Note 1. Description of Business

Description of Business

Pardes Biosciences, Inc., a Delaware corporation, is a biopharmaceutical company that has been focused on discovering, developing and commercializing novel oral-antiviral therapeutics to improve the lives of patients suffering from life-threatening disease. 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.

On April 3, 2023, we announced topline results from our Phase 2 clinical trial to evaluate pomotrelvir (formerly known as PBI-0451) for the treatment of mild-to-moderate COVID-19 in test-positive, symptomatic, otherwise healthy, vaccinated adults without risk factors for developing severe disease. COVID-19 is caused by infection with the severe acute respiratory syndrome coronavirus (SARS-CoV-2). Pomotrelvir did not achieve the primary endpoint as measured by the proportion of participants below the limit of detection for infectious SARS-CoV-2 by infectious virus assay (IVA) on day three of treatment with pomotrelvir versus with placebo. Pomotrelvir did not demonstrate meaningful improvement over placebo in reduction from baseline of SARS-CoV-2 infectious virus titer by IVA or in the reduction from baseline or proportion achieving undetectable viral load by quantitative reverse transcriptase polymerase chain reaction measured from mid-turbinate swabs.

Based upon the topline results from the Phase 2 clinical trial, the Company decided to suspend further clinical development of pomotrelvir and the Board of the Directors of the Company (the Board) has initiated a review of a range of strategic alternatives that may include, but are not limited to, an acquisition, merger, business combination, or other transaction. There can be no assurance that this review process will result in the Company pursuing a transaction or that any transaction, if pursued, will be completed on attractive terms or at all. The Company does not intend to comment further unless or until the Board has approved a definitive course of action, the review process is concluded, or it is determined that other disclosure is appropriate.

Business Combination

On December 23, 2021 (Closing Date), Pardes Biosciences, Inc., a private company (Old Pardes) and FS Development Corp. II (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. Pursuant to the Merger Agreement, on the Closing Date, FSDC II changed its name to “Pardes Biosciences, Inc.”

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 5, 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, 2022, as filed with the Securities and Exchange Commission (SEC) on March 14, 2023 (2022 Form 10-K).

Liquidity

Through March 31, 2023, we have funded our operations primarily with proceeds from the sale of preferred stock, the Business Combination and the PIPE Investment. On January 12, 2023, we filed a shelf registration statement on Form S-3, which was declared effective by the U.S. Securities and Exchange Commission on January 20, 2023 (2023 Shelf). In connection with the 2023 Shelf, we entered into a Sales Agreement, dated January 11, 2023, with SVB Securities LLC (Sales Agent), pursuant to which we may offer and sell up to $50.0 million of our common stock, from time to time at our sole discretion, through the Sales Agent, in “at-the-market” offerings under the 2023 Shelf. However, we believe that our $172.2 million of cash, cash equivalents and short-term investments as of March 31, 2023, will enable us to fund our current planned operations for at least 12 months from the issuance date of these unaudited condensed financial statements.

We have cash deposits with regulated financial institutions, which may from time to time exceed insurance provided on such deposits.

Note 2. Summary of Significant Accounting Policies

Significant Accounting Policies

The accounting policies we follow are set forth in our audited financial statements for the fiscal year ended December 31, 2022. For further information, please refer to the audited financial statements and footnotes thereto included in Part II, Item 8 of our 2022 Form 10-K. There have been no material changes to these accounting policies.

Note 3. Investments

Available-for-sale securities consisted of U.S. Treasury securities, U.S. Agency bonds, commercial paper, corporate debt securities and asset-backed securities.

Short-term investments are classified as available-for-sale, which reflects management’s intention to use proceeds from sales of these securities to fund our operations as necessary and, as such, are carried at fair value. Our short-term investments that are measured at fair value on a recurring basis consisted of the following:

The amortized cost and the fair value of short-term investments were $125.1 million at March 31, 2023 and $138.1 million at December 31, 2022. As of March 31, 2023, there were 19 short-term investments with fair value totaling $52.2 million that were in a gross unrealized loss position for less than 12 months, and none were in a gross unrealized loss position for 12 months or more. Based on our analysis of available-for-sale securities, we determined the unrealized losses were primarily due to changes in interest rates and not due to credit risks. As such, we did not record a credit allowance as of March 31, 2023 and December 31, 2022. As of March 31, 2023 and December 31, 2022, the accrued interest receivable on our available-for-sale securities was $0.2 million and $0.3 million, respectively. For the three months ended March 31, 2023 and 2022, we did not write off any accrued interest receivables. There were no realized gains or losses.

Note 4. Fair Value Measurements

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 Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-driven valuations in which all significant inputs are observable or can be derived principally from, or corroborated with, observable market data; and

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

Note 5. Prepaid Expenses and Other Current Assets

Note 6. Accrued Expenses

Note 7. Stockholders’ Equity

Preferred Stock

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 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, 2023 and December 31, 2022, there were no shares of preferred stock outstanding.

Common Stock

Pursuant to the Certificate of Incorporation, as of March 31, 2023 and December 31, 2022, there were 250,000,000 shares of common stock, par value $0.0001 per share, authorized. There were 61,716,745 and 61,734,343 shares issued as of March 31, 2023 and December 31, 2022, respectively.

Note 8. Stock-Based Compensation