Filed Pursuant to 424(b)(3)

Registration Statement No. 333-262279

 

PROSPECTUS SUPPLEMENT NO. 8

(To Prospectus dated March 31, 2022)

 

 

 

 

Up to 39,688,152 Shares of Common Stock

______________________

 

This prospectus supplement supplements the prospectus dated March 31, 2022 (as amended or supplemented prior to the date hereof, 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 September 30, 2022, filed with the Securities and Exchange Commission on November 7, 2022 (the “Q3 2022 Quarterly Report”). Accordingly, we have attached the Q3 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 The Nasdaq Global Market under the symbol “PRDS.” On November 4, 2022, the closing price of our common stock was $1.14 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 November 7, 2022

______________________

 

 

 

 

 

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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 September 30, 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 Stock Market, LLC

 

 

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 November 1, 2022 was 62,320,924.

 

 

 

 

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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	11
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 Securities and Use of Proceeds	62
Item 3.	Defaults Upon Senior Securities	62
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	62
Item 6.	Exhibits	63
SIGNATURES		64

 

 

 

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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 (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 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.

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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 severe acute respiratory syndrome coronavirus 2 (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.

 

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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:

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PART I—FINANCIAL INFORMATION

 

Item 1. Condensed Financial Statements (Unaudited).

 

PARDES BIOSCIENCES, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and par value data)

 

		September 30,				December 31,
		2022				2021
		(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	209,055			$	268,678
Prepaid expenses and other current assets			4,986				6,581
Total current assets			214,041				275,259
Total assets		$	214,041			$	275,259
Liabilities and stockholders' equity
Current liabilities:
Accounts payable		$	1,569			$	2,385
Accrued expenses			10,459				6,580
Total current liabilities			12,028				8,965
Total liabilities			12,028				8,965
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock: $0.0001 par value; 10,000,000 shares authorized at September 30, 2022 and December 31, 2021; no shares issued and outstanding at September 30, 2022 and December 31, 2021			—				—
Common stock: $0.0001 par value at September 30, 2022 and December 31, 2021; 250,000,000 shares authorized at September 30, 2022 and December 31, 2021; 62,320,924 and 62,378,996 shares issued at September 30, 2022 and December 31, 2021, respectively; and 59,113,864 and 56,765,533 shares outstanding at September 30, 2022 and December 31, 2021, respectively			6				6
Additional paid-in capital			325,943				317,812
Accumulated deficit			(123,936	)			(51,524	)
Total stockholders' equity			202,013				266,294
Total liabilities and stockholders' equity		$	214,041			$	275,259

 

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

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PARDES BIOSCIENCES, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

(in thousands, except share and per share data)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2022				2021				2022				2021
Operating expenses:
Research and development		$	17,375			$	8,081			$	50,918			$	17,792
General and administrative			6,919				3,434				22,736				6,389
Total operating expenses			24,294				11,515				73,654				24,181
Other income:
Interest and other income, net			959				3				1,242				10
Net loss and comprehensive loss		$	(23,335	)		$	(11,512	)		$	(72,412	)		$	(24,171	)
Net loss per share, basic and diluted		$	(0.40	)		$	(3.76	)		$	(1.25	)		$	(11.73	)
Weighted-average number of common shares used in computing net loss per share, basic and diluted			58,381,918				3,064,829				57,720,591				2,059,855

 

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

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PARDES BIOSCIENCES, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

(in thousands, except share amounts)

 

		For the Nine Months Ended September 30, 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
Vesting of restricted stock    awards into common stock			—				—					604,820				—				—				—				—
Stock-based compensation    expense			—				—					—				—				3,888				—				3,888
Net loss			—				—					—				—				—				(27,637	)			(27,637	)
Balance at June 30, 2022			—				—					57,981,118				6				323,227				(100,601	)			222,632
Vesting of restricted stock    awards into common stock			—				—					1,132,746				—				—				—				—
Stock-based compensation    expense			—				—					—				—				2,716				—				2,716
Net loss			—				—					—				—				—				(23,335	)			(23,335	)
Balance at September 30, 2022			—			$	—					59,113,864			$	6			$	325,943			$	(123,936	)		$	202,013

 

 

		For the Nine Months Ended September 30, 2021
		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, 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 2020 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	)
Vesting of restricted stock    awards into common stock			—				—					1,185,397				—				—				—				—
Exercise of common stock    options			—				—					1,408				—				4				—				4
Stock-based compensation    expense			—				—					—				—				230				—				230
Net loss			—				—					—				—				—				(8,136	)			(8,136	)
Balance at June 30, 2021			19,601,193				59,132					2,721,451				—				310				(25,665	)			(25,355	)
Vesting of restricted stock    awards into common stock			—				—					630,120				—				—				—				—
Stock-based compensation    expense			—				—					—				—				344				—				344
Net loss			—				—					—				—				—				(11,512	)			(11,512	)
Balance at September 30, 2021			19,601,193			$	59,132					3,351,571			$	—			$	654			$	(37,177	)		$	(36,523	)

 

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

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PARDES BIOSCIENCES, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

		Nine Months Ended September 30,
		2022				2021
Operating activities:
Net loss		$	(72,412	)		$	(24,171	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense			8,131				650
Changes in operating assets and liabilities:
Prepaid expenses and other current assets			1,594				(482	)
Accounts payable			(581	)			1,119
Accrued expenses			4,042				2,747
Net cash used in operating activities			(59,226	)			(20,137	)
Financing activities:
Proceeds from issuance of convertible preferred stock			—				44,500
Cash paid for deferred offering costs			(397	)			(1,218	)
Payment of issuance costs for convertible preferred stock			—				(176	)
Proceeds from exercise of common stock options			—				4
Net cash (used) provided by financing activities			(397	)			43,110
(Decrease) increase in cash and cash equivalents			(59,623	)			22,973
Cash and cash equivalents at beginning of period			268,678				3,410
Cash and cash equivalents at end of period		$	209,055			$	26,383
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			—				302

 

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

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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,” “our” and any related terms are intended to mean Pardes Biosciences, Inc.

Pardes Biosciences, Inc. is a clinical-stage biopharmaceutical company focused on discovering, developing and commercializing novel oral-antiviral 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 COVID-19 in adult and pediatric patients. COVID-19 is caused by infection with the severe acute respiratory syndrome coronavirus (SARS-CoV-2). 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 (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 (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 (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 (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 September 30, 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 $209.1 million of cash and cash equivalents as of September 30, 2022, will enable us to fund our current planned operations for at least 12 months from the issuance date of these unaudited 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.

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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 United States (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 and nine months ended September 30, 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 judgments, 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 U.S., 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 our unaudited 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. The ultimate extent of the impact of the COVID-19 pandemic on our business, financial condition, prospects, operations and product development timelines and plans remains highly uncertain and will depend on future developments, and the duration and intensity of those developments, including as a result of new information that may emerge concerning COVID-19, actions taken to contain the pandemic, the duration and spread of outbreaks and the continued emergence of variants, the availability of emergency use authorizations, the availability of effective alternative treatments, the ability to design and initiate clinical trials with approvable endpoints that are financially feasible, the pandemic’s impact on patient enrollment, trial sites, contract research organizations (CROs), contract manufacturing organizations (CMOs) and other third parties with which we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our 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.

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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 audited 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.

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):

 

		September 30, 2022				September 30, 2021
Conversion of outstanding convertible preferred stock			—				19,601,193
Outstanding stock options			9,810,627				2,259,425
Restricted common stock subject to repurchase or forfeiture			3,207,060				6,411,522
Total			13,017,687				28,272,140

 

 

New Accounting Pronouncements Adopted and Not Yet Adopted

The Company has not adopted any significant accounting policies since December 31, 2021. Upon evaluation of recently issued accounting pronouncements, the Company does not believe any will have a material impact on its unaudited condensed financial statements or related financial statement disclosures.

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Note 3. Fair Value Measurements

The accounting guidance for fair value measurements 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 September 30, 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, Simple Agreements for Future Equity, 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 (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			—
Conversion into shares of convertible preferred stock			—
Balance as of June 30, 2021			—
Conversion into shares of convertible preferred stock			—
Balance as of September 30, 2021		$	—

 

Note 4. Prepaid Expenses and Other Current Assets

 

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

 

		September 30, 2022				December 31, 2021
Prepaid insurance		$	2,429			$	5,286
Prepaid research and development costs			2,034				639
Other prepaid expenses and current assets			523				656
Total		$	4,986			$	6,581

 

Note 5. Accrued Expenses

 

Accrued expenses consisted of the following (in thousands):

 

		September 30, 2022				December 31, 2021
Research and development accruals		$	6,593			$	4,050
Accrued compensation			3,313				1,659
Other accrued expenses			553				871
Total		$	10,459			$	6,580

 

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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 unaudited 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 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.

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 (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 (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 September 30, 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 unaudited condensed consolidated financial statements. The stock is subject to vesting ratably each month over 48 months.

 

Pursuant to the Certificate of Incorporation, as of September 30, 2022 and December 31, 2021, there were 250,000,000 shares of common stock, par value $0.0001 per share, authorized. There were 62,320,924 and 62,378,996 shares issued as of September 30, 2022 and December 31, 2021, respectively.

 

In March 2022, in connection with the departure of a former employee, we repurchased 58,072 unvested shares of common stock for an aggregate purchase price of $0.41 and held those shares in treasury. In September 2022, we cancelled 58,072 shares of common stock held in treasury. For accounting purposes, unvested restricted stock and the unvested shares repurchased by us and held in treasury are not deemed to be outstanding.

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Note 8. Stock-Based Compensation

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

 

	Three Months Ended September 30,								Nine Months Ended September 30,
	2022				2021				2022				2021
Research and development	$	1,220			$	115			$	4,255			$	246
General and administrative		1,496				229				3,876				404
Total stock-based compensation	$	2,716			$	344			$	8,131			$	650