424B3

 

Filed Pursuant to 424(b)(3)

Registration Statement No. 333-262279

 

PROSPECTUS SUPPLEMENT NO. 1

(To Prospectus dated March 31, 2022)

 

 

https://cdn.kscope.io/946b1f06608b9232711c4726ba2a3f14-img209759552_0.jpg 

 

Up to 39,688,152 Shares of Common Stock

______________________

 

This prospectus supplement supplements the prospectus dated March 31, 2022 (the “Prospectus”), which forms a part of our registration statement on Form S-1 (File No. 333-262279). This prospectus supplement is being filed to update and supplement the information in the Prospectus with the information contained in our quarterly report on Form 10-Q for the period ended March 31, 2022, filed with the Securities and Exchange Commission on May 10, 2022 (the “Q1 2022 Quarterly Report”). Accordingly, we have attached the Q1 2022 Quarterly Report to this prospectus supplement.

 

The Prospectus and this prospectus supplement relate to the offering and resale by the selling stockholders identified in the Prospectus of up to 39,688,152 shares of our common stock, par value $0.0001 per share.

 

This prospectus supplement updates and supplements the information in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This prospectus supplement should be read in conjunction with the Prospectus and if there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.

 

Our common stock is listed on Nasdaq Global Market under the symbol “PRDS”. On May 9, 2022, the closing price of our common stock was $6.71 per share.

______________________

 

Investing in our securities involves risks that are described in the “Risk Factors” section beginning on page 11 of the Prospectus.

 

The registration statement to which the Prospectus and this prospectus supplement relates registers the resale of a substantial number of shares of our common stock by the selling stockholders. Sales in the public market of a large number of shares, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.

______________________

 

Neither the SEC nor any state securities commission has approved or disapproved of the securities to be issued under the Prospectus or this prospectus supplement or determined if the Prospectus or this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.

______________________

 

The date of this prospectus supplement is May 10, 2022

______________________

 

 


 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

Commission File Number 001-40067

 

PARDES BIOSCIENCES, INC.

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

 

85-2696306

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

2173 Salk Avenue, Suite 250

PMB#052

Carlsbad, CA

 

92008

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (415) 649-8758

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.0001 per share

 

PRDS

 

The Nasdaq Global Market

 

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of Registrant’s common stock outstanding as of May 5, 2022 was 62,320,924.

 

 

 

 


 

 

Table of Contents

 

 

 

Page

PART I

FINANCIAL INFORMATION

 

Item 1.

Condensed Financial Statements (Unaudited)

1

 

Condensed Balance Sheets

1

 

Condensed Statements of Operations and Comprehensive Loss

2

 

Condensed Statements of Stockholders’ Equity (Deficit)

3

 

Condensed Statements of Cash Flows

4

 

Notes to Unaudited Condensed Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

12

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

18

Item 4.

Controls and Procedures

19

 

 

 

PART II

OTHER INFORMATION

20

Item 1.

Legal Proceedings

20

Item 1A.

Risk Factors

20

Item 2.

Unregistered Sales of Equity and Use of Proceeds

64

Item 3.

Defaults Upon Senior Securities

64

Item 4.

Mine Safety Disclosures

64

Item 5.

Other Information

64

Item 6.

Exhibits

65

SIGNATURES

67

 

 

 

i


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements, which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future, including those relating to the success, cost and timing of our product development activities and clinical trials, the potential attributes and benefits of our product candidates, our ability to obtain and maintain regulatory approval for our product candidates and our ability to obtain funding for our operations. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

 

Forward-looking statements relating to us in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

the impact of the COVID-19 pandemic on our operations, financial results, and liquidity and capital resources, including due to the pandemic’s impact on our research and development activities, clinical trials, and employees;
the ability of our clinical trials to demonstrate acceptable safety and efficacy of our product candidates, including PBI-0451, our lead product candidate, and other positive results;
the timing, progress and results of clinical trials for PBI-0451 and completion of studies or trials and related preparatory work;
the period during which the results of the clinical trials will become available;
the initiation, timing, progress, results and costs of our research and development programs and our current and future preclinical studies, nonclinical studies and clinical trials;
our ability to initiate, recruit and enroll patients in and conduct our clinical trials at the pace that we project;
the timing, scope and likelihood of regulatory filings;
our ability to obtain emergency use authorization or marketing approval of PBI-0451 and any future product candidates on expected timelines, and to meet existing or future regulatory standards or comply with post-authorization or post-approval requirements;
our expectations regarding the potential market size, government stockpiling and the size of the patient populations for our product candidates, if approved for commercial use;
the performance of third parties in connection with the development of our product candidates, including third-party suppliers and manufacturers;
our intellectual property position and expectations regarding our ability to obtain and maintain intellectual property protection;
our ability to identify additional products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;
our expected future growth;
our estimates regarding expenses, future financial performance and capital requirements;
the impact of government laws and regulations in the United States and foreign countries;
our competitive position and expectations regarding developments and projections relating to our competitors and any competing therapies that are or become available;
developments and expectations regarding our industry; and
other risks and uncertainties indicated in this Quarterly Report, including those under “Risk Factors” herein, and other filings that have been made or will be made with the SEC.

 

The forward-looking statements in this Quarterly Report on Form 10-Q are based on current expectations and beliefs concerning future developments and their potential effects. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements.

ii


 

 

In addition, statements that we “believe,” and similar statements, reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe that such information forms a reasonable basis for such statements, such information may be limited or incomplete, and these statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

 

The risks and uncertainties include, but are not limited to, those factors described under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 29, 2022. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Some of these risks and uncertainties may in the future be amplified by the COVID-19 pandemic (including declines in SARS-CoV-2 infections) and there may be additional risks that we currently consider immaterial or which are unknown. It is not possible to predict or identify all such risks. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

iii


 

SUMMARY OF RISK FACTORS

 

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q. Set forth below is a summary list of the principal risk factors as of the date of filing of this Quarterly Report on Form 10-Q:

We have a limited operating history and no history of successfully developing or commercializing any approved therapeutic products, which may make it difficult to evaluate the success of our business to date and to assess the prospects for our future viability and ability to generate revenue and become profitable in the future.
We have incurred significant losses since our inception and expect to incur losses for the foreseeable future.
We will require additional capital to finance our operations, which may not be available to us on acceptable terms, or at all. As a result, we may not complete the development, manufacturing and commercialization of PBI-0451 or any other product candidates.
We are heavily dependent on the success of PBI-0451, our lead product candidate. Failure to obtain regulatory approval for PBI-0451 will prevent us from commercializing and marketing PBI-0451.
PBI-0451 and any other product candidates we may develop must undergo rigorous clinical trials and regulatory approvals, and results from early nonclinical studies or earlier-stage clinical trials may not be indicative of results in future clinical trials.
Our subsequent clinical trials may reveal significant adverse events not seen in our earlier clinical trials or preclinical or nonclinical studies and may result in a safety profile that could inhibit regulatory approval or market acceptance of any of our product candidates.
Interim, “topline” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data. As a result, interim and preliminary data should be viewed with caution until the final data are available. Adverse differences between preliminary or interim data and final data could significantly harm our business and financial prospects.
Enrollment and retention of participants in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered impossible by multiple factors outside our control, including significant competition for recruiting patients with COVID-19 in clinical trials, the availability of other competing therapies and currently declining infection rates.
We have completed dosing of PBI-0451, our lead product candidate, in our first-in-human Phase 1 clinical trial, but we have not commenced clinical trials on efficacy. Accordingly, there is significant uncertainty around the development of PBI-0451 as a potential treatment for coronavirus generally, and SARS-CoV-2 infections and COVID-19 specifically.
We must attract and retain highly skilled employees to succeed. If we are not able to retain our current team or continue to attract and retain qualified scientific, technical and business personnel, our business will suffer.
PBI-0451 may face significant competition from other treatments for SARS-CoV-2 infections that are in development. If our competitors develop and market products faster or that are more effective, safer or less expensive than the product candidates we develop, our commercial opportunities will be negatively impacted. Our ability to obtain any future funding for our development and manufacturing efforts or to ultimately commercialize a therapy for SARS-CoV-2 infections, if approved, could also be impacted by the success or failure of other entities, or perceived success or failure of their therapeutic candidates.
We may expend resources in anticipation of clinical trials and potential commercialization of PBI-0451, which we may not be able to recover if PBI-0451 is not authorized or approved for the treatment of SARS-CoV-2 or we are not successful at commercializing PBI-0451.
COVID-19 continues to cause significant morbidity and mortality globally. The number of infections, and the morbidity associated with those infections, however, change continuously. As a result, we may find enrollment of patients for clinical trials to be a challenge, and/or may find that the severity of disease declines over time such that it becomes challenging to enroll the number of patients required to demonstrate statistically significant improvements in endpoints related to hospitalizations, morbidity and mortality. If enrollment is delayed or takes longer than expected this could impact our ability to seek an EUA while the pathway is available and could delay the collection of data sufficient to meet our endpoints and seek marketing approval.

iv


 

The regulatory pathways for our product candidates targeting coronaviruses, including SARS-CoV-2, the virus that causes COVID-19, are continually evolving, and may result in unexpected or unforeseen challenges.
In addition to seeking an emergency use authorization (“EUA”) for PBI-0451, if available when we have sufficient clinical data and which the FDA has applied to certain COVID-19 treatments, we may also attempt to secure conditional approvals or emergency authorizations in other countries outside of the US. If we are unable to obtain such authorizations, or those pathways are no longer available to us at the time we would be seeking authorizations, we may be required to conduct additional nonclinical studies or clinical trials beyond those contemplated for accelerated authorization, which could delay our ability to generate revenue and increase the expense of obtaining, and delay in the receipt of, necessary marketing approvals. Even if we receive an emergency authorization from the FDA or other regulators, if our confirmatory clinical trials do not verify clinical benefit, or if we do not comply with rigorous post-marketing requirements, the FDA or other regulators may seek to withdraw conditional approval or emergency authorization.
Our success depends upon our ability to obtain and maintain intellectual property protection for our products and technologies. Proprietary rights and technology are difficult and costly to protect, and we may not be able to ensure their protection.
We contract with third parties for the manufacture of our product candidates for nonclinical and clinical testing and expect to continue to do so for subsequent clinical trials and for commercialization. Significant portions of our clinical manufacturing are currently conducted by outside of the United States, including China. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products, if approved, or that such supply will not be available to us at an acceptable cost and in accordance with anticipated timelines, which could delay, prevent or impair our development or commercialization efforts.
We may seek to establish collaborations, and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans.
The price of our common stock may be volatile.
The future sales of shares by existing stockholders and future exercise of registration rights may adversely affect the market price of our common stock.

v


 

PART I—FINANCIAL INFORMATION

 

Item 1. Condensed Financial Statements (Unaudited).

 

PARDES BIOSCIENCES, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and par value data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

247,919

 

 

$

268,678

 

Prepaid expenses and other current assets

 

 

7,225

 

 

 

6,581

 

Total current assets

 

 

255,144

 

 

 

275,259

 

Total assets

 

$

255,144

 

 

$

275,259

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,366

 

 

$

2,385

 

Accrued expenses

 

 

6,397

 

 

 

6,580

 

Total current liabilities

 

 

8,763

 

 

 

8,965

 

Total liabilities

 

 

8,763

 

 

 

8,965

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock: $0.0001 par value; 10,000,000 shares authorized at March 31, 2022 and December 31, 2021; no shares issued and outstanding at March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock: $0.0001 par value at March 31, 2022 and December 31, 2021; 250,000,000 shares authorized at March 31, 2022 and December 31, 2021; 62,378,996 shares issued at March 31, 2022 and December 31, 2021; and 57,376,298 and 56,765,533 shares outstanding at March 31, 2022 and December 31, 2021, respectively

 

 

6

 

 

 

6

 

Additional paid-in capital

 

 

319,339

 

 

 

317,812

 

Accumulated deficit

 

 

(72,964

)

 

 

(51,524

)

Total stockholders' equity

 

 

246,381

 

 

 

266,294

 

Total liabilities and stockholders' equity

 

$

255,144

 

 

$

275,259

 

 

The accompanying notes are an integral part of these condensed financial statements.

1


 

PARDES BIOSCIENCES, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

(in thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

$

13,199

 

 

$

3,445

 

General and administrative

 

 

8,226

 

 

 

1,081

 

Total operating expenses

 

 

21,425

 

 

 

4,526

 

Other income (expense):

 

 

 

 

 

 

Other (expense) income, net

 

 

(15

)

 

 

3

 

Net loss and comprehensive loss

 

$

(21,440

)

 

$

(4,523

)

Net loss per share, basic and diluted

 

$

(0.38

)

 

$

(6.19

)

Weighted-average number of common shares used in computing net loss per share, basic and diluted

 

 

57,039,069

 

 

 

731,175

 

 

The accompanying notes are an integral part of these condensed financial statements.

2


 

PARDES BIOSCIENCES, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

(in thousands, except share amounts)

 

 

 

Three Months Ended March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Convertible
Preferred Stock

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

Total
Stockholders'

 

 

 

Number of
Shares

 

 

Amount

 

 

 

Number of
Shares

 

 

$0.0001
Par Value

 

 

Paid-In
Capital

 

 

Accumulated
Deficit

 

 

Equity
(Deficit)

 

Balance at December 31, 2021

 

 

 

 

$

 

 

 

 

56,765,533

 

 

$

6

 

 

$

317,812

 

 

$

(51,524

)

 

$

266,294

 

Vesting of restricted stock
   awards into common stock

 

 

 

 

 

 

 

 

 

610,765

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation
   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,527

 

 

 

 

 

 

1,527

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,440

)

 

 

(21,440

)

Balance at March 31, 2022

 

 

 

 

$

 

 

 

 

57,376,298

 

 

$

6

 

 

$

319,339

 

 

$

(72,964

)

 

$

246,381

 

 

 

 

 

Three Months Ended March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Convertible
Preferred Stock

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

Total
Stockholders'

 

 

 

Number of
Shares

 

 

Amount

 

 

 

Number of
Shares

 

 

$0.00001
Par Value

 

 

Paid-In
Capital

 

 

Accumulated
Deficit

 

 

Equity
(Deficit)

 

Balance at December 31, 2020

 

 

 

 

$

 

 

 

 

 

 

$

 

 

$

 

 

$

(13,006

)

 

$

(13,006

)

Issuance of Series A
   convertible preferred stock
   for cash, net of issuance
   costs of $176

 

 

13,756,122

 

 

 

44,324

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of SAFE
   agreements into shares of
   convertible preferred stock

 

 

5,845,071

 

 

 

14,808

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of restricted stock
   awards into common stock

 

 

 

 

 

 

 

 

 

1,534,646

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation
   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76

 

 

 

 

 

 

76

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,523

)

 

 

(4,523

)

Balance at March 31, 2021

 

 

19,601,193

 

 

$

59,132

 

 

 

 

1,534,646

 

 

$

 

 

$

76

 

 

$

(17,529

)

 

$

(17,453

)

 

The accompanying notes are an integral part of these condensed financial statements.

3


 

PARDES BIOSCIENCES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Operating activities:

 

 

 

 

 

 

Net loss

 

$

(21,440

)

 

$

(4,523

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation expense

 

 

1,527

 

 

 

76

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(645

)

 

 

(6

)

Accounts payable

 

 

216

 

 

 

(303

)

Accrued expenses

 

 

(20

)

 

 

1,008

 

Net cash used in operating activities

 

 

(20,362

)

 

 

(3,748

)

Financing activities:

 

 

 

 

 

 

Proceeds from issuance of convertible preferred stock

 

 

 

 

 

44,500

 

Cash paid for deferred offering costs

 

 

(397

)

 

 

(83

)

Payment of issuance costs for convertible preferred stock

 

 

 

 

 

(176

)

Net cash provided by financing activities

 

 

(397

)

 

 

44,241

 

(Decrease) increase in cash and cash equivalents

 

 

(20,759

)

 

 

40,493

 

Cash and cash equivalents at beginning of period

 

 

268,678

 

 

 

3,410

 

Cash and cash equivalents at end of period

 

$

247,919

 

 

$

43,903

 

Non-cash financing activities:

 

 

 

 

 

 

Conversion of 2020 SAFE agreements into shares of convertible preferred stock

 

$

 

 

$

14,808

 

Deferred offering costs included in accounts payable and accrued expenses

 

$

 

 

$

174

 

 

The accompanying notes are an integral part of these condensed financial statements.

4


 

PARDES BIOSCIENCES, INC.

Notes to Unaudited Condensed Financial Statements

Note 1. Description of Business

Description of Business

Unless the context otherwise requires, references in these notes to “Pardes,” “the Company,” “we,” “us” and “our” and any related terms are intended to mean Pardes Biosciences, Inc. and its subsidiary.

Pardes Biosciences, Inc. is a clinical-stage biopharmaceutical company focused on discovering, developing and commercializing novel therapeutics to improve the lives of patients suffering from life-threatening disease, starting with our lead product candidate, PBI-0451, which is in clinical development and intended to treat and prevent coronaviral (CoV) infections. COVID-19 is caused by infection with the severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), and has emerged as the most significant pandemic threat to the world in many decades. We have built a discovery platform designed to target reactive nucleophiles, such as those in cysteine proteases. By leveraging our deep understanding of structure-based drug design, reversible covalent chemistry and viral biology, we have discovered and are developing novel product candidates with low nanomolar potency against SARS-CoV-2 and broad activity against all known pathogenic human coronaviruses. Our lead product candidate, PBI-0451, inhibits the main coronaviral cysteine protease, a viral protein essential for replication of all known coronaviruses, including SARS-CoV-2.

References in these notes to the unaudited condensed financial statements to “Pardes Biosciences, Inc.,” refer to Pardes Biosciences Sub, Inc., a Delaware corporation incorporated in February 2020 and formerly known as Pardes Biosciences, Inc. (“Old Pardes”), for the periods prior to its business combination transaction that took place on December 23, 2021 and Pardes Biosciences, Inc., a Delaware corporation incorporated in August 2020 and formerly known as FS Development Corp. II (“FSDC II”), and its subsidiary for the periods following the Business Combination.

Business Combination

On December 23, 2021 (the “Closing Date”), Old Pardes and FSDC II completed the transactions contemplated by the Agreement and Plan of Merger, dated as of June 29, 2021 (as amended on November 7, 2021, the “Merger Agreement”), by and among Old Pardes, Shareholder Representative Services LLC, a Colorado limited liability company solely in its capacity as the representative, agent and attorney-in-fact of the Company Securityholders (as defined in the Merger Agreement), FSDC II and Orchard Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of FSDC II (“Merger Sub”). FSDC II was formed in August 2020 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

On the day prior to the Closing Date, Old Pardes changed its name to “Pardes Biosciences Sub, Inc.” Pursuant to the Merger Agreement, on the Closing Date, (i) FSDC II changed its name to “Pardes Biosciences, Inc.” (together with its consolidated subsidiary, “New Pardes”), and (ii) Old Pardes merged with and into Merger Sub (the “Merger”), with Old Pardes as the surviving company in the Merger and, after giving effect to such Merger, Old Pardes becoming a wholly-owned subsidiary of New Pardes. On January 31, 2022, Old Pardes merged with and into New Pardes.

 

In connection with the transactions contemplated under the Merger Agreement and described above (collectively, the “Business Combination”) certain investors purchased an aggregate of $75.0 million of our common stock in a private placement of public equity (the “PIPE Investment”). Together with FSDC II’s cash resources and funding of the PIPE Investment, we received net proceeds of approximately $257.5 million.

 

For additional information on the Business Combination, please refer to Note 4, Business Combination, to the consolidated financial statements included in Part II, Item 8 of our Form 10-K for the fiscal year ended December 31, 2021.

 

Through March 31, 2022, we have funded our operations primarily with proceeds from the issuance of Simple Agreements for Future Equity (“SAFEs”), convertible preferred stock financing, the Business Combination and the PIPE Investment. We believe that our $247.9 million of cash and cash equivalents as of March 31, 2022 will enable us to fund our current planned operations for at least twelve months from the issuance date of these condensed financial statements, though we may raise additional capital through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements, government funding and grants. Management’s expectations with respect to our ability to fund current planned operations is based on estimates that are subject to risks and uncertainties. Our operating plan may change as a result of many factors currently unknown to management, and there can be no assurance that the current operating plan will be achieved in the time frame anticipated by us or at all, and we may need to seek additional funds sooner than anticipated. If adequate funds are not available to us on a timely basis, on acceptable terms or at all, management may be required to delay, limit, reduce or terminate certain of its research, product development or future commercialization efforts, obtain funds through arrangements with collaborators on terms unfavorable to us, or pursue merger or acquisition strategies, all of which could adversely affect the holdings or the rights of our stockholders.

5


 

 

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the Securities and Exchange Commission (“SEC”) on March 29, 2022, from which we derived our balance sheet as of December 31, 2021. The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying unaudited condensed financial statements reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of our management, necessary to a fair statement of the results for the interim periods presented. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022 or for any other future annual or interim period.

As a result of the Business Combination, the shares and corresponding capital amounts and loss per share amounts related to Old Pardes’ outstanding redeemable convertible preferred stock and common stock prior to the Business Combination have been retroactively restated to reflect the conversion ratio of 1.4078 (“Conversion Ratio”) established in the Merger Agreement. For additional information on the Business Combination and the Conversion Ratio, please read Note 4, Business Combination, to the audited consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Use of Estimates

The preparation of the unaudited condensed financial statements in accordance with GAAP requires our management to make estimates and assumptions that affect the amounts reported on our unaudited condensed financial statements and accompanying notes. The amounts reported could differ under different estimates and assumptions. On an ongoing basis, we evaluate our estimates and judgements, which are based on historical and anticipated results and trends and on various other assumptions that management believes to be reasonable under the circumstances. Though the impact of the COVID-19 pandemic on our business and operating results presents additional uncertainty, we continue to use the best information available to form our critical accounting estimates. By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ from management’s estimates.

Impact of COVID-19

In December 2019, a novel strain of coronavirus, which causes the disease known as COVID-19, was reported to have surfaced. Since then, COVID-19 has spread globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic and the U.S. government imposed travel restrictions on travel between the United States, Europe and certain other countries. The outbreak and government measures taken in response thereto have had a significant impact, both direct and indirect, on businesses and commerce, as certain worker shortages have occurred, supply chains have been disrupted, and facilities and production have been suspended. The future progression of the pandemic and its effects on our business and operations are uncertain.

We are monitoring the potential impact of COVID-19 on our business and condensed financial statements. The effects of the public health directives and our work-from-home policies may negatively impact productivity, disrupt our business, and delay clinical programs and timelines and future clinical trials, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact business, results of operations and financial condition, including our ability to obtain financing.

To date, we have not incurred impairment losses in the carrying values of our assets as a result of the COVID-19 pandemic and are not aware of any specific related event or circumstance that would require us to revise our estimates reflected in the unaudited condensed financial statements.

We cannot be certain what the overall impact of the COVID-19 pandemic will be on our business and prospects. The extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations, financial condition, and liquidity, including planned and future clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19, the actions taken to contain or treat it, and the duration and intensity of the related effects.

Significant Accounting Policies

The accounting policies we follow are set forth in our audited consolidated financial statements for the fiscal year ended December 31, 2021. For further information, please refer to the consolidated financial statements and footnotes thereto included in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. There have been no material changes to these accounting policies.

6


 

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common stock equivalents outstanding for the period determined using the treasury-stock method. Common stock equivalents are only included in the calculation of diluted earnings per common share when net income is reported and their effect is dilutive. For the periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to our net loss position. Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two-class method required for participating securities as shares of unvested restricted stock are considered participating securities. Our participating securities do not have a contractual obligation to share in our losses. As such, the net loss was attributed entirely to common stockholders for all periods presented.

As a result of the Business Combination, we have retroactively restated the weighted-average number of common shares and common stock equivalent outstanding prior to December 23, 2021 to give effect to the Conversion Ratio.

The following outstanding shares of potentially dilutive securities were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods presented because including them would be anti-dilutive (in common stock equivalent shares):

 

 

 

March 31, 2022

 

 

March 31, 2021

 

Conversion of outstanding convertible preferred stock

 

 

 

 

 

19,601,193

 

Outstanding stock options

 

 

6,380,596

 

 

 

1,154,302

 

Restricted common stock subject to repurchase or forfeiture

 

 

4,944,626

 

 

 

8,227,040

 

Total

 

 

11,325,222

 

 

 

28,982,534

 

 

 

New Accounting Pronouncements Adopted and Not Yet Adopted

In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-06 (“ASU 2020-06”): Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models. The diluted net income per share calculation for convertible instruments will require us to use the if-converted method. For contracts in an entity’s own equity, the type of contracts primarily affected by this update are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement conditions of the derivative scope exception. This update simplifies the related settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective for us on January 1, 2024, with early adoption permitted. ASU No. 2020-06 can be adopted on either a fully retrospective or modified retrospective basis. We early adopted this update on January 1, 2022 using the modified retrospective method of transition and the impact on our financial statements was not material.

In December 2019, the FASB issued ASU 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, an authoritative guidance that simplifies the accounting for income taxes by removing certain exceptions and making simplifications in other areas. ASU 2019-12 is effective from the first quarter of fiscal year 2022. We adopted this update on January 1, 2022 and the impact on our financial statements was not material.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 362): Measurement of Credit Losses on Financial Statements (“ASU 2016-13”). The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. The targeted transition relief standard allows filers an option to irrevocably elect the fair value option of ASC 825-10, Financial Instruments-Overall, applied on an instrument-by-instrument basis for eligible instruments. ASU 2016-13 is effective for us on January 1, 2023, with early adoption permitted. We do not expect this update to have a material impact on our financial statements.

7


 

Note 3. Fair Value Measurements

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1 — Observable inputs such as quoted prices in active markets;

Level 2 — Inputs other than quoted prices in active markets that are either directly or indirectly observable; and

Level 3 — Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

At March 31, 2022 and December 31, 2021, we did not have financial assets that are measured at fair value on a recurring basis.

As further described in Note 6, between April 2020 and December 2020, we entered into several SAFEs, (collectively the “2020 SAFEs”) with certain investors. We recorded the liability related to the 2020 SAFEs at fair value and subsequently remeasured the instruments to fair value using Level 3 fair value measurements.

The fair value of the 2020 SAFEs was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. We determined the fair value of the 2020 SAFEs based on the amount of proceeds received from new third-party investors for the 2020 SAFEs, the terms of the 2020 SAFEs, including the rate at which the 2020 SAFEs convert into qualified equity financing securities, the probability and timing of a qualified equity financing and the fair value of the underlying preferred stock. Estimates and assumptions impacting the fair value measurement include the probability of a qualified equity financing as defined in the 2020 SAFEs agreements, the expected timing of such event, and the fair value of our Series A preferred stock (the “Series A Preferred”). We estimated the probability and timing of the qualified equity financing based on management’s assumptions and knowledge of specified events at issuance and as of each reporting date.

The following table provides a reconciliation of all liabilities measured at fair value using Level 3 significant unobservable inputs (in thousands):

 

Balance as of January 1, 2021

 

$

14,808

 

Conversion into shares of convertible preferred stock

 

 

(14,808

)

Balance as of March 31, 2021

 

$

 

 

Note 4. Prepaid Expenses And Other Current Assets

 

Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Prepaid insurance

 

$

4,331

 

 

$

5,286

 

Prepaid research and development costs

 

 

2,185

 

 

 

639

 

Other prepaid expenses and current assets

 

 

709

 

 

 

656

 

Total

 

$

7,225

 

 

$

6,581

 

 

Note 5. Accrued Expenses

 

Accrued expenses consisted of the following (in thousands):

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Research and development accruals

 

$

4,499

 

 

$

4,050

 

Accrued compensation

 

 

1,271

 

 

 

1,659

 

Other accrued expenses

 

 

627

 

 

 

871

 

Total

 

$

6,397

 

 

$

6,580

 

 

8


 

Note 6. Simple Agreements for Future Equity

Between April 2020 and December 2020, we entered into the 2020 SAFEs, pursuant to which we received funding of $7.1 million in cash in exchange for SAFEs providing the investors the right to receive shares of our capital stock.

The 2020 SAFEs contained a number of conversion and redemption provisions, including settlement upon liquidity or dissolution events. The 2020 SAFEs required that we issue equity to the SAFE holders in exchange for their investment upon an equity financing. An equity financing was defined as a transaction or series of transactions with the principal purpose of raising capital, pursuant to which we issued and sold preferred stock at a fixed valuation. The number of shares to be received by the 2020 SAFE investors was determined as the greater of the SAFE purchase amount divided by (i) the lowest price per share of the Series A Preferred or (ii) the SAFE purchase amount divided by the SAFE price per share. A liquidity event meant a change in control, a direct listing, or an initial public offering. In a liquidity or dissolution event, the investors’ right to receive cash out was junior to payment of outstanding indebtedness and creditor claims, on par for other SAFEs and preferred stock, and senior to common stock. The 2020 SAFEs had no interest rate or maturity date, and the 2020 SAFE investors had no voting right prior to conversion.

The 2020 SAFEs were automatically converted on January 19, 2021, into 3,967,207 shares (2,818,034 shares as originally issued) of Series A-1 Preferred Stock, 852,908 shares (605,850 shares as originally issued) of Series A-2 Preferred Stock and 1,024,956 shares (728,058 shares as originally issued) of Series A-3 Preferred Stock with an aggregate fair value of $14.8 million based on the conversion ratio described in each respective SAFE agreement. The conversion price was $1.2420 for the Series A-1 Preferred Stock, $2.4841 for the Series A-2 Preferred Stock and $2.8981 for the Series A-3 Preferred Stock.

Note 7. Stockholders’ Equity

The condensed statements of stockholders’ equity have been retroactively adjusted for all periods presented to reflect the Business Combination and reverse capitalization as defined in Note 4, Business Combination, to the consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Convertible Preferred Stock

In January 2021, we sold 13,756,122 shares (9,771,414 shares as originally issued) of Series A Preferred Stock for gross proceeds of $44.5 million and issued a total of 5,845,071 shares (4,151,942 shares as originally issued) of Series A-1, A-2 and A-3 Preferred Stock in satisfaction of our obligation under the 2020 SAFEs. On December 23, 2021, in connection with the closing of the Business Combination and pursuant to the Merger Agreement, all previously issued and outstanding Series A and Series A-1, A-2 and A-3 Preferred Stock were exchanged for shares of our common stock, respectively, pursuant to the Conversion Ratio. All fractional shares were rounded down.

Upon the closing of the Business Combination, pursuant to the terms of the Second Amended and Restated Certificate of Incorporation dated December 23, 2021 (the “Certificate of Incorporation”), we authorized 10,000,000 shares of preferred stock, par value $0.0001 per share, all of which shares of preferred stock are undesignated. Our board of directors (the “Board”) has the authority, without further action by the stockholders, to issue such shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, and to fix the designations, powers, voting, and other rights, preferences and privileges of the shares. As of March 31, 2022 and December 31, 2021, there were no shares of preferred stock outstanding.

Common Stock

In January 2021, we sold 105,585 shares (75,000 shares as originally issued) of restricted common stock to two directors of our Board for their Board services. The proceeds from the restricted common stock sale were immaterial to the condensed consolidated financial statements. The stock is subject to vesting ratably each month over 48 months.

 

Pursuant to the Certificate of Incorporation, as of March 31, 2022 and December 31, 2021, there were 250,000,000 shares of common stock, par value $0.0001 per share, authorized. There were 62,378,996 shares issued as of March 31, 2022 and December 31, 2021.

 

In March 2022, in connection with the departure of a former employee, the Company repurchased 58,072 unvested shares of common stock for an aggregate purchase price of $0.41. For accounting purposes, unvested restricted stock and the unvested shares repurchased by us are not deemed to be outstanding. Accordingly, there were 57,376,298 and 56,765,533 shares deemed outstanding as March 31, 2022 and December 31, 2021, respectively.

9


 

Note 8. Stock-Based Compensation

The following table summarizes stock-based compensation expense for all stock-based compensation arrangements (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Research and development

 

$

463

 

 

$

14

 

General and administrative

 

 

1,064

 

 

 

62

 

Total stock-based compensation

 

$

1,527

 

 

$

76

 

 

As of March 31, 2022, the total unrecognized compensation cost related to outstanding time-based options was $26.7 million, which is expected to be recognized over a weighted-average period of 3.4 years.

 

During the three months ended March 31, 2022 and 2021, we granted options to purchase 3,071,250 shares and 1,154,299 shares, respectively, of our common stock at the weighted-average grant date fair value of $9.55 and $3.78 per share, respectively. The assumptions used in the Black-Scholes option pricing model to determine the fair value of the stock options granted in the three months ended March 31, 2022 and 2021, were as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

2021

 

Risk-free interest rate

 

1.62 - 1.79%

 

 

1.20

%

Expected volatility

 

61.48 - 61.56%

 

 

81.60

%

Expected option life (in years)

 

6.00 - 6.08

 

 

6.20

 

Expected dividend yield

 

-%

 

-%

 

Exercise price

 

$6.00-$11.32

 

$0.01-$3.84

 

 

As disclosed in the Note 10 below, on March 25, 2022, our former Chief Executive Officer and President, Dr. Lopatin entered into the Transition and Separation Agreement and General Release of Claims (the “Separation Agreement”) and Consulting Agreement (the “Consulting Agreement”) with us, according to which Dr. Lopatin will continue as our full-time employee in the role of Chief Scientific and Strategic Advisor until April 30, 2022. Commencing May 1, 2022, and continuing through July 31, 2022, Dr. Lopatin’s hours will be reduced, and his annualized base salary will be subject to proportionate reduction upon reduction in hours. Starting from August 1, 2022, Dr. Lopatin will perform consulting services for us. As a result, Dr. Lopatin’s status as an employee will change. We considered Dr. Lopatin’s continued employment through July 31, 2022 as substantive for accounting purposes; however, his consulting service beginning on August 1, 2022 is not considered by us to be substantive for accounting purposes. This resulted in the recognition of Dr. Lopatin’s remaining unrecognized stock compensation expense in the amount of $2.6 million as of March 25, 2022 over the remaining vesting period of March 25, 2022 through July 31, 2022. The amount of stock-based compensation expense related to the three months ended March 31, 2022 is nominal.

Note 9. Commitments and Contingencies

Contingencies

From time to time, we may become subject to claims or suits arising in the ordinary course of business. We accrue a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. As of March 31, 2022 and December 31, 2021, we were not a party to any material legal proceedings.

10


 

Note 10. Related Party Transactions

Consulting agreements

On March 1, 2022, Dr. Lopatin, our former Chief Executive Officer and President transitioned to the non-executive employee role of Chief Scientific and Strategic Advisor. On March 25, 2022, Dr. Lopatin entered into the Separation Agreement and Consulting Agreement with us. The Separation Agreement provides that until April 30, 2022, Dr. Lopatin will continue as our full-time employee in the role of Chief Scientific and Strategic Advisor and will continue to receive his base salary at his then current annualized rate. Commencing May 1, 2022, and continuing through July 31, 2022 (the “Separation Date”), Dr. Lopatin’s hours will be reduced and his annualized base salary will be subject to proportionate reduction upon reduction in hours. Immediately following the Separation Date, Dr. Lopatin will transition to a consultant pursuant to the Consulting Agreement. Dr. Lopatin will also remain on our Board as a Class III director until our 2024 annual meeting of stockholders and until his successor is duly elected and qualified, or, if sooner, until his earlier death, resignation or removal. Following the Separation Date, Dr. Lopatin will be entitled to compensation for his Board service consistent with the compensation provided to other non-employee directors under our Non-Employee Director Compensation Policy. Pursuant to the Separation Agreement, subject to Dr. Lopatin agreeing to a release of claims in favor of us and complying with certain other continuing obligations contained therein, we will provide Dr. Lopatin the severance benefits of a Tier 1 Executive under the terms and conditions set forth in the Executive Severance Plan, including (i) a severance amount equal to 12 months of his annual base salary in effect as of the date the Separation Agreement was signed and (ii) up to 12 months of monthly cash payments equal to the monthly employer contribution that we would have made to provide health insurance for Dr. Lopatin if he had remained employed by us based on the premiums as of the date of the Separation Date. We and Dr. Lopatin also executed the Consulting Agreement to be effective immediately following the Separation Date. Under the Consulting Agreement, Dr. Lopatin will additionally serve as a part-time consultant providing scientific and strategic advisory services and other projects as may be requested by the Chief Executive Officer until March 2, 2024, unless earlier terminated by either party in accordance with the terms of the Consulting Agreement. As of March 31, 2022, we accrued $0.5 million for Dr. Lopatin’s severance and compensation.

11


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited condensed financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 and with our audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 29, 2022, and other filings we have made with the SEC. As discussed under the heading “Cautionary Note Regarding Forward-Looking Statements”, this discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q. Actual results may differ materially from those described in or implied by any forward-looking statements.

 

Overview

We are a clinical-stage biopharmaceutical company focused on discovering, developing and commercializing novel therapeutics to improve the lives of patients suffering from life-threatening disease, starting with our lead product candidate, PBI-0451, which is in clinical development and intended to treat and prevent coronaviral (CoV) infections. COVID-19 is caused by infection with the severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) and has emerged as the most significant pandemic threat to the world in many decades. We have built a discovery platform designed to target reactive nucleophiles, such as those in cysteine proteases. By leveraging our understanding of structure-based drug design, reversible covalent chemistry and viral biology, we have discovered and are developing novel product candidates with low nanomolar potency against SARS-CoV-2 and broad activity against all known pathogenic human coronaviruses. Our lead product candidate, PBI-0451, inhibits the main coronaviral cysteine protease (Mpro), a viral protein essential for replication of all known coronaviruses, including SARS-CoV-2. In preclinical studies, PBI-0451 has demonstrated activity against all coronaviral proteases tested, as well as inhibition of replication of multiple coronaviruses, including SARS-CoV-2. Moreover, in preclinical studies, PBI-0451 demonstrated the potential for oral bioavailability across multiple preclinical species, and more recently, oral bioavailability in healthy volunteers in our first-in-human Phase 1 clinical trial. We believe the anti-viral potency seen against SARS-CoV-2 in preclinical in vitro studies and demonstrated oral bioavailability in humans supports its potential to be an oral direct acting antiviral (“DAA”) for use against SARS-CoV-2 infections. We plan to develop PBI-0451 for both oral treatment and prophylaxis of SARS-CoV-2 infection. Given the highly conserved nature of the Mpro target, which is shared among all known coronaviruses, including emerging variants of concern, we believe PBI-0451 will likely retain its potency and activity against current and emerging SARS-CoV-2 variants.

On December 23, 2021, we completed the Business Combination with FSDC II, which resulted in FSDC II acquiring 100% of our issued and outstanding securities. Together with FSDC II’s cash resources, additional funding for our operations was provided through a private investment in public equity (the “PIPE Investment”), which was completed concurrently with the Merger.

We accounted for the Business Combination as a reverse recapitalization which is the equivalent of Old Pardes issuing stock for the net assets of FSDC II, with FSDC II treated as the acquired company for accounting purposes. The net assets of FSDC II were stated at historical cost with no goodwill or other intangible assets recorded. Reported results from operations included herein prior to the Business Combination are those of Old Pardes. The shares and corresponding capital amounts and loss per share related to Old Pardes’ outstanding redeemable convertible preferred stock and common stock prior to the Business Combination have been retroactively restated to reflect the Conversion Ratio established in the Merger Agreement. For additional information please refer to Note 4, Business Combination, to the consolidated financial statements included in Part II, Item 8 of our Form 10-K for the fiscal year ended December 31, 2021.

Since inception in 2020, we have devoted substantially all our efforts and financial resources to organizing and staffing our company, business planning, raising capital, discovering product candidates, preparing and filing related patent applications and conducting research and development activities for our product candidates. We do not have any products approved for sale and we have not generated any revenue from product sales. We may never be able to develop or commercialize a marketable product.

In August 2021, we initiated a first-in-human Phase 1 clinical trial of our lead product candidate, PBI-0451, in New Zealand. Dosing in this Phase 1 clinical trial has been completed. In January 2022, the United States Food and Drug Administration (“FDA”) cleared our Investigational New Drug (“IND”) application for PBI-0451. We anticipate initiating a Phase 2/3 clinical trial for PBI-0451 in mid-2022, pending discussions with regulatory authorities. Our other potential product candidates and our research initiatives are in preclinical or earlier stages of development. Our ability to generate revenue from product sales sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization or partnership of one or more of our product candidates. We have not yet successfully completed any clinical trials evaluating the efficacy of any of our product candidates, including PBI-0451, nor have we obtained any regulatory approvals, manufactured a commercial-scale drug, or conducted sales and marketing activities.

12


 

Liquidity Overview

As of March 31, 2022, cash and equivalents were $247.9 million and we believe that our existing cash resources will be sufficient for at least the next twelve months to allow us to fund current planned operations, including supporting working capital and capital expenditure requirements. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “— Liquidity and Capital Resources” below. Our future viability beyond that point is dependent on our ability to raise additional capital to finance our operations.

Through March 31, 2022, we have funded our operations with gross cash proceeds of $44.5 million from sales of preferred stock, gross cash proceeds of $7.1 million from the sale of SAFEs, which were converted into 5,845,071 shares (4,151,942 shares as originally issued) of convertible preferred stock in January 2021 and net proceeds of approximately $257.5 million in connection with the Business Combination and the PIPE Investment, which we currently believe will be sufficient to allow us to fund current planned operations into the second half of 2023.

We have incurred operating losses since our inception. As of March 31, 2022, we had an accumulated deficit of $73.0 million and had not yet generated revenues. In addition, we expect to continue to incur significant and increasing expenses and operating losses for the foreseeable future. We expect our research and development expenses, and general and administrative expenses to continue to increase. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing development activities, particularly if and as we:

continue preclinical studies and initiate new clinical trials for PBI-0451, our lead product candidate being tested for the treatment of COVID-19;
advance the development of our pipeline of other product candidates, including through business development efforts to invest in or in-license other technologies or product candidates;
maintain, expand and protect our intellectual property portfolio;
hire additional clinical, quality control, medical, scientific and other technical personnel to support our clinical operations;
seek regulatory approvals for any product candidates that successfully complete clinical trials;
undertake any pre-commercialization activities to establish sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory authorization or approval;
expand our infrastructure and facilities to accommodate our growing employee base;
increase manufacturing requirements for our clinical development activities, emergency use authorization and commercial preparedness; and
add operational, financial and management information systems and personnel, including personnel to support our research and development programs, any future commercialization efforts and our transition to operating as a public company.

Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company in prior years.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time, if ever, as we can generate significant revenue from product sales, we expect to finance our operations through a combination of private and public equity offerings, debt financings or other capital sources, which may include collaborations with other companies, government funding, or other strategic transactions. To the extent that we raise additional capital through the sale of private or public equity or convertible debt securities, existing ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing and preferred 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 acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations or other strategic transactions 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. 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 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 or delay our pursuit of potential in-licenses or acquisitions.

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, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

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COVID-19 Pandemic

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. To date, our financial condition and operations have not been significantly impacted by the COVID-19 pandemic. However, we cannot at this time predict the specific extent, duration, or full impact that the COVID-19 pandemic will have on our financial condition and operations, including ongoing and planned clinical trials and other operations required to support those clinical trials and research and development activities to advance our pipeline. The impact of the COVID-19 pandemic on our financial performance will depend on future developments, including the duration and spread of the outbreak and related governmental advisories and restrictions. These developments and the impact of the COVID-19 pandemic on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, our results may be materially adversely affected.

Components of Our Results of Operations

Revenue

We have not generated any revenue since inception and do not expect to generate any revenue from the sale of products in the near future, if ever. If our development efforts are successful and we commercialize our products, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from product sales, as well as upfront, milestone and royalty payments from such collaboration or license agreements, or a combination thereof.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for research activities, including drug discovery efforts, and the development of our potential product candidates. We expense research and development costs as incurred, which include:

expenses incurred to conduct the necessary preclinical studies, nonclinical studies and clinical trials required to obtain regulatory approval;
expenses incurred under agreements with contract research organizations (“CROs”) that are primarily engaged in the oversight and conduct of our drug discovery efforts and preclinical studies, clinical trials and contract manufacturing organizations (“CMOs”) that are primarily engaged to provide preclinical and clinical drug substance and product for our research and development programs;
other costs related to acquiring and manufacturing materials in connection with our drug discovery efforts and preclinical studies and clinical trial materials, including manufacturing validation batches, as well as investigative site and consultants that conduct our clinical trials, preclinical studies and other scientific development services;
employee-related expenses, including salaries and benefits, travel and stock-based compensation expense for employees engaged in research and development functions; and
costs related to compliance with regulatory requirements.

We recognize research and development expenses as incurred. Any advance payments that we make 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 expensed as the related 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. We estimate and accrue for the value of goods and services received from CROs, CMOs and other third parties each reporting period based on an evaluation of the progress to completion of specific tasks. This process involves reviewing open contracts and purchase orders, communicating with our personnel and service providers 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.

At any one time, we may be working on multiple programs. We do not allocate employee costs and overhead costs associated 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 preclinical, nonclinical, manufacturing and clinical development activities. To date, substantially all of the research and development costs incurred have been in connection with the development of our lead product candidate, PBI-0451.

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Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will increase substantially over the next several years as we commence planned clinical trials for PBI-0451, as well as conduct preclinical and clinical development, including submitting regulatory filings, for our other product candidates. We also expect our discovery research efforts and our related personnel costs will increase and, as a result, we expect our research and development expenses, including costs associated with stock-based compensation, will increase above historical levels. In addition, we may incur additional expenses related to milestone and royalty payments payable to third parties with whom we may enter into license, acquisition and option agreements to acquire the rights to future product candidates.

At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates or when, if ever, material net cash inflows may commence from any of our product candidates. The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of the following:

the scope, progress, outcome and costs of our preclinical and nonclinical development activities, clinical trials and other research and development activities;
establishing an appropriate safety and efficacy profile with clinically enabling trials;
successful patient enrollment in and the initiation and completion of clinical trials;
the timing, receipt and terms of any marketing approvals from applicable regulatory authorities including the FDA and non-U.S. regulators;
the extent of any required post-marketing approval commitments to applicable regulatory authorities;
establishing clinical and commercial manufacturing capabilities or making arrangements with third-party manufacturers in order to ensure that we or our third-party manufacturers are able to make product successfully;
development and timely delivery of clinical-grade and commercial-grade drug formulations that can be used in our clinical trials and for commercial launch;
obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;
significant and changing government regulation;
launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others; and
maintaining a continued acceptable safety profile of our product candidates following approval, if any, of our product candidates.

Any changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical, nonclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate.

General and Administrative Expenses

General and administrative expenses consist primarily of employee-related expenses, including salaries and related benefits, travel and stock-based compensation for personnel in executive, business development, finance, human resources, legal, information technology, and administrative functions. General and administrative expenses also include insurance costs and professional fees for legal, patent, consulting, investor and public relations, pre-commercial planning, accounting and audit services. Our general and administrative costs are expensed as incurred.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the continued 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. Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and other employee-related expenses as a result of our preparation for commercial operations, especially as relates to the sales and marketing of that product candidate.

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Income Taxes

We have incurred net losses in every period since our inception and have not recorded any U.S. federal or state income tax benefits for the losses, as they have been offset by valuation allowances.

Results of Operations

Comparison of the three months ended March 31, 2022 and 2021

The following table sets forth our results of operations for the periods presented (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

2022

 

 

2021

 

 

Change

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

$

13,199

 

 

$

3,445

 

 

$

9,754

 

General and administrative

 

 

8,226

 

 

 

1,081

 

 

 

7,145

 

Total operating expenses

 

 

21,425

 

 

 

4,526

 

 

 

16,899

 

Other (expense) income, net

 

 

(15

)

 

 

3

 

 

 

(18

)

Net loss

 

$

(21,440

)

 

$

(4,523

)

 

$

(16,917

)

 

Research and Development Expenses

The following table summarizes the components of research and development expenses for the periods presented (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

2022

 

 

2021

 

 

Change

 

External costs:

 

 

 

 

 

 

 

 

 

PBI-0451

 

$

10,499

 

 

$

2,790

 

 

$

7,709

 

Discovery programs

 

 

165

 

 

 

 

 

$

165

 

Total external costs

 

 

10,664

 

 

 

2,790

 

 

 

7,874

 

Internal costs:

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

 

1,820

 

 

 

491

 

 

 

1,329

 

Stock-based compensation

 

 

463

 

 

 

14

 

 

 

449

 

Other unallocated costs

 

 

252

 

 

 

150

 

 

 

102

 

Total internal costs

 

 

2,535

 

 

 

655

 

 

 

1,880

 

Total research and development expenses

 

$

13,199

 

 

$

3,445

 

 

$

9,754

 

 

Research and development expenses were $13.2 million for the three months ended March 31, 2022, compared to $3.4 million for the three months ended March 31, 2021, an increase of $9.8 million. The increase was due to an increase in program costs related to advancing our lead product candidate, PBI-0451, and increased personnel costs, including stock-based compensation, and unallocated costs as we grew our organization. Unallocated costs include recruiting fees and overhead expenses.

General and Administrative Expenses

General and administrative expenses were $8.2 million for the three months ended March 31, 2022, compared to $1.1 million for the three months ended March 31, 2021, an increase of $7.1 million. The increase was due to increased personnel costs, including stock-based compensation, as we grew our organization, costs associated with being a public company, including directors and officers insurance and audit fees, and increased professional fees related to corporate legal, patent legal, pre-commercial planning, consulting and recruiting services.

Liquidity and Capital Resources

Sources of Liquidity and Capital

Since inception, we have not generated any revenue from any product sales or any other sources and have incurred operating losses and negative cash flows from our operations. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if ever. Through March 31, 2022, we have funded our operations with gross cash proceeds of $44.5 million from sales of preferred stock, gross cash proceeds of $7.1 million from the sale of SAFEs, which were converted into 5,845,071 shares (4,151,942 shares as originally issued) of convertible preferred stock in January 2021 and net proceeds of approximately $257.5 million in connection with the Business Combination and the PIPE Investment.

 

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As of March 31, 2022, we had cash and cash equivalents of $247.9 million and an accumulated deficit of $73.0 million as of March 31, 2022. In the short term, we believe that our existing cash resources will be sufficient for at least the next 12 months to allow us to fund current planned operations, including supporting working capital and capital expenditure requirements. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

In the long term, our ability to support working capital and capital expenditure requirements will depend on many factors, including our ability to raise additional capital to finance our operations. See “— Liquidity Overview” above.

 

CRO and CMO Agreements

 

We have entered into agreements in the normal course of business with certain vendors for the provision of goods and services, which includes manufacturing services with CMOs and development services with CROs. These agreements may include certain provisions for purchase obligations and termination obligations that could require payments for the cancellation of committed purchase obligations or for early termination of the agreements. The amount of the cancellation or termination payments vary and are based on the timing of the cancellation or termination and the specific terms of the agreement.

 

We did not have during the periods presented, and we do not currently have, any commitments or obligations, including contingent obligations, arising from arrangements with unconsolidated entities or persons that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources.

 

Cash Flows

The following table summarizes our cash flows for the periods presented (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Net cash used in operating activities

 

$

(20,362

)

 

$

(3,748

)

Net cash (used in) provided by financing activities

 

 

(397

)

 

 

44,241

 

Net (decrease) increase in cash and cash equivalents

 

$

(20,759

)

 

$

40,493

 

 

Operating Activities

During the three months ended March 31, 2022, net cash used in operating activities consisted of a net loss of $21.4 million and a decrease in prepaid expenses and other current assets, accounts payable, and accrued expenses of $0.8 million; partially offset by a non-cash charge of $1.5 million related to stock-based compensation expense.

During the three months ended March 31, 2021, net cash used in operating activities was $3.7 million, primarily resulting from a net loss of $4.5 million, partially offset by a non-cash charge of $0.1 million related to stock-based compensation and an increase in accrued expenses due to growth in our operations, the advancement of our product candidates, and the timing of vendor invoicing and payments.

Financing Activities

During the three months ended March 31, 2022, net cash used was payments for transaction costs associated with the Business Combination.

During the three months ended March 31, 2021, net cash provided by financing activities was $44.2 million, consisting of proceeds from the issuance of shares of Series A convertible preferred stock.

Funding Requirements

Our primary use of cash is to fund operating expenses, primarily related to our research and development activities. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses.

We expect our expenses to increase substantially in connection with our ongoing activities, particularly if and as we advance into Phase 2/3 clinical trials for PBI-0451. We also expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. The timing and amount of our operating expenditures will depend largely on our ability to:

advance preclinical development of our early-stage programs and initiate clinical trials of our product candidates;
manufacture, or have manufactured on our behalf, our preclinical, nonclinical and clinical drug material and develop processes for late stage and commercial manufacturing;

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seek regulatory authorizations and/or approvals for any product candidates that successfully complete clinical trials;
establish a sales, marketing, medical affairs, managed care, and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval and intend to commercialize on our own;
hire additional clinical, quality control and scientific personnel;
expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;
manage the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights, including enforcing and defending intellectual property related claims; and
manage the costs of operating as a public company.

Working Capital

Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:

the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical and nonclinical studies and clinical trials;
the costs, timing and outcome of regulatory review of our product candidates;
the costs, timing and ability to manufacture our product candidates to supply our clinical and preclinical development efforts and our clinical trials;
the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;
the costs of manufacturing commercial-grade product and necessary inventory to support a potential future commercial launch;
the ability to receive additional non-dilutive funding, including grants from organizations and foundations;
the revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval;
the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining, expanding and enforcing our intellectual property rights and defending intellectual property-related claims;
our ability to establish and maintain collaborations on favorable terms, if at all; and
the extent to which we acquire or in-license other product candidates and technologies.

Critical Accounting Policies and Significant Judgments and Estimates

The preparation of our condensed financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, as of the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. If these estimates differ significantly from actual results, the impact to the condensed consolidated financial statements may be material. There have been no material changes in our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Please refer to Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for a discussion of our critical accounting policies and estimates.

Recent Accounting Pronouncements

A description of recently issued accounting pronouncements not yet adopted that may potentially impact our financial position and results of operations is also disclosed in Note 2, Summary of Significant Accounting Policies to our unaudited condensed financial statements appearing in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information under this item.

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Item 4. Controls and Procedures.

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by a registrant in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a registrant in the reports that it files or submits under the Exchange Act is accumulated and communicated to the registrant’s management, including its principal executive and principal financial officers, or persons performing similar functions as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance and not absolute assurance of achieving their desired control objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

Based on the evaluation of our disclosure controls and procedures as of March 31, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

 

Changes in Internal Control over Financial Reporting

 

There were no material changes in our internal control over financial reporting during the fiscal quarter ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

 

From time to time, we may become subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Although the results of litigation and claims cannot be predicted with certainty, as of March 31, 2022, we do not believe we are party to any claim or litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Item 1A. Risk Factors.

Our business faces significant risks and uncertainties. If any of the following risks, or other risks not presently known to us or that we currently believe to not be material, are realized, our business, financial condition and results of operations could be materially and adversely affected. If that happens, the market price of our common stock could decline, and stockholders may lose all or part of their investment. You should carefully review and consider the full discussion of our risk factors below, together with all other information in this Quarterly Report on Form 10-Q, including our condensed financial statements and notes thereto, and in our other filings with the SEC.

Risks Related to our Business

 

We have a limited operating history and no history of successfully developing or commercializing any approved therapeutic products, which may make it difficult to evaluate the success of our business to date and to assess the prospects for our future viability and ability to generate revenue and become profitable in the future.

 

We are a clinical-stage biopharmaceutical company with a limited operating history. Our operations to date have been limited to organizing and staffing our company, developing our technology and identifying and developing our lead product candidate, PBI-0451, and conducting nonclinical studies and Phase 1 clinical trials of PBI-0451. We have not yet demonstrated our ability to complete any late-stage or pivotal clinical trials, obtain regulatory approval, formulate and manufacture a commercial-scale product, or conduct sales and marketing activities necessary for successful product commercialization or arrange for third parties to do these activities on our behalf. Investment in biotechnology and pharmaceutical product development is highly speculative because it entails substantial upfront expenditures in contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”) and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. Consequently, any predictions you may make about our future success or viability may not be as accurate as they could be if we had a longer operating history.

 

In addition, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown obstacles. If we successfully develop a product candidate, we will eventually need to transition from a company with a research and development focus to a company capable of supporting late-stage and commercial activities. We may not be successful in this transition. For example, we may need to rapidly develop our commercialization capabilities if PBI-0451 is approved for the treatment of SARS-CoV-2 or receives emergency use authorization (“EUA”).

 

We have completed dosing in our first-in-human Phase 1 clinical trial and phase 1 development is ongoing. We anticipate initiation of a Phase 2/3 clinical trial in mid-2022 for our lead product candidate, PBI-0451, pending discussions with regulatory authorities. We do not expect to receive revenue from PBI-0451 until we obtain initial EUA or full marketing approvals, if ever. To date, we have not generated any revenue and we will not be able to generate product revenue unless and until PBI-0451, or any other product candidate, successfully completes clinical trials, receives EUA and is made available, or receives other regulatory approval and is commercialized. We may seek to obtain revenue from collaboration or licensing agreements with third parties or funding from government sources. Our ability to generate future product revenue from PBI-0451 or any other product candidates also depends on a number of additional factors, including our or our future collaborators’ (if any) ability to:

successfully complete nonclinical studies and clinical trials for PBI-0451 and any other product candidates;
conduct additional clinical trials or other studies beyond those planned to support the approval and commercialization of our product candidates or any future product candidates if we are required by the U.S. Food and Drug Administration (the “FDA”) or similar foreign regulatory authorities;
to demonstrate to the satisfaction of the FDA and similar foreign regulatory authorities the safety and efficacy and acceptable risk to benefit profile of our product candidates or any future product candidates;
seek and obtain marketing approvals for any product candidates that complete clinical development;

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establish and maintain supply and manufacturing relationships with third parties, and ensure adequate and legally compliant manufacturing of bulk drug substances and drug products to maintain that supply;
launch and commercialize any product candidates for which we obtain marketing approval, and, if launched independently, successfully establish a sales, marketing and distribution infrastructure;
demonstrate the necessary safety data post-approval to ensure continued regulatory approval;
demonstrate the actual and perceived benefits of PBI-0451, if approved, relative to existing and future alternative therapies for COVID-19 based upon availability, cost, risk profile, drug-drug interactions, side effects and efficacy;
obtain coverage and adequate product reimbursement from third-party payors, including government payors;
achieve market acceptance for any approved products;
address any competing technological and market developments;
negotiate favorable terms in any collaboration, licensing or other arrangements into which we may enter in the future and performing our obligations in such collaborations;
establish, maintain, protect and enforce our intellectual property rights; and
attract, hire and retain qualified personnel.

 

In addition, because of the numerous risks and uncertainties associated with biopharmaceutical product development, including that our product candidates may not advance through development or achieve the endpoints of applicable clinical trials, we are unable to predict the timing or amount of increased expenses, or if or when we will achieve or maintain profitability. In addition, our expenses could increase beyond expectations if we decide, or are required by the FDA or comparable foreign regulatory authorities in other jurisdictions where we may pursue regulatory approval, to perform nonclinical studies or clinical trials in addition to those that we currently anticipate. Even if we complete the development and regulatory processes described above, we anticipate incurring significant costs associated with launching and commercializing any approved product.

 

If we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease our value and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in our value also could cause you to lose all or part of your investment.

 

We have incurred significant losses since our inception and expect to incur losses for the foreseeable future.

 

To date, we have devoted almost all of our financial resources to research and development, including preclinical and clinical development activities, and we expect to continue to incur significant research and development and other expenses related to our ongoing operations and the development of our lead therapeutic candidate, PBI-0451. As a result, we are not profitable and have incurred significant losses since our inception in February 2020. As of March 31, 2022, we had an accumulated deficit of $73.0 million. We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase as we seek to advance PBI-0451 through clinical development, continue preclinical development, expand our research and development activities, develop new product candidates, complete preclinical studies and clinical trials, seek regulatory approval and, if we receive regulatory approval, commercialize our product candidates.

 

Even if we succeed in commercializing PBI-0451 or any other product candidates, we may continue to incur substantial research and development and other expenditures to develop and market additional product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business for any reason, including as a result of the ongoing and unpredictable COVID-19 pandemic. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

We will require additional capital to finance our operations, which may not be available to us on acceptable terms, or at all. As a result, we may not complete the development and commercialization of PBI-0451 or any other product candidates.

As a research and development company, our operations have consumed substantial amounts of cash since inception. We expect our research and development expenses to increase substantially in connection with our ongoing activities, particularly as we advance PBI-0451 through clinical development.

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As of March 31, 2022, we had $247.9 million of cash and cash equivalents. We believe our existing cash and cash equivalents will fund our current planned operations into the second half of 2023. Our forecast of the period of time through which our financial reserves will adequately support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this “Risk Factors” section. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Our future funding requirements, both short and long-term, will depend on many factors, including, but not limited to:

the initiation, progress, timing, costs and results of nonclinical studies and anticipated clinical trials for PBI-0451 or any other product candidates we may develop;
any COVID-19 related delays or other effects the disease progression may have on our development programs;
the outcome, timing and cost of seeking and obtaining an EUA or regulatory approval from the FDA and comparable foreign regulatory authorities, including the potential for such authorities to require that we perform more nonclinical studies or clinical trials than those that we currently expect or require our clinical trial designs to differ from those currently contemplated;
the cost to establish, maintain, expand, enforce and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecuting, defending and enforcing any patents or other intellectual property rights;
the effect of competing technological, such as vaccines, antibody therapies or other oral antivirals, the status of the current pandemic, and market developments;
market acceptance of any approved product candidates, including product pricing, as well as product coverage and the adequacy of reimbursement by third-party payors;
the cost of acquiring, licensing or investing in additional businesses, products, product candidates and technologies;
the cost and timing of selecting, auditing and potentially validating a manufacturing site for commercial-scale manufacturing;
the stability, scale, yield and cost of manufacturing our product candidates for clinical trials, in preparation for an EUA, regulatory approval and in preparation for commercialization;
the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval and that we determine to commercialize;
the ability to establish, nature, and timing of potential partnerships around current or future PBI-0451 assets; and
our need to implement additional internal systems and infrastructure, including financial and reporting systems.

We do not have any committed external source of funds or other support for our development efforts and we cannot be certain that additional funding will be available on acceptable terms, or at all. Until we can generate sufficient revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings, debt financings, collaborations, government funding, strategic alliances, licensing arrangements, and other marketing or distribution arrangements. If we raise additional funds through public or private equity offerings, the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. Further, to the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, your ownership interest will be diluted. If we raise additional capital through debt financing, we could be subject to fixed payment obligations and may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. We also could be required to seek collaborators for one or more of our product candidates at an earlier stage than otherwise would be desirable or relinquish our rights to product candidates or technologies that we otherwise would seek to develop or commercialize ourselves. If we are unable to raise additional capital in sufficient amounts or on acceptable terms, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates or one or more of our other research and development initiatives. Any of the above events could significantly harm our business, prospects, financial condition and results of operations and cause the price of our common stock to decline.

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We are heavily dependent on the success of PBI-0451, our lead product candidate. Failure to obtain regulatory approval for PBI-0451 will prevent us from commercializing and marketing PBI-0451.

We currently have no products that are approved for commercial sale and may never be able to develop marketable products. We expect that a substantial portion of our efforts and expenditures over the next several years will be devoted to our lead product candidate, PBI-0451. Accordingly, our business and future success currently depends heavily on the successful development, regulatory approval, and commercialization of PBI-0451 for treatment of coronaviruses, including the coronavirus that causes COVID-19. Our development of PBI-0451 for the treatment of COVID-19 is in early clinical stage of development. We cannot be certain that PBI-0451 will successfully commence or complete later stage clinical trials, receive an EUA or regulatory approval or be successfully commercialized even if we receive regulatory approval. If we are required to discontinue development of PBI-0451 or if PBI-0451 does not receive EUA or regulatory approval or fails to achieve significant market acceptance, we would be substantially delayed in our ability to achieve profitability, if ever.

The research, testing, manufacturing, safety, efficacy, labelling, approval, sale, marketing, and distribution of PBI-0451 is, and will remain, subject to comprehensive regulation by the FDA and comparable foreign regulatory authorities. Failure to obtain regulatory approval for PBI-0451 will prevent us from commercializing and marketing PBI-0451.

Further, our future clinical trials of PBI-0451 may not be able to replicate the results from our preclinical and nonclinical studies of PBI-0451. To the extent this occurs, our expected development time and development costs for PBI-0451 may be increased.

Even if we are able to successfully obtain an EUA or FDA or comparable foreign regulatory authority approval for PBI-0451, any EUA or approval might contain significant limitations related to use, including limitations on the stage of disease PBI-0451 is approved to treat, as well as restrictions for specified age groups, warnings, precautions or contraindications. Furthermore, even if we obtain regulatory approval for PBI-0451, we will still need to develop a commercial infrastructure or develop relationships with collaborators to commercialize, establish a commercially viable pricing structure and obtain coverage and adequate reimbursement from third-party payors, including government healthcare programs. If we, or any future collaborators, are unable to successfully commercialize PBI-0451, we may not be able to generate sufficient revenue to continue our business.

If we are not successful in discovering, developing, receiving regulatory approval for and commercializing other product candidates, our ability to expand our business and achieve our strategic objectives would be impaired.

Although we plan to devote a majority of our current resources to the continued clinical testing and potential approval of PBI-0451 for the treatment of SARS-CoV-2 infection, another key element of our strategy is to discover, develop and commercialize a broader portfolio of products. We are currently intending to do so through our internal discovery programs, but our resources are limited, and those resources that we have available have been and are largely geared towards preclinical and nonclinical testing, clinically enabling studies and clinical development of PBI-0451, including our Phase 1 clinical trials and preparation for our Phase 2/3 clinical trials in patients, which we anticipate initiating in mid-2022, pending discussions with regulatory authorities. We may also explore strategic collaborations for the development of new product candidates, but we may not be successful in entering into such relationships. Other than PBI-0451, we have no product candidates in the clinical stage of development. Research programs to identify additional product candidates require substantial technical, financial and human resources, regardless of whether any product candidates are ultimately identified. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for many reasons, including:

the research methodology used may not be successful in identifying potential product candidates;
competitors may develop alternatives that render our product candidates obsolete or less attractive;
a product candidate may, on further clinical trials, be shown to have harmful side effects or toxicities, be unable to achieve clinically relevant concentration after dosing or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;
a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
intellectual property, patents or other proprietary rights of third parties may cover the product candidates that we develop or potentially block our entry into certain markets or make such entry economically impracticable.

If we fail to develop and successfully commercialize other product candidates, our business and future prospects may be harmed, and our business will be more vulnerable to any problems that we encounter in developing and commercializing our product candidates.

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Nonclinical development is uncertain. Our nonclinical programs may experience delays or may never advance to clinical trials, which would adversely affect our ability to obtain regulatory approvals or commercialize our product candidates on a timely basis or at all, which would have an adverse effect on our business.

In order to obtain approval from the FDA and other major regulatory agencies in non-U.S. countries to market a new product candidate, we must demonstrate proof of safety and efficacy in humans. To meet these requirements, we will have to conduct adequate and well-controlled clinical trials. Before we can commence clinical trials for a product candidate, we must complete extensive nonclinical studies that support our planned Investigational New Drug (“IND”) or clinical trial applications (“CTAs”), in the United States and other countries, respectively. We cannot be certain of the timely completion or outcome of our nonclinical studies and cannot predict if the FDA or other regulatory authorities will accept our proposed clinical programs or if the outcome of our nonclinical studies will ultimately support further development of our programs. In addition, the FDA may decline to accept the data we obtain from foreign clinical trials in support of an IND in the United States, which may require us to repeat or conduct additional nonclinical studies or clinical trials that we did not anticipate. As a result, we cannot be sure that we will be able to submit INDs in the United States, or CTAs or similar applications in other jurisdictions, on the timelines we expect, if at all, and we cannot be sure that submission of INDs, CTAs or similar applications will result in the FDA or other regulatory authorities allowing additional clinical trials to begin.

Conducting nonclinical testing is a complex, lengthy, time-consuming and expensive process. The length of time may vary substantially according to the type, complexity and novelty of the program, and often can take several years or more per program. Delays associated with programs for which we are directly conducting nonclinical studies may cause us to incur additional operating expenses. Moreover, we may be affected by delays associated with the studies of certain programs that are the responsibility of potential future partners, if any, over which we have no control. The commencement and rate of completion of nonclinical studies for a product candidate may be delayed by many factors, including:

inability or failure by us or third parties to comply with regulatory requirements, including the requirements of GLP;
inability to generate sufficient nonclinical or other in vivo or in vitro data to support the initiation of clinical trials;
delays in reaching a consensus with regulatory agencies on clinical trial design and obtaining regulatory authorization to commence clinical trials;
challenges in obtaining sufficient quantities of our product candidates for use in nonclinical studies from third-party suppliers on a timely basis;
delays due to the ongoing COVID-19 pandemic, including due to reduced workforce productivity as a result of our implementation of a hybrid work-from-home policy or illness among personnel, or due to delays at our third-party CROs and CMOs throughout the world for similar reasons or due to restrictions imposed by applicable governmental authorities; and
delays due to other global-scale potentially catastrophic events, including other pandemics, terrorism, war (including Russia’s invasion of the Ukraine), supply chain disruptions, and climate change.

Moreover, even if candidates from our product programs advance into clinical trials, our development efforts may not be successful, and clinical trials that we conduct or that third parties conduct on our behalf may not demonstrate sufficient safety or efficacy to obtain the requisite regulatory approvals for any product candidates we develop. Even if we obtain positive results from nonclinical studies or initial clinical trials, we may not achieve the same success in future trials.

PBI-0451 and any other product candidates we may develop must undergo rigorous clinical trials and regulatory approvals, and results from early nonclinical studies or earlier-stage clinical trials may not be indicative of results in future clinical trials.

PBI-0451 and any other product candidates we may develop will be subject to rigorous and extensive clinical trials and extensive regulatory approval processes implemented by the FDA and comparable foreign regulatory authorities. The approval process is typically lengthy and expensive, and approval is never certain. We have limited experience in conducting the clinical trials required to obtain regulatory approval. We may not be able to conduct clinical trials at preferred sites, enlist clinical investigators, enroll sufficient numbers of participants or begin or successfully complete clinical trials in a timely fashion, if at all. Our clinical trials may not demonstrate that our potential products, including PBI-0451, will be active, safe or effective or achieve sufficient exposure to be of clinical benefit. Additional clinical trials may be required if clinical trial results are negative or inconclusive, which will require us to incur additional costs and significant delays.

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Success in earlier nonclinical studies and earlier-stage clinical trials does not ensure that later nonclinical studies or clinical trials will generate the same results or otherwise provide adequate data to demonstrate the effectiveness and safety of a product candidate. In addition, the design of a clinical trial can determine whether our results may support approval of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We may be unable to design and execute a clinical trial to support regulatory approval. Historically there is a high failure rate for drugs proceeding through clinical trials at every stage. In fact, many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in nonclinical studies and earlier-stage clinical trials. Similarly, the outcome of nonclinical studies may not predict the success of clinical trials. Moreover, data obtained from nonclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, we may experience regulatory delays or rejections as a result of many factors, including due to changes in regulatory policy during the period of development of our product candidates. Any such delays could negatively impact our business, financial condition, results of operations and prospects.

While not currently planned, our future clinical trials may use an “open-label” trial design. An “open-label” clinical trial is one where both the patient and investigator know whether the patient is receiving the investigational product candidate or either an existing approved drug or placebo. Most typically, open-label clinical trials test only the investigational product candidate and sometimes may do so at different dose levels. Open-label clinical trials are subject to various limitations that may exaggerate any therapeutic effect as patients in open-label clinical trials are aware when they are receiving treatment. Open-label clinical trials may be subject to a “patient bias” where patients perceive their symptoms to have improved merely due to their awareness of receiving an experimental treatment. In addition, open-label clinical trials may be subject to an “investigator bias” where those assessing and reviewing the physiological outcomes of the clinical trials are aware of which patients have received treatment and may interpret the information of the treated group more favorably given this knowledge. The results from an open-label trial may not be predictive of future clinical trial results with any of our product candidates for which we include an open-label clinical trial when studied in a controlled environment with a placebo or active control.

Our subsequent clinical trials may reveal significant adverse events not seen in our earlier clinical trials or preclinical or nonclinical studies and may result in a safety profile that could inhibit regulatory approval or market acceptance of any of our product candidates.

Before obtaining regulatory approvals for the commercial sale of any products, we must demonstrate through lengthy, complex and expensive preclinical and nonclinical studies and clinical trials that our product candidates are both safe and effective for use in each target indication. There is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical trials. Product candidates in later stages of clinical trials also may fail to show the desired safety and efficacy profile despite having progressed through nonclinical studies and initial clinical trials. If the results of our preclinical and nonclinical studies and clinical trials demonstrate a safety concern associated with our product candidates, we may be prevented or delayed in obtaining authorization to initiate clinical trials. Additionally, if the results of our preclinical and nonclinical studies and clinical trials are inconclusive with respect to the safety and efficacy of our product candidates, if we do not meet the clinical endpoints with statistical and clinically meaningful significance, or if there are safety concerns associated with our product candidates, we may be prevented or delayed in obtaining marketing approval for such product candidates. In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants. Results of our trials could reveal a high and unacceptable severity and prevalence of side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. In addition, our product candidates could cause undesirable side effects that we have not observed yet to date. Most product candidates that commence clinical trials are never approved as products and there can be no assurance that any of our current or future clinical trials will ultimately be successful or support further clinical development of any of our product candidates.

Interim, “topline” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data. As a result, interim and preliminary data should be viewed with caution until the final data are available. Adverse differences between preliminary or interim data and final data could significantly harm our business and financial prospects.

From time to time, we may publicly disclose preliminary or top-line data from our preclinical studies, nonclinical studies and clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the top-line or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Top-line data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, top-line data should be viewed with caution until the final data are available.

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From time to time, we may also disclose interim data from our preclinical studies, nonclinical studies and clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available or as patients from our clinical trials continue other treatments for their disease. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our common stock.

Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure. If the interim, top-line, or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition.

We are subject to many manufacturing risks, any of which could substantially increase our costs, delay clinical programs and limit supply of our product candidates.

We contract with third-party CMOs to make our drug substance and drug product to support current and planned clinical trials and for commercial sale, if approved. We will need to negotiate and maintain contractual arrangements with these CMOs for the supply of PBI-0451 and our future product candidates and we may not be able to do so on favorable terms. Most of our CMOs are outside the United States, including in the People's Republic of China. Our CMOs may not be able to adopt, adapt or scale up the manufacturing process in a timely manner to support our future clinical trials. Additionally, the current COVID-19 outbreak in China could impact the ability of our CMOs to manufacture the quantities of drug substance and drug product required for our future clinical trials and in accordance with proposed timelines. The process of manufacturing our product is complex, highly regulated and subject to several risks, including:

failure to meet acceptance criteria;
the manufacturing process is susceptible to product loss due to equipment failure, improper installation or operation of equipment, vendor or operator error and improper storage conditions, and even minor deviations from normal manufacturing processes could result in reduced production yields and quality as well as other supply disruptions;
the manufacturing facilities in which our product candidates are made could be adversely affected by equipment failures, changes in manufacturing lines, labor and raw material shortages, financial difficulties of our contract manufacturers, natural disasters, power failures, local political unrest, politically driven embargoes or trade agreements affecting supply of raw materials, and numerous other factors; and
any adverse developments affecting manufacturing operations for our product candidates may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls or other interruptions in the supply of our products. We may also have to record inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more expensive manufacturing alternatives.

Manufacturers sometimes encounter difficulties in production, especially during scale-up from the manufacturing process used for preclinical studies, nonclinical studies and early clinical trials to a validated process needed for pivotal clinical trials and commercial launch. These problems often include failure to meet target production costs and yields, sub-par quality control testing, including stability of the product, quality assurance system failures, operator error and shortages of qualified personnel, as well as failure to comply with strictly enforced federal, state and foreign regulations. We cannot assure you that any product quality issues relating to the manufacture of PBI-0451 or any other product candidates will not occur in the future.

We do not have and we do not currently plan to acquire or build the facilities or internal capabilities to manufacture bulk drug substance or filled drug product for use in clinical trials or commercialization. To a large extent, that makes us dependent on the goodwill of our contract manufacturing partners to quickly fix deviations that will inevitably occur during the manufacturing of our product