Lisata Therapeutics (LSTA) 8-K/AOther Events

On April 26, 2022, the Company entered into an agreement and plan of merger (“Merger Agreement”) with Caladrius Biosciences, Inc. (“Caladrius”), a Delaware corporation and CS Cedar Merger Sub, Inc., a wholly-owned subsidiary of Caladrius (“Merger Sub”). Pursuant to the Merger Agreement, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub merged with and into the Company, with the Company continuing as a wholly owned subsidiary of Caladrius and the surviving corporation of the merger (the “Merger”). Upon closing of the Merger on September 15, 2022, the combined company was renamed Lisata Therapeutics, Inc. (“Lisata”) and began trading on the Nasdaq Global Select Market under the ticker symbol “LSTA.” Caladrius is considered to be the accounting acquirer based on the terms of the Merger Agreement. The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.

Subject to the terms and conditions of the Merger Agreement, at the closing of the Merger, (a) each outstanding share of Company common stock and Company preferred stock (except shares of Series D preferred stock) was converted into a number of shares of Caladrius common stock (“Caladrius Common Stock”) equal to the exchange ratio specified in the Merger Agreement ; and (b) each outstanding Company stock option that had not previously been exercised prior to the closing of the Merger was assumed by Caladrius. Effective on the closing of the Merger, the Company’s former stockholders owned approximately 48.2% of the combined company.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The unaudited condensed consolidated financial statements include the accounts of Cend (a U.S. Corporation) and its wholly owned subsidiary DrugCendR (an Australian corporation). All intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the interim periods presented. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the year ended December 31, 2021.

In September 2020, the Company entered into an Asset Purchase Agreement (the “Impilo Agreement”) with Impilo Therapeutics, Inc. (“Impilo”). In accordance with the Impilo Agreement, the Company purchased all the intellectual property rights, know-how and product data of Impilo, as well as certain assumed contracts. The acquired assets expand the Company’s drug delivery capabilities for targeted tissue penetrating delivery of nucleic acid-based medicines for the treatment of solid tumor cancers. The Company’s founding shareholder was a significant shareholder in Impilo prior to the acquisition.

In connection with the Impilo Agreement, the Company issued 1,212,609 shares of a newly created class of Series C convertible preferred stock, with a value of $5.41 per share, for a total value of $6.6 million. The Company recorded the purchase price as in-process research and development expense during the year ended December 31, 2020.

The Impilo Agreement and assumed contracts also allowed for the Company to pursue four license options that were under negotiation by the former shareholders of Impilo at the time of acquisition. If executed by the Company, additional shares (“License Shares”) were to be issued to the original Impilo shareholders. In addition, the Company also assumed the right to pursue a license with the Massachusetts Institute of Technology (“MIT”).

In March 2021 and October 2021, two of the four license options, University of California San Diego (“UCSD”) and Sanford Burnham Prebys (“SBP”), respectively, were executed, and additional License Shares of 66,545 each (Series C shares) were issued to the original Impilo shareholders. The License Shares were valued at $7.82 per share, based on a third-party valuation, for a total value of $1.0 million, of which $0.5 million was recorded as in-process research and development expense during the six months ended June 30, 2021.

In October 2021, the Company executed a license with MIT, and 81,000 shares of common stock were issued to MIT at $3.82 per share, based on a third-party valuation, for a total value of $0.3 million

The Company’s founding shareholder held shares in Impilo prior to occurrence of the Impilo Agreement. A total of 331,108 shares of Series C convertible preferred stock were issued to the Company’s founding shareholder in connection with the Impilo acquisition, of which 298,361 were issued in 2020 and 32,747 were issued in 2021. The shares transferred had the same terms as other investors and the amounts recorded as in-process research and development expenses for the six months ended June 30, 2021 and 2022, totaled $0.1 million and $0, respectively.

In December 2015, the Company entered into a license agreement with Sanford Burnham Prebys under which the Company was granted an exclusive, worldwide, royalty-bearing license to certain patent rights and know-how controlled by SBP related to the development of CEND-1. At the time the license agreement was entered into, the Company’s founding shareholder was an executive at SBP. The agreement provides the Company with the rights to grant and authorize sublicenses to use, sell, and otherwise exploit the patent rights. As consideration for the license, the Company made an initial upfront payment in the form of common stock, issuing 540,000 shares in September 2016, at $0.00001 per share (the “License Fee”). In addition, the Company was required to reimburse SBP for past expenses totaling $0.6 million, of which $0.2 million was paid and the remainder was settled with the issuance of 175,707 shares of common stock. The Company is required to pay an annual license maintenance fee of $5,000, increasing to $10,000 on year four of the agreement, and increasing to $20,000 on year seven of the agreement. The Company could also be required to make milestone payments to SBP upon completion of certain regulatory and commercial milestones. The aggregate potential milestone payments are approximately $10.6 million. The Company has also agreed to pay SBP royalties of 4% of net sales of products sold by the Company, or through a sublicense, subject to certain reductions. Additionally, the Company agreed to pay SBP 25% of any sublicensing income.

During the six months ended June 30, 2021 and 2022, the Company amortized $0 and $5,000 of license maintenance fees and accrued for $2.5 million and $0 in sublicense fees related to the Qilu upfront payment (Note 6), which were recorded to research and development expense. SBP owns 715,707 shares of the Company’s common stock as of December 31, 2021 and June 30, 2022, and is a related party.

In October 2021, the Company entered into a license agreement with SBP under which the Company was granted an exclusive, royalty-bearing license to certain patent rights and know-how controlled by SBP. The agreement provides the Company with the rights to grant and authorize sublicenses to use, sell, and otherwise exploit the patent rights. As consideration for the license, the Company made an initial upfront payment of $50,000, which was paid and recorded to in-process research and development expense in November 2021. In addition, the Company is required to pay an annual license maintenance fee of $20,000, increasing to $30,000 on year four of the agreement. Further, the Company could be required to make milestone payments to SBP upon completion of certain regulatory and commercial milestones. The aggregate potential milestone payments are approximately $23.2 million. The Company has also agreed to pay SBP royalties of 4% of net sales of products sold by the Company or through a sublicense, subject to certain reductions. Additionally, the Company agreed to pay SBP varying sublicense fees, ranging from 10% to 25%, dependent on when the related milestones are reached.

The agreements will expire upon the later of (i) the final abandonment of all pending patent applications within the licensed patents or (ii) the expiration of the last to expire patent within the licensed patents. The agreements may be terminated in their entirety by the Company at any time by giving SBP sixty days’ prior written notice. The agreements may be terminated in their entirety by SBP if the Company, at any time, defaults in the payment of any sum when due and fails to make such payment within thirty days after receipt of written notice. The agreements may be terminated in their entirety by SBP or the Company in (i) the event of an uncured material breach by the other party, or (ii) in the event the other party (a) files for, or is involuntarily petitioned with, bankruptcy (other than dissolution or winding up for the purposes of reconstruction or amalgamation), (b) makes an assignment of all or substantially all of its assets for the benefit of creditors, or (c) has a receiver or trustee is appointed and is unable to secure a dismissal, stay or other suspension of such proceedings within thirty days. Upon termination of the agreements for any reason, all rights and obligations of the Company with respect to the patents and patent applications shall terminate and revert to SBP.

In March 2021, the Company entered into a license agreement with the University of California at San Diego under which the Company was granted an exclusive, royalty-bearing license to certain patent rights related to the development of nano particles to modulate immune response. The agreement provides the Company with the rights to grant and authorize sublicenses to use, sell and otherwise exploit the patent rights. As consideration for the license, the Company made an initial upfront payment of $10,000, which was paid and recorded to in-process research and development expense as of June 30, 2021. In addition, the Company was required to reimburse UCSD for past expenses totaling $18,000, $9,100 of which was accrued for and recorded to in-process research and development expense as of June 30, 2021. In addition, the Company is required to pay an annual license maintenance fee of $5,000 beginning in March 2022, which was paid in February 2022, $1,700 of which was amortized to research and development expense during the six months ended June 30, 2022. Further, the Company could be required to make milestone payments to UCSD upon completion of certain regulatory and commercial milestones. The aggregate potential milestone payments are approximately $1.2 million. The Company has also agreed to pay UCSD royalties of 1.5% of net sales of products sold by the Company or through a sublicense, subject to certain reductions. Additionally, the Company agreed to pay UCSD varying sublicense fees, ranging from 10% to 20%, dependent on when the related milestones are reached.

The agreement will expire upon the expiration of the longest-lived patent rights. The agreement may be terminated in its entirety by the Company at any time by giving UCSD ninety days’ prior written notice. The agreement may be terminated in its entirety by UCSD if the Company, at any time, (i) fails to perform or violates any term of the agreement and fails to cure the default within sixty days. Upon termination of the agreement for any reason, UCSD may terminate a sublicensee but will allow the Company to assign any sublicenses to UCSD provided a) that the sublicensee is in good standing upon termination of the agreement with the Company; and b) the sublicensee is not currently involved in litigation as an adverse party to UCSD.

In October 2021, the Company entered into a license agreement with the Massachusetts Institute of Technology under which the Company was granted an exclusive, royalty-bearing license to certain patent rights related to the development of tissue specific delivery of interfering RNA. The agreement provides the Company with the rights to grant and authorize sublicenses to use, sell, and otherwise exploit the patent rights. As consideration for the license, the Company made an initial upfront payment of $15,000, which was paid and recorded to in-process research and development expense in December 2021. In addition, the Company is required to pay an annual license maintenance fee of $20,000, increasing to $25,000 for year two and three of the agreement, increasing to $50,000 on year four of the agreement and thereafter until the first commercial sale, and increasing to $150,000 each year of the agreement after the first sale. The Company paid the $20,000 annual license maintenance fee in February 2022, and amortized $10,000 to research and development expense during the six months ended June 30, 2022. Further, the Company could be required to make milestone payments to MIT upon completion of certain regulatory and commercial milestones. The aggregate potential milestone payments are approximately $5.0 million. The Company has also agreed to pay MIT royalties of 2% of net sales of products sold by the Company or through a sublicense, subject to certain reductions. Additionally, the Company agreed to pay MIT varying sublicense fees, ranging from 3% to 20%, dependent on when the related milestones are reached. Lastly, the Company could be required to pay MIT a change in control fee of $0.3 million if the control of the Company or the agreement is assigned to a third-party. As of June 30, 2022, the Company concluded the change in control event was not probable and therefore no obligation was recorded.

The agreement will expire upon the expiration or abandonment of all valid claims. The agreement may be terminated in its entirety by the Company at any time by giving MIT six months prior written notice. The agreement may be terminated in its entirety by MIT if the Company, at any time, (i) defaults in the payment of any sum when due and fails to make such payment within thirty days after receipt of written notice, or (ii) in the event the Company commits a material breach of its obligations under the agreement (aside from item (i)) and fails to cure that breach within sixty days after receipt of written notice. Upon termination of the agreement for any reason, the rights and licenses granted to the Company shall terminate and revert to MIT. Upon termination of the agreement for any reason, MIT may terminate a sublicensee but will allow the Company to assign any sublicenses to MIT provided that the sublicensee is in good standing upon termination of the agreement with the Company.

In February 2021, the Company entered into an Exclusive License and Collaboration Agreement (the “Qilu Agreement”) in which the Company granted an exclusive license to Qilu for the development and commercialization of CEND-1 in the Territory (defined as the Greater Area of China including China, Macau, Hong Kong, and Taiwan). Under the terms of the agreement, Qilu is solely responsible for the development of CEND-1 in its Territory. In consideration for the license, Qilu made a one-time, non-refundable, non-creditable upfront payment of $10 million to the Company. The Company is also eligible to receive developmental and commercial milestone payments up to $100 million and $125 million, respectively, tiered royalties on net sales ranging from 10% to 15%, and tiered sublicensing revenues ranging from 12% to 35%.

Under the terms of the Qilu Agreement, Qilu was also required to file an Investigational New Drug Application (“IND”) and receive approval by the National Medical Products Administration (“NMPA”) in the People’s Republic of China in the Territory within 12 months of the effective date of the arrangement, which would result in a $5 million milestone payment. Qilu was also required to dose its first patient in a Phase I clinical trial in the Territory within six months of the acceptance of the IND, subject to certain extensions, or the Company would have had the option to terminate the Qilu Agreement. In August of 2021, Qilu achieved the regulatory milestone, and the Company received the $5 million milestone payment. Qilu also dosed its first patient within the six-month period.

The Company may also earn an additional $1 million upon completing process optimization and scale up activities and delivering three validation batches of CEND-1in full commercial scale by Qilu or its subcontractor (the “Technology Transfer”). After completing the Technology Transfer, Qilu will be responsible for manufacturing CEND-1 for use in subsequent clinical trials. In the event the Company and its contract manufacturers fail to complete the process optimization and scale up activities, Qilu would have the right to manufacture CEND-1 using its independent manufacturing process and would have no obligation to pay the Technology Transfer milestone payment. Prior to the completion of the Technology Transfer, the Company has agreed to supply CEND-1 to Qilu at its cost.

Unless terminated early, the Qilu Agreement will continue in effect until the expiration of all Qilu payment obligations. Either party may terminate the Qilu Agreement if an undisputed material breach by the other party is not cured within a defined period of time, or upon notice for insolvency-related events of the other party that are not discharged within a defined time period. Qilu may terminate the Qilu Agreement in its entirety, at any time with at least sixty days written notice. All right and obligations of Qilu with respect to such licensed patents and patent applications would terminate.

Under the framework of ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”), the Company identified two performance obligations, which was the delivery of the license, and a material right related to the supply of CEND-1 prior to the completion of the Technology Transfer. At the onset of the Qilu Agreement, the Technology Transfer was only an option of Qilu, and the Company further determined the fee for the Technology Transfer approximated the standalone selling price and therefore the option would not represent a material right and accordingly, did not represent a performance obligation at the onset of the arrangement. The Company recognized $9.7 million in revenue upon delivery of the license to Qilu in February 2021. The Company initially deferred $0.3 million in revenue for the material right, which will subsequently be recognized as revenue as the clinical supply is delivered.

In August 2021, the Company received $5.0 million from Qilu upon achievement of the first development milestone. In March 2022, the Company provided Qilu with clinical supply material and recognized $0.2 million in revenue. In April 2022, the Company provided Qilu with clinical supply material and recognized $0.4 million in revenue. As of June 30, 2022, the Company had $0.2 million recorded as deferred revenue, all of which was included in other current liabilities. As of December 31, 2021, the Company had $0.3 million recorded as deferred revenue, of which $66,000 was included in other current liabilities and $0.2 million was included in other long-term liabilities.

As of June 30, 2022, the Technology Transfer had not been completed and no payment had been made by Qilu. Additionally, all remaining future development and sales milestones (variable consideration) were fully constrained and will only be recognized upon achievement of the milestones.

In May 2021, the Company received a written threat of litigation on behalf of a Chinese entity called Lingmed Limited (“Lingmed”) claiming Lingmed was entitled to a success fee based on the Company’s Collaboration and License Agreement with Qilu Pharmaceuticals. The Company responded by denying that Lingmed is entitled to a success fee under the terms of their agreement. In May 2022, the Company was served with a complaint filed by Lingmed in the San Diego County Superior Court, alleging claims for breach of contract, fraud and declaratory relief. The Company’s response to the complaint was filed on June 6, 2022. Lingmed filed an answer to the Company’s response on July 11, 2022. A case management conference is scheduled for October 7, 2022.

A summary of the Company’s stock option activity under the Plan is as follows (in thousands, except share and per share amounts and years):

For the six months ended June 30, 2021 and 2022, the total fair value of options that vested during the period was $0.2 million.

There was one option exercised during the six months ended June 30, 2021, with an aggregate intrinsic value of $0.1 million. There were no options exercised during the six months ended June 30, 2022.

There were no options granted to employees or non-employees during the six months ended June 30, 2021. There were 30,000 options granted to non-employees during the six months ended June 30, 2022. The weighted-average grant date fair value of non-employee option grants for the six months ended June 30, 2022 was $2.27 per share.

The Company recognized stock-based compensation expense of $0.2 million and $0.3 million for the six months ended June 30, 2021 and 2022, respectively.

As of June 30, 2022, the unrecognized compensation cost related to outstanding employee options was $0.4 million and is expected to be recognized as expense over approximately 3.3 years. Unrecognized compensation cost related to outstanding nonemployee options was $0.4 million as of June 30, 2022 and is expected to be recognized as expense over approximately 1.8 years.

The Company’s Australian subsidiary, which conducts core research and development activities, is eligible to receive a 43.5% refundable tax incentive for qualified research and development activities. For the six months ended June 30, 2022, $0.4 million was recorded as a reduction of research and development expenses in the condensed consolidated statements of operations, as the Company determined that it met the eligibility criteria and the amounts claimed are expected to be received shortly after the related tax returns are filed. For the six months ended June 30, 2021, $0.2 million was recorded as a reduction of research and development expenses in the condensed consolidated statements of operations, as the Company determined that it met the eligibility criteria and subsequently collected the tax incentives after filing the related tax returns.

The Company has an advisory consulting agreement with the founding shareholder, who is also a member on the Board of Directors. During the six months ended June 30, 2021 and 2022, the Company incurred and paid $15,000 and $31,000, respectively, which was recoded to research and development expense. As of December 31, 2021 and June 30, 2022, the Company had a $5,000 prepayment relating to the agreement included within other current assets on the condensed consolidated balance sheets.

As discussed in Note 4, the Company entered into an asset purchase agreement with Impilo, which included several additional license agreements, all of which were paid for with the newly created class of Series C preferred stock, and one of the investors was the Company’s founding shareholder. During the six months ended June 30, 2021 and 2022, the Company recorded $0.1 million and $0, respectively, related to this agreement, which was recorded to in-process research and development expense.

As discussed in Note 5, the Company has license agreements with SBP, who owns 715,707 shares of the Company’s common stock. During the six months ended June 30, 2021 and 2022, the Company incurred $2.5 million and $41,000, respectively, related to the license agreements, which was recorded to research and development expense. As of December 31, 2021 and June 30, 2022, $27,000 and $17,000, respectively, of these expenses is included in accrued expenses within the condensed consolidated balance sheets. As of December 31, 2021 and June 30, 2022, $0 and $10,000, respectively, of these expenses is included in accounts payable within the condensed consolidated balance sheets. As of December 31, 2021 and June 30, 2022, the Company had a $9,000 and $4,000, respectively, prepayment relating to the agreements included within other current assets on the condensed consolidated balance sheets.