Annual report pursuant to Section 13 and 15(d)

Merger

v3.21.2
Merger
12 Months Ended
Jun. 30, 2021
Business Combinations [Abstract]  
Merger

3

Merger

On June 9, 2020, the Company, Adgero Acquisition Corp., a wholly-owned subsidiary of the Company (“Merger Sub”), and Adgero, entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) pursuant to which upon closing the Merger Sub will merge with and into Adgero, with Adgero surviving the merger and becoming a direct, wholly-owned subsidiary of the Company (the “Merger”).

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), (i) each outstanding share of Adgero common stock (the “Adgero Common Stock”) was converted into shares of Company common stock (the “Kintara Common Stock”) based on the exchange ratio, (ii) each outstanding warrant to purchase Adgero Common Stock was converted into a warrant exercisable for that number of shares of Kintara Common Stock equal to the product of (x) the aggregate number of shares of Adgero Common Stock for which such warrant was exercisable and (y) the Exchange Ratio (as defined in the Merger Agreement); and (iii) each outstanding Adgero stock option, whether vested or unvested, that had not been exercised was cancelled for no consideration. On August 19, 2020, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub merged with and into Adgero, the separate corporate existence of Merger Sub ceased and Adgero continued its existence under Delaware law as the surviving corporation and a direct, wholly-owned subsidiary of the Company.

The Exchange Ratio in the Merger Agreement was negotiated so that the existing stockholders of Adgero would own 49.5% of the total voting shares outstanding of the Company and the existing stockholders of the Company would own 50.5% of the total voting shares outstanding of the Company immediately after the merger (less the effect of the payment of cash in lieu of any fractional shares of Kintara Common Stock). The final Exchange Ratio determined immediately prior to the Effective Time to reflect the Company’s and Adgero’s capitalization as of immediately prior to such time was 1.574.

Under the terms of the Merger Agreement, upon closing of the Merger, the Company issued 11,439 shares of Company common stock and 2,314 stock purchase warrants to the security holders of Adgero (“Adgero Warrants”). The Adgero Warrants are exercisable at $3.18 per share (note 8). The Adgero Warrants were valued using a Black-Scholes valuation with a weighted-average risk-free interest rate of 0.21%, a term of one year, a volatility of 115.96%, and a dividend rate of 0%. The estimated volatility of the Company’s common stock at the date of measurement is based on the historical volatility of the Company. The risk-free interest rate is based on rates published by the government for bonds with a maturity similar to the expected remaining life of the instrument at the valuation date. The expected term has been estimated using the remaining life of the warrant. Also, in conjunction with the Merger, the Company issued 572 shares of common stock to the placement agent as a success fee. The shares of common stock issued to the former Adgero stockholders as well as the success fee shares, have been valued at $1.34 per share which was the closing price of the Company’s common stock on August 19, 2020, the date the Merger closed.

In connection with the Merger, the Company completed a private placement of Series C Convertible Preferred Stock in three separate closings (note 8).

 

To determine the accounting for this transaction under ASU 2017-01, an assessment was made as to whether an integrated set of assets and activities should be accounted for as an acquisition of a business or an asset acquisition. The guidance requires an initial screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single asset or group of similar assets. If that screen is met, the set is not a business. In connection with the Merger, substantially all of the fair value was concentrated in in-process research and development (“IPR&D”). As such, the Merger has been treated as an acquisition of Adgero assets and an assumption of Adgero liabilities.  

 

The Company incurred approximately $1,554 of legal, consulting and other professional fees related to the Merger, of which approximately $500 was incurred in the year ended June 30, 2021 (2020 - $1,054). The transaction costs applicable to the Merger have been classified as merger expenses in the consolidated statement of operations for the years ended June 30, 2021 and 2020.

 

 

 

The following summarizes total consideration transferred to the Adgero stockholders under the Merger as well as the assets acquired and liabilities assumed under the Merger:

 

 

 

$

(in thousands)

 

Consideration:

 

 

 

 

Common stock

 

 

15,328

 

Warrants

 

 

630

 

Success fee shares

 

 

766

 

 

 

 

16,724

 

Net assets acquired:

 

 

 

 

Cash

 

 

(969

)

Other current assets

 

 

(11

)

Property and equipment (note 5)

 

 

(175

)

Accounts payable and accrued liabilities

 

 

337

 

Milestone payment liability

 

 

188

 

In-process research and development

 

 

16,094

 

The fair value of the IPR&D assets has been expensed as a charge in the consolidated statements of operations for the year ended June 30, 2021 as there is no alternative use for these assets.  Property and equipment includes office furniture that was subsequently sold and laboratory equipment that was put into use during the third quarter of the year ended June 30, 2021.

The milestone payment liability relates to an asset purchase agreement with St. Cloud Investments, LLC (“St. Cloud”) that Adgero has regarding the acquisition of REM-001.  The Agreement, as amended, is dated November 26, 2012 (the “St. Cloud Agreement”). Pursuant to the terms of the St. Cloud Agreement, the Company is obligated to make certain payments under the agreement. The future contingent amounts payable under that agreement are as follows:

 

Upon the earlier of (i) a subsequent equity financing to take place after the Company conducts a Phase 2B clinical study in which fifty patients complete the study and their clinical data can be evaluated or (ii) the commencement of a clinical study intended to be used as a definitive study for market approval in any country, the Company is obligated to pay an aggregate amount of $300 in cash or an equivalent amount of common stock, with $240 to St. Cloud and $60 to an employee of the Company; and

 

Upon receipt of regulatory approval of REM-001 Therapy, the Company is obligated to pay an aggregate amount of $700 in cash or an equivalent amount of common stock, with $560 to St. Cloud and $140 to an employee of the Company.

With respect to the $300 and $700 potential milestone payments referenced above (each a “Milestone Payment”), if either such Milestone Payment becomes payable, and in the event the Company elects to pay either such Milestone Payment in shares of its common stock, the value of the common stock will equal the average of the closing price per share of the Company’s common stock over the twenty (20) trading days following the first public announcement of the applicable event described above.

The milestone payment liability has been estimated using a scenario-based method (or “SBM”). An SBM is an income-based approach under which possible outcomes are identified, the contingent consideration payoff of each outcome is probability weighted, and then a suitable discount rate is used to arrive at the expected present value of the contingent consideration at the valuation date.   The probability used in the valuation was based on published research for the probability of success of oncology companies at a similar stage of development as the Company.  The discount rate was based on published rates for corporate bonds and the term was based on an estimate of the planned timing of completion of the respective development achievement that would result in payment of the respective milestones.    

 

 

$

(in thousands)

 

Balance – June 30, 2020

 

 

 

Addition

 

 

188

 

Change in fair value estimate

 

 

(6

)

Balance – June 30, 2021

 

 

182