidates. We expect that our research and development and general and administrative costs will increase in connection with our planned research and development activities. In addition, in light of the completion of the Business Combination, we expect to incur additional costs associated with operating as a public company. Because of the numerous risks and uncertainties associated with research, development, and commercialization of our product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future capital requirements will depend on many factors, including:
•the design, initiation, timing, costs, progress, and results of our planned clinical trials;
•the progress of preclinical development and possible clinical trials of our current and future earlier- stage programs;
•the scope, progress, results and costs of our research programs and preclinical development of any additional product candidates that we may pursue;
•the development requirements of other product candidates that we may pursue;
•our headcount growth and associated costs as we expand our research and development and establish a commercial infrastructure;
•the timing and amount of milestone and royalty payments that we are required to make or eligible to receive under our current or future collaboration and license agreements;
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•the outcome, timing and cost of meeting regulatory requirements established by the FDA, EPA and other regulatory authorities;
•the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval;
•the cost of expanding, maintaining, and enforcing our intellectual property portfolio, including filing, prosecuting, defending, and enforcing our patent claims and other intellectual property rights;
•the cost of defending potential intellectual property disputes, including patent infringement actions brought by third parties against us or any of our product candidates;
•the effect of competing technological and market developments;
•the cost and timing of completion of commercial-scale manufacturing activities;
•the extent to which we partner our programs, acquire or in-license other product candidates and technologies or enter into additional collaborations;
•the revenue, if any, received from commercial sales of any future product candidates for which we receive marketing approval; and
•the costs of operating as a public company.
Until we can generate product revenues to support our cost structure, if any, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, and other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation, dividend, redemption, and other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.
Cash Flows
The following table summarizes our cash flows for each of the periods presented:
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|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
MARCH 31, |
|
|
INCREASE / |
|
|
|
2022 |
|
|
2021 |
|
|
(DECREASE) |
|
Net cash (used in) operating activities |
|
$ |
(49,468 |
) |
|
$ |
(21,358 |
) |
|
$ |
(28,110 |
) |
Net cash (used in) investing activities |
|
|
(250 |
) |
|
|
(4,688 |
) |
|
|
4,438 |
|
Net cash provided by financing activities |
|
|
102,454 |
|
|
|
2,634 |
|
|
|
99,820 |
|
Net increase (decrease) in cash, cash equivalents
and restricted cash |
|
$ |
52,736 |
|
|
$ |
(23,412 |
) |
|
$ |
76,148 |
|
44
Operating Activities
Cash flows from operating activities represent the cash receipts and disbursements related to all our activities other than investing and financing activities. Operating cash flow is derived by adjusting our net loss for non-cash operating items such as depreciation, amortization, and stock-based compensation as well as changes in operating assets and liabilities, which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in our results of operations.
During the three months ended March 31, 2022, operating activities used $49.5 million of cash, primarily resulting from our net loss of $38.2 million, adjusted for non-cash items and the effect of changes in operating assets and liabilities. Non-cash adjustments primarily include stock-based compensation of $2.2 million and depreciation and amortization expense of $2.1 million. Net cash used by changes in our operating assets and liabilities for three months ended March 31, 2022 consisted primarily of a $9.5 million decrease in accounts payable and accrued expenses, a $6.5 million increase in prepaid expenses and other current assets, and an increase of $5.0 million in accounts receivable, partially offset by an increase in deferred revenue of $4.7 million. The increase in accounts payable and accrued expenses related to our increased level of operating activities and timing of vendor invoicing and payments. The increase in prepaid expenses and other assets was due to our increased level of research collaborations and manufacturing development activities related to our product candidates.
During the three months ended March 31, 2021, net cash used in operating activities was $21.4 million. Net cash used in operating activities consists of net loss of $21.3 million, adjusted for non-cash items and the effect of changes in operating assets and liabilities. Non-cash adjustments primarily include depreciation and amortization expense of $1.1 million and stock-based compensation of $0.3 million. Net cash used by changes in our operating assets and liabilities for the three months ended March 31, 2021, primarily consisted of a $1.6 million increase in prepaid expenses. The increase in prepaid expenses was primarily due to our increased level of research collaborations and manufacturing development activities related to our product candidates.
Investing Activities
During the three months ended March 31, 2022, investing activities used $0.3 million of cash, consisting of purchases of property and equipment, of which a substantial majority related to laboratory and facilities improvements in Research Triangle Park, North Carolina and purchases of laboratory equipment and facilities improvements for our manufacturing facility in Rochester, New York.
During the three months ended March 31, 2021, investing activities used $4.7 million of cash consisting of purchases of property and equipment, of which a substantial majority related to purchases of laboratory equipment and facilities improvements for our manufacturing facility in Rochester, New York, construction of cleanrooms and preclinical manufacturing capacity in our facility in Burlington, Massachusetts, and laboratory construction in our facility in Woburn, Massachusetts.
Financing Activities
During the three months ended March 31, 2022, financing activities provided $102.5 million of cash, consisting primarily of $80.5 million of net proceeds from the Business Combination, net of transaction costs, a $21.8 million in proceeds from issuance of convertible debt from PIPE Investors, and $1.2 million of proceeds from the exercise of public warrants, which were partially offset by $0.8 million of repayments on our secured debt and term loan payable.
During the three months ended March 31, 2021, financing activities provided $2.6 million of cash, consisting primarily of $2.8 million of proceeds from equipment financing.
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Contractual Obligations and Commitments
Operating Lease Obligations
We have non-cancelable operating lease obligations, consisting primarily of lease payment obligations for our facilities, including our headquarters in Medford, Massachusetts; clean rooms in Burlington, Massachusetts; office, laboratory and greenhouse space in Research Triangle Park, North Carolina; laboratory and office space in Woburn, Massachusetts; office and laboratory space in Lexington, Massachusetts, and our manufacturing facilities in Rochester, New York. The leases for these facilities expire on various dates through 2026, unless extended.
In March 2022, the Company entered into a lease for new laboratory space in Lexington, Massachusetts, with an anticipated commencement date of May 2022. The lease term expires in July 2033. The base rent for this lease is $3.9 million per year, subject to a 3% increase each year.
See Note 16, Commitments and Contingencies — Operating Leases, of the notes to our condensed consolidated financial statements for the three months ended March 31, 2022 and 2021, for further information on our future operating lease obligations.
Purchase Obligations
In the normal course of business, we enter into contracts with third parties for field trials, preclinical studies and research and development supplies. These contracts generally do not contain minimum purchase commitments and provide for termination on notice, and therefore are cancellable contracts.
License Agreement Obligations
In December 2020, we entered into an assignment and license agreement with Bayer CropScience LLP (“Bayer”) under which we may be obligated to make milestone and royalty payments. These payment obligations are contingent upon future events, such as achieving certain development, regulatory, and commercial milestones or generating product sales. The timing of these events is uncertain; accordingly, we cannot predict the period during which these payments may become due. We have agreed to pay up to $2.0 million in milestone payments under this assignment and license agreement when certain development milestones are met. The Company assessed the milestones at three months ended March 31, 2022 and concluded no such milestone payments were deemed probable nor due.
In August 2020, we entered into a license agreement with Acuitas Therapeutics, Inc. (“Acuitas”) under which we are obligated to make potential milestone payments, royalty payments, or both. These payment obligations are contingent upon future events, such as achieving certain clinical and regulatory milestones and generating product sales. Such payments are dependent upon the development of products using the intellectual property licensed under the agreements and are contingent upon the occurrence of future events. The potential clinical and regulatory milestone payments that Acuitas is entitled to receive is in the low double-digit millions for the first option exercised. With respect to the sale of each licensed products, the Company is also obligated to pay Acuitas royalties in the low single digit percentages on net sales of the licensed products by the Company and its affiliates and sublicensees in a given country until the last to occur, in such country, of (i) the expiration or abandonment of all licensed patent rights covering the licensed product, (ii) expiration of any regulatory exclusivity for the licensed product, or (iii) ten years from the first commercial sale of the licensed product. As of three months ended March 31, 2022, none of these events were deemed probable and hence no expenses were recorded.
Debt Obligations
See Note 10, Debt, of the notes to our condensed consolidated financial statements included elsewhere in this filing for further information on our future debt repayment obligations.
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Manufacturing Commitments and Obligations
In November 2021, we entered into the Samsung Agreements, pursuant to which we engaged Samsung as a contract development and manufacturing organization for our mRNA COVID-19 vaccine. Pursuant to the Samsung Agreements, we must, among other things, (a) pay Samsung service fees for its pharmaceutical development and manufacturing services, (b) purchase certain minimum quantities of drug products, and (c) pay Samsung, on a minimum take-or-pay basis for each year under the agreement, for our minimum purchase commitments, as determined under the terms of the Samsung Agreements. Based on our minimum purchase commitments, we expect to pay Samsung a minimum of approximately $11.5 million in service fees under the Samsung Agreements, excluding the cost of raw materials. Based on our current schedule, we expect to incur the substantial majority of these expenses in 2022 and a portion in the first quarter of 2023.
Critical Accounting Policies and Significant Judgments and Estimates
Our condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these condensed consolidated financial statements require us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. On a recurring basis, we evaluate our judgments and estimates in light of changes in circumstances, facts, and experience. The effects of material revisions in an estimate, if any, will be reflected in the condensed consolidated financial statements prospectively from the date of the change in the estimate.
We believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.
Revenue Recognition
Contract Revenue
In March 2022, the Company entered into a License Agreement (the “Agreement”) with Serum Institute of India Private Limited (“SIIPL”), pursuant to which the Company granted SIIPL an exclusive, sub-licensable, royalty-bearing license to use the Company’s proprietary technology platform to develop, manufacture and commercialize up to three mRNA products in all territories other than the United States, the 27 member states of the European Union, the United Kingdom, Australia, Japan, New Zealand, Canada, South Korea, China, Hong Kong, Macau, and Taiwan (the “SIIPL Territory”). The first licensed product target will be a shingles product target, and SIIPL has an option to select the additional two licensed product targets through the end of 2024. Under the terms of the Agreement with SIIPL, the Company will provide research search services related to the shingles product target to develop a “proof of concept” and will provide manufacturing technology transfer services. In addition, GreenLight retains the option purchase research plan and clinical trial data, developed by SIIPL, for 50% of the cost of the research plan and clinical trials for use in the Company’s own development.
SIIPL is responsible for the development, formulation, filling and finishing, registration and commercialization of the products in the SIIPL Territory, subject to oversight from a joint steering committee composed of representatives of the Company and SIIPL. SIIPL will use commercially reasonable efforts to develop and obtain regulatory approval for the products in the countries in the SIIPL Territory. The License Agreement includes terms customary in the industry for provisions related to sublicensing, intellectual property, and termination, and customary representations and warranties of GreenLight and SIIPL, along with certain customary covenants, including confidentiality, limitation of liability and indemnity provisions.
Pursuant to the License Agreement, SIIPL will pay the Company an upfront license fee of $5.0 million, as well as payments upon additional target selection and reservation of exclusivity. The Company may receive up to a total of an additional $22.0 million in development, regulatory and commercial (net sales) based milestone payments across all three product targets, as well as manufacturing technology transfer payments up to $10.0 million. SIIPL shall pay royalty payments in the mid-double digits, based on the net sales of products resulting from the licensed technology for the term of the License Agreement. The License Agreement shall terminate on a product-by product and country-by-country
47
basis on the later of the expiration of the patent rights owned by the Company or the tenth anniversary of the first commercial sale of the applicable product(s) in the applicable country. The Company had not received payment of the $5.0 million upfront license fee as of March 31, 2022, thus has recorded a receivable for the amount billed to SIIPL.
The Company has determined that the Agreement falls within the scope of ASC 606, as it includes a customer-vendor relation as defined by ASC 606 and meets the criteria of a contract. The Company has determined that the license of IP granted is not distinct from the research services and thus should be combined. The Agreement contains a single performance obligation for the combined License of IP/research services and the manufacturing technology transfer services. Revenue from the contract will be recognized over time, using an input-method. The Company has determined that variable consideration from the development and regulatory payments in the Agreement should be fully constrained as of March 31, 2022, and commercial milestones and royalties will be recognized in the period the underlying sales occur. Through March 31, 2022, no revenue had been recorded from the Agreement and the entire amount of upfront consideration is recorded as deferred revenue. Based on current estimated timelines, the Company expects to recognize the deferred revenue over approximately 18 months, and the portion expected to be recognized over the next 12 months is classified as current in the condensed consolidated balance sheet as of March 31, 2022.
Grant Revenue
In July 2020, we entered into a grant agreement with the Bill & Melinda Gates Foundation to advance research in in vivo gene therapy for sickle cell disease and to explore new, low-cost capabilities for the in vivo functional cure of sickle cell and/or durable suppression of HIV in developing countries. The grant agreement provides for payments to reimburse qualifying costs, including, general and administrative costs. As we are performing services under the agreement that are consistent with the Company’s ongoing central activities and we have determined that we are the principal in the agreement, we recognize grant revenue as we perform services under this agreement when the funding is committed, which occurs as underlying costs are incurred. Revenues and related expenses are presented gross in the condensed consolidated statement of operations as we have determined that we are the primary obligor under the agreement relative to the research and development services we perform as the lead technical expert.
Stock-Based Compensation
We measure stock-based awards granted to employees, non-employees and directors based on their fair value on the date of the grant using the Black-Scholes option-pricing model for options and the fair value of our common stock for restricted common stock awards. Compensation expense for those awards is recognized over the requisite service period, which is generally the vesting period of the respective award for employees and directors and the period during which services are performed for non-employees. We use the straight-line method to record the expense of awards with service-based vesting conditions. We recognize stock-based compensation for performance awards based on grant date fair value over the service period to the extent achievement of the performance condition is probable.
The fair value of our stock option awards is estimated using a Black-Scholes option-pricing model that uses the following inputs: (1) fair value of our common stock, (2) assumptions we make for the expected volatility of our common stock, (3) the expected term of our stock option awards, (4) the risk-free interest rate for a period that approximates the expected term of our stock option awards, and (5) our expected dividend yield, if any.
Determination of the Fair Value of Common Stock
Determination of the Fair Value of Common Stock As there has not been a public market for our common stock, the estimated fair value of our common stock was determined by our board of directors as of the date of grant of each option or restricted stock award, considering our most recently available third-party valuations of common stock and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Our common stock valuations were prepared using either an option pricing method (“OPM”) or a hybrid method, both of which used market approaches to estimate our enterprise value. The OPM treats common stock and preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes. Under this method, the common stock has value only if the funds available for distribution to stockholders exceed the value of the preferred stock
48
liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger. A discount for lack of marketability of the common stock is then applied to arrive at an indication of value for the common stock. The hybrid method is a probability-weighted expected return method (“PWERM”) where the equity value in one or more scenarios is calculated using an OPM. The PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for the company, assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. A discount for lack of marketability of the common stock is then applied to arrive at an indication of value for the common stock.
These independent third-party valuations were performed at various dates, which resulted in estimated valuations of our common stock by our board of directors of $0.46 per share as of December 31, 2019, $0.65 per share as of August 1, 2020, $0.82 per share as of December 31, 2020, $1.74 per share as of May 1, 2021, $5.26 per share as of September 30, 2021, and $5.89 per share as of December 31, 2021. In addition to considering the results of these third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, including:
•the prices at which we sold shares of preferred stock and the superior rights and preferences of the preferred stock relative to our common stock at the time of each grant;
•the progress of our research and development programs, including the status and results of our product candidates;
• our stage of development and commercialization and our business strategy;
•external market conditions affecting the biotechnology industry and trends within the biotechnology industry;
•our financial position, including cash on hand, and our historical and forecasted performance and operating results;
•the lack of an active public market for our common stock and our preferred stock;
•the likelihood of achieving a liquidity event given prevailing market conditions; and
•the analysis of IPOs and the market performance of similar companies in the biotechnology industry.
The assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the application of management’s judgment. As a result, if we had used different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different. Following the consummation of the Business Combination, the fair value of New GreenLight Common Stock will be determined based on the quoted market price on the Nasdaq Global Market.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Recently Adopted Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is provided in Note 2 to our condensed consolidated financial statements appearing elsewhere herein.
49
Emerging Growth Company and Smaller Reporting Company Status
New GreenLight is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding nonbinding stockholder advisory votes on executive compensation and any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective, have not filed and not withdrawn a Securities Act registration statement that has not become effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. New GreenLight has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, New GreenLight, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of New GreenLight’s financial statements with certain other public companies difficult or impossible because of the potential differences in accounting standards used.
New GreenLight will remain an emerging growth company until the earlier of: (i) the last day of the fiscal year (a) following the fifth anniversary of the closing of ENVI’s initial public offering, (b) in which New GreenLight has total annual gross revenue of at least $1.1 billion, or (c) in which New GreenLight is deemed to be a large accelerated filer, which means the market value of its common equity that is held by non-affiliates exceeds $700 million as of the last business day of its most recently completed second fiscal quarter; and (ii) the date on which New GreenLight has issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. References herein to “emerging growth company” have the meaning associated with it in the JOBS Act.
We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as the market value of our voting and non-voting Common Stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our voting and non-voting Common Stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.
50
