Amendment: SEC Form 10-Q/A filed by Spyre Therapeutics Inc.
$SYRE
Biotechnology: Pharmaceutical Preparations
Health Care
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________________________
FORM 10-Q/A
(Amendment No. 1)
____________________________
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 30, 2024
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: 001-37722
____________________________
(Exact Name of Registrant as Specified in its Charter)
____________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
| (Address of principal executive offices including zip code) | |||||
Registrant’s telephone number, including area code: (617 ) 651-5940
Former name, former address and former fiscal year, if changed since last report: N/A
____________________________
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
(Nasdaq Global Select 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 x No o
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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 | o | Accelerated filer | o | |||||||||||
| x | 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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of August 1, 2024, the registrant had 50,792,374 shares of common stock, $0.0001 par value per share, outstanding.
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-Q/A (this “Amendment”) amends the Quarterly Report on Form 10-Q of Spyre Therapeutics, Inc. (the “Company”) for the period ended June 30, 2024, as filed with the Securities and Exchange Commission on August 7, 2024 (the “Original Filing”).
Subsequent to the filing of its Form 10-Q for the three and nine months ended September 30, 2024, the Company became aware of a misapplication of Generally Accepted Accounting Principles in the United States ("U.S. GAAP") as it relates to the Company's exclusion of its Series A non-voting convertible preferred stock and Series B non-voting convertible preferred stock in the calculation of basic and diluted net loss per share and a finding of a material weakness in internal control over financial reporting solely related to such matter. This Amendment is being filed for the sole purpose of amending certain disclosures from the Original Filing related to the aforementioned misapplication of U.S. GAAP and related finding of material weakness in internal control over financial reporting.
Specifically, this Amendment amends: (i) Part I, Item 1. “Financial Information (unaudited)” to update the Company's Consolidated Statement of Operations and related footnote disclosures for the three and six months ended June 30, 2024, (ii) Part I, Item 4. "Controls and Procedures" to address management's re-evaluation of disclosure controls and procedures as of June 30, 2024 and to reflect the identification of a material weakness in our internal control over financial reporting and (iii) Part II, Item 6. "Exhibits" to include, in accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), updated certifications from our Chief Executive Officer and Chief Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1, 31.2 and 32.1. In accordance with Rule 12b-15 under the Exchange Act, this Amendment amends and restates in their entirety each item identified in the paragraph above.
SPYRE THERAPEUTICS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2024
TABLE OF CONTENTS
| Page No. | ||||||||
PART I. – Financial Information
Item 1. Financial Statements (Unaudited).
Spyre Therapeutics, Inc.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except share and per share amounts)
| June 30, 2024 | December 31, 2023 | ||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Marketable securities | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Restricted cash | |||||||||||
| Other non-current assets | |||||||||||
| TOTAL ASSETS | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| CURRENT LIABILITIES | |||||||||||
| Accounts payable | $ | $ | |||||||||
| CVR liability | |||||||||||
| Accrued and other current liabilities | |||||||||||
| Related party accounts payable and other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Non-current CVR liability | |||||||||||
| TOTAL LIABILITIES | |||||||||||
| Commitments and Contingencies (Note 7 and 8) | |||||||||||
Series B non-voting convertible preferred stock, $ | |||||||||||
| STOCKHOLDERS’ EQUITY | |||||||||||
Series A non-voting convertible preferred stock, $ | |||||||||||
Series B non-voting convertible preferred stock, $ | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive (loss) income | ( | ||||||||||
| Accumulated deficit | ( | ( | |||||||||
| TOTAL STOCKHOLDERS’ EQUITY | |||||||||||
| TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Spyre Therapeutics, Inc.
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except share and per share amounts)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Development fee and royalty | $ | $ | $ | $ | |||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
Research and development (1) | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Acquired in-process research and development | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Loss from operations | ( | ( | ( | ( | |||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Change in fair value of forward contract liability | ( | ( | |||||||||||||||||||||
| Other expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Total other income (expense) | ( | ( | |||||||||||||||||||||
| Loss before income tax expense | ( | ( | ( | ( | |||||||||||||||||||
| Income tax (expense) benefit | ( | ( | |||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Net loss per share, basic and diluted, Series A Preferred Stock (restated) | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted-average Series A non-voting convertible preferred stock outstanding, basic and diluted (restated) | |||||||||||||||||||||||
| Net loss per share, basic and diluted, Series B Preferred Stock (restated) | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Weighted-average Series B non-voting convertible preferred stock outstanding, basic and diluted (restated) | |||||||||||||||||||||||
| Net loss per share, basic and diluted, common (restated) | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted-average common shares outstanding, basic and diluted | |||||||||||||||||||||||
(1)Includes $9.4 million and $26.5 million in related party expenses for the three and six months ended June 30, 2024, respectively, and $1.4
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Spyre Therapeutics, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited, in thousands)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||||||||
| Foreign currency translation adjustment | |||||||||||||||||||||||
| Unrealized (loss) gain on marketable securities | ( | ( | ( | ||||||||||||||||||||
| Total comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Spyre Therapeutics, Inc.
Condensed Consolidated Statements of Changes in
Convertible Preferred Stock and Stockholders’ Equity
(Unaudited, in thousands)
| Six Months Ended June 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series B Non-Voting Convertible Preferred Stock | Series A Non-Voting Convertible Preferred Stock | Series B Non-Voting Convertible Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances - December 31, 2023 | $ | $ | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series B non-voting convertible preferred stock in connection with private placement, net of financing costs | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with exercise of stock options and employee stock purchase plan | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized loss on marketable securities | — | — | — | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances - March 31, 2024 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholder approval of the issuance of Common Stock upon conversion of Series B convertible non-voting preferred stock | ( | ( | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exchange of Series A non-voting convertible preferred stock for common stock | — | — | ( | ( | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series B non-voting convertible preferred stock into common stock | — | — | ( | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with exercise of pre-funded warrants | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with exercise of stock options and employee stock purchase plan | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized loss on marketable securities | — | — | — | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances - June 30, 2024 | $ | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
4
| Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
Series A Non-Voting Convertible Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balances - December 31, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with employee stock purchase plan | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Unrealized gain on marketable securities | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Balances - March 31, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Issuance of Series A non-voting convertible preferred stock in connection with private placement, net of financing costs | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock forward in connection with the asset acquisition of Spyre | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with exercise of pre-funded warrants | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| CVR distribution to common stockholders | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Unrealized loss on marketable securities | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Balances - June 30, 2023 | $ | $ | $ | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Spyre Therapeutics, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
| Six Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Stock-based compensation | |||||||||||
| Acquired in-process research and development | |||||||||||
| Change in fair value of CVR liability | |||||||||||
| Change in fair value of forward contract liability | |||||||||||
| Lease ROU asset and leasehold improvement impairment loss | |||||||||||
| Loss on disposal of long-lived assets | |||||||||||
| Net accretion of discount on marketable securities | ( | ( | |||||||||
Interest proceeds from maturities of zero coupon US Treasury Bills | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of operating lease assets | |||||||||||
| Other | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts payable | |||||||||||
| Accrued and other liabilities | ( | ( | |||||||||
| Related party accounts payable | ( | ||||||||||
| Prepaid expenses and other assets | ( | ||||||||||
| Deferred revenue | |||||||||||
| Development receivables | ( | ||||||||||
| Operating lease liabilities | ( | ||||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Proceeds from maturities and sales of marketable securities | |||||||||||
| Purchases of marketable securities | ( | ||||||||||
| Cash assumed from asset acquisition of Spyre | |||||||||||
| Proceeds from sale of property and equipment | |||||||||||
| Net cash (used in) and provided by investing activities | ( | ||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Proceeds from issuance of Series B non-voting convertible preferred stock in connection with private placement, net of placement and other offering costs | |||||||||||
| Proceeds from issuance of Series A non-voting convertible preferred stock in connection with private placement | |||||||||||
| Payments related to contingent value rights liability | ( | ||||||||||
| Proceeds from employee stock option exercises, employee stock plan purchases, and exercise of prefunded warrants | |||||||||||
| Principal payments on finance lease obligation | ( | ||||||||||
| Net cash provided by financing activities | |||||||||||
| Effect of exchange rate on cash, cash equivalents, and restricted cash | ( | ||||||||||
| NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | ( | ||||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | |||||||||||
| Beginning of period | |||||||||||
| End of period | $ | $ | |||||||||
(Continued on next page)
| Six Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Supplemental Disclosure of Non-Cash Investing and Financing Information: | |||||||||||
| Exchange of Series A non-voting convertible preferred stock for common stock | $ | $ | |||||||||
| Conversion of Series B non-voting convertible preferred stock into common stock | $ | $ | |||||||||
| Unpaid amounts related to issuance of Series B non-voting convertible preferred stock in connection with private placement | $ | $ | |||||||||
| Unpaid direct transaction costs related to the asset acquisition of Spyre | $ | $ | |||||||||
| Unpaid amounts related to issuance of Series A non-voting convertible preferred stock in connection with private placement | $ | $ | |||||||||
| Reconciliation of Cash, Cash Equivalents, and Restricted Cash Reported in the Statement of Financial Position | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Spyre Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. The Company and Basis of Presentation
Spyre Therapeutics, Inc., formerly Aeglea BioTherapeutics, Inc. (“Spyre” or the “Company”), is a clinical stage biotechnology company focused on developing next generation therapeutics for patients living with inflammatory bowel disease. The Company was formed as a Limited Liability Company ("LLC") in Delaware on December 16, 2013 under the name Aeglea BioTherapeutics Holdings, LLC and was converted from a Delaware LLC to a Delaware corporation on March 10, 2015. On November 27, 2023, the Company completed its corporate rebranding, changing the name of the Company to Spyre Therapeutics, Inc. The Company operates in one segment and has its principal offices in Waltham, Massachusetts.
On September 8, 2023, the Company effected a reverse stock split of its Common Stock at a ratio of 1-for-25 (the “Reverse Split”). Except as indicated otherwise, all share numbers related to the Company's Common Stock disclosed in these financial statements have been adjusted on a post-Reverse Split basis.
On April 12, 2023, based on the review of the inconclusive interim results from the Company's Phase 1/2 clinical trial of pegtarviliase for the treatment of Classical Homocystinuria and other business considerations, the Company announced that it had initiated a process to explore strategic alternatives to maximize stockholder value and engaged an independent exclusive financial advisor to support this process. As a result, in April 2023, the Company implemented a restructuring plan resulting in an approximate 83 % reduction of the Company’s existing headcount.
On June 22, 2023, the Company acquired, in accordance with the terms of the Agreement and Plan of Merger (the "Acquisition Agreement"), the assets of Spyre Therapeutics, Inc. (“Pre-Merger Spyre”), a privately held biotechnology company advancing a pipeline of antibody therapeutics with the potential to transform the treatment of inflammatory bowel disease through a research and development option agreement ("Paragon Agreement") with Paragon Therapeutics, Inc. ("Paragon"). The asset acquisition was accomplished through a two-step reverse triangular merger whereby a wholly owned subsidiary of the Company merged with and into Pre-Merger Spyre, which existed at the time the Acquisition Agreement was entered into, and became a wholly owned subsidiary of the Company in accordance with the terms of the Acquisition Agreement. Immediately following this merger, Pre-Merger Spyre merged with and into a second wholly owned subsidiary of the Company (“Merger Sub”) in accordance with the terms of the Acquisition Agreement and Pre-Merger Spyre ceased to exist. Subsequently, Aeglea BioTherapeutics, Inc. was renamed Spyre Therapeutics, Inc. and is a different entity than Pre-Merger Spyre, which ceased to exist upon merging with Merger Sub. The transaction was structured as a stock-for-stock transaction pursuant to which all of Pre-Merger Spyre's outstanding equity interests were exchanged based on a fixed exchange ratio of 0.5494488 to 1 for consideration from the Company of 517,809 shares of common stock, par value of $0.0001 per share ("Common Stock"), and 364,887 shares of Series A non-voting convertible preferred stock, par value of $0.0001 per share ("Series A Preferred Stock") (convertible on a 40 to 1 basis), in addition to the assumption of outstanding and unexercised stock options to purchase 2,734 shares of Common Stock from the Amended and Restated Spyre 2023 Equity Incentive Plan (the "Asset Acquisition"). The Common Stock and Series A Preferred Stock related to the Asset Acquisition were issued to the Pre-Merger Spyre stockholders on July 7, 2023.
In connection with the Asset Acquisition, on June 26, 2023, the Company completed a private placement of shares of Series A Preferred Stock (the “June 2023 PIPE”) to a group of investors (the “June 2023 Investors”). The Company sold an aggregate of 721,452 shares of Series A Preferred Stock for an aggregate purchase price of approximately $210.0 million before deducting approximately $12.7 million in placement agent and other offering expenses (together with the Asset Acquisition, the “Transactions”).
In connection with the Asset Acquisition, a non-transferable contingent value right ("CVR") was distributed to stockholders of record of the Company as of the close of business on July 3, 2023 (the "Legacy Stockholders"), but was not distributed to the holders of shares of Common Stock or Series A Preferred Stock issued to the former stockholders of Pre-Merger Spyre or the June 2023 Investors in the Transactions. Holders of the CVRs will be entitled to receive cash payments from proceeds received by the Company for a three-year
7
period related to the disposition or monetization of its legacy assets for a period of one-year following the closing of the Asset Acquisition.
On November 21, 2023, the Company's stockholders approved the issuance of Common Stock upon conversion of the Company's Series A Preferred Stock to Common Stock. A total of 649,302 shares of Series A Preferred Stock automatically converted to 25,972,080 shares of Common Stock; 437,037 shares of Series A Preferred Stock did not automatically convert and remained outstanding after the conversion.
On December 11, 2023, the Company completed a private placement of shares of Common Stock and Series B non-voting convertible preferred stock, par value of $0.0001 per share ("Series B Preferred Stock") (convertible on a 40 to 1 basis) (the “December 2023 PIPE”) to a group of investors. The Company sold an aggregate of 6,000,000 shares of Common Stock and 150,000 shares of Series B Preferred Stock for an aggregate purchase price of approximately $180.0 million before deducting approximately $10.9 million of placement agent and other offering expenses.
On March 20, 2024, the Company completed a private placement of Series B Preferred Stock (convertible on a 40 to 1 basis) (the “March 2024 PIPE”) to a group of investors. The Company sold 121,625 shares of Series B Preferred Stock for a purchase price of $180.0 million before deducting approximately $11.2 million of placement agent and other offering costs.
On April 23, 2024, the Company entered into an exchange agreement with Fairmount Healthcare Fund II L.P. (the “Stockholder”), pursuant to which the Stockholder agreed to exchange an aggregate of 90,992 shares of Series A Preferred Stock for an aggregate of 3,639,680 shares of Common Stock (the “April 2024 Exchange”). The Common Stock issued in connection with the April 2024 Exchange was issued without registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on the exemption from registration contained in Section 3(a)(9) of the Securities Act. The April 2024 Exchange closed on April 25, 2024, with 346,045 shares of Series A Preferred Stock remaining outstanding following the April 2024 Exchange.
On May 14, 2024, the Company's stockholders approved the issuance of Common Stock upon conversion of the Company's Series B Preferred Stock to Common Stock. A total of 254,958 shares of Series B Preferred Stock automatically converted to 10,198,320 shares of Common Stock; 16,667 shares of Series B Preferred Stock did not automatically convert and remained outstanding as of June 30, 2024.
Liquidity
The Company is a clinical stage biotechnology company with a limited operating history, and due to its significant research and development expenditures, the Company has generated operating losses since its inception and has not generated any revenue from the commercial sale of any products. There can be no assurance that profitable operations will ever be achieved, and, if achieved, whether profitability can be sustained on a continuing basis.
Since its inception and through June 30, 2024, the Company has funded our operations by raising an aggregate of approximately $1.1 billion of gross proceeds from the sale and issuance of convertible preferred stock and common stock, pre-funded warrants, the collection of grant proceeds, and the licensing of its product rights for commercialization of pegzilarginase in Europe and certain countries in the Middle East. As of June 30, 2024, Spyre had an accumulated deficit of $847.1 million, and cash, cash equivalents, marketable securities and restricted cash of $426.3 million.
Based on current operating plans, the Company has sufficient resources to fund operations for at least one year from the issuance date of these financial statements with existing cash, cash equivalents, and marketable securities. Spyre will need to secure additional financing in the future to fund additional research and development, and before a commercial drug can be produced, marketed and sold. If the Company is unable to obtain additional financing or generate license or product revenue, the lack of liquidity could have a material adverse effect on the Company.
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Basis of Presentation
The consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) as defined by the Financial Accounting Standards Board and include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Reclassification of Prior Year Presentation
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations or balance sheets.
Unaudited Interim Financial Information
2. Summary of Significant Accounting Policies
These interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and SEC instructions for interim financial information, and should be read in conjunction with the Company's Annual Report. Significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed in the Company's Annual Report. The Company uses the same accounting policies in preparing quarterly and annual financial statements.
Other than policies noted below, there have been no significant changes from the significant accounting policies and estimates disclosed in the Notes titled “1. The Company and Basis of Presentation” and "2. Summary of Significant Accounting Policies” of the Company's Annual Report.
License Agreements Contingent Milestone Payments
The Company’s license agreements include specific development, regulatory, and clinical milestone payments that are payable upon the resolution of a contingency, such as upon the selection of a development candidate, first dosing of a human patient in clinical trials or receipt of the Food Drug and Administration’s (“FDA”) approval of a Spyre drug. The achievement of these milestone payments involves many factors outside of the Company’s control and therefore the associated likelihood cannot be considered probable until the related contingency is resolved. Based on the preceding, the Company accrues each milestone payment upon the achievement of the applicable milestone event.
Recently Adopted Accounting Pronouncement
There have been no recent accounting pronouncements or changes in accounting pronouncements during the six months ended June 30, 2024 that are of significance or potential significance to the Company.
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3. Fair Value Measurements
The Company measures and reports certain financial instruments as assets and liabilities at fair value on a recurring basis. The following tables set forth the fair value of the Company’s financial assets and liabilities at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):
| June 30, 2024 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Financial Assets: | |||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | |||||||||||||||||||
| U.S. government treasury securities | |||||||||||||||||||||||
| U.S. government agency securities | |||||||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||
| Corporate bonds | |||||||||||||||||||||||
| Total financial assets | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Parapyre Option Obligation | $ | $ | $ | $ | |||||||||||||||||||
| CVR liability | |||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Financial Assets: | |||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | |||||||||||||||||||
| U.S. government treasury securities | |||||||||||||||||||||||
| U.S. government agency securities | |||||||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||
| Corporate bonds | |||||||||||||||||||||||
| Total financial assets | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| CVR liability | $ | $ | $ | $ | |||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||||||||
The Company measures the fair value of money market funds and U.S. government treasury securities on quoted prices in active markets for identical assets or liabilities. The Level 2 assets include U.S. government agency securities, commercial paper and corporate bonds, and are valued based on quoted prices for similar assets in active markets and inputs other than quoted prices that are derived from observable market data. The Company evaluates transfers between levels at the end of each reporting period. There were no transfers between Level 1, Level 2, or Level 3 during the periods presented.
Parapyre Option Obligation
Under the Paragon Agreement, the Company is obligated to issue Parapyre Holding LLC ("Parapyre") an annual equity grant of warrants, on the last business day of each of the years ended December 31, 2023 and December 31, 2024, to purchase 1 % of the then outstanding shares of the Company’s Common Stock, on a fully diluted basis, during the term of the Paragon Agreement (the "Parapyre Option Obligation"). The Company determined that the 2023 and 2024 grants are two separate grants, as there would be no obligation for the 2024 grant had the Company exercised or terminated all of the options under the Paragon Agreement prior to December 31, 2023. The service inception period for the grant precedes the grant date, with the full award
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being vested as of the grant date with no post-grant date service requirement. Accordingly, a liability related to the Parapyre Option Obligation is recorded pursuant to the Paragon Agreement during interim periods. On December 31, 2023, the Company settled its 2023 obligation under the Parapyre Option Obligation by issuing Parapyre 684,407 warrants to purchase the Company's Common Stock, with a $21.52 per share exercise price for each warrant.
The Parapyre Option Obligation is considered a Level 2 liability based on observable market data for substantially the full term of the liability. The Parapyre Option Obligation is measured each period using a Black-Scholes model to estimate the fair value of the option grant. Changes in the fair value of the Parapyre Option Obligation are recorded as stock-based compensation within Research and development expenses for non-employees who provided pre-clinical development services.
CVR Liability
In connection with the Asset Acquisition, a non-transferable CVR was distributed to the Legacy Stockholders, but was not distributed to holders of shares of Common Stock or Series A Preferred Stock issued to the June 2023 Investors or former stockholders of Pre-Merger Spyre in connection with the Transactions. Holders of the CVR will be entitled to receive certain cash payments from proceeds received by the Company for a three-year period, if any, related to the disposition or monetization of the Company’s legacy assets for a period of one year following the closing of the Asset Acquisition.
The fair value of the CVR liability was determined using the probability weighted discounted cash flow method to estimate future cash flows associated with the sale of the legacy assets. Analogous to a dividend being declared/approved in one period and paid out in another, the liability was recorded at the date of approval, June 22, 2023, as a Common Stock dividend, returning capital to the Legacy Stockholders. Changes in fair value of the liability will be recognized as a component of Other income (expense) in the consolidated statement of operations and comprehensive loss in each reporting period. The liability value is based on significant inputs not observable in the market such as estimated cash flows, estimated probabilities of regulatory success, and discount rates, which represent a Level 3 measurement within the fair value hierarchy.
| June 30, 2024 | |||||
| Estimated cash flow dates | 02/15/25 - 06/22/26 | ||||
| Estimated probability of success | |||||
| Estimated reimbursement rate compared to reimbursement target | |||||
| Risk-adjusted discount rates | |||||
The change in fair value between December 31, 2023 and June 30, 2024 was a $0.9 million increase, and was primarily driven by changes in the risk-adjusted discount rates and the time value of money.
The following table presents changes in the CVR liability for the periods presented (in thousands):
CVR Liability | |||||
| Beginning balance as of December 31, 2023 | $ | ||||
| Changes in the fair value of the CVR liability | |||||
| Payments | ( | ||||
| Ending Balance as of June 30, 2024 | $ | ||||
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Forward Contract Liability
In connection with the Asset Acquisition, the Company entered into a contract for the issuance of 364,887 shares of Series A Preferred Stock as part of the consideration transferred. This forward contract was classified as a liability because the underlying preferred shares were contingently redeemable. The forward contract was carried at fair value on the balance sheet, with changes in fair value between the acquisition date and June 30, 2023 recorded in earnings. The liability was settled with the issuance of the Series A Preferred Stock on July 7, 2023.
The fair value of the forward contract as of the acquisition date, June 22, 2023, was $106.2 million. The fair value of the forward contract on June 30, 2023 was $164.4 million. The $58.2
4. Cash Equivalents and Marketable Securities
The following tables summarize the estimated fair value of the Company’s cash equivalents and marketable securities and the gross unrealized gains and losses (in thousands):
| June 30, 2024 | |||||||||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | |||||||||||||||||||
| Total cash equivalents | $ | $ | $ | $ | |||||||||||||||||||
| Marketable securities: | |||||||||||||||||||||||
| Commercial paper | $ | $ | $ | ( | $ | ||||||||||||||||||
| Corporate bonds | ( | ||||||||||||||||||||||
| U.S. government treasury securities | ( | ||||||||||||||||||||||
| U.S. government agency securities | ( | ||||||||||||||||||||||
| Total marketable securities | $ | $ | $ | ( | $ | ||||||||||||||||||
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| December 31, 2023 | |||||||||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | |||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||
| U.S. government treasury securities | |||||||||||||||||||||||
| Total cash equivalents | $ | $ | $ | $ | |||||||||||||||||||
| Marketable securities: | |||||||||||||||||||||||
| Commercial paper | $ | $ | $ | $ | |||||||||||||||||||
| Corporate bonds | ( | ||||||||||||||||||||||
| U.S. government treasury securities | |||||||||||||||||||||||
| U.S. government agency securities | |||||||||||||||||||||||
| Total marketable securities | $ | $ | $ | ( | $ | ||||||||||||||||||
The following table summarizes the available-for-sale securities in an unrealized loss position for which an allowance for credit losses has not been recorded as of June 30, 2024 and December 31, 2023, aggregated by major security type and length of time in a continuous unrealized loss position:
| June 30, 2024 | |||||||||||||||||||||||||||||||||||
Less Than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
| Commercial paper | $ | $ | ( | $ | $ | $ | $ | ( | |||||||||||||||||||||||||||
| Corporate bonds | ( | ( | |||||||||||||||||||||||||||||||||
| U.S. government treasury securities | ( | ( | |||||||||||||||||||||||||||||||||
| U.S. government agency securities | ( | ( | |||||||||||||||||||||||||||||||||
| Total marketable securities | $ | $ | ( | $ | $ | $ | $ | ( | |||||||||||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||||||||
Less Than 12 Months | 12 Months or Longer | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
| Corporate bonds | $ | $ | ( | $ | $ | $ | $ | ( | |||||||||||||||||||||||||||
| U.S. government treasury securities | |||||||||||||||||||||||||||||||||||
| Total marketable securities | $ | $ | ( | $ | $ | $ | $ | ( | |||||||||||||||||||||||||||
The Company evaluated its securities for credit losses and considered the decline in market value to be primarily attributable to current economic and market conditions and not to a credit loss or other factors. Additionally, the Company does not intend to sell the securities in an unrealized loss position and does not expect it will be required to sell the securities before recovery of the unamortized cost basis. As of June 30, 2024 and December 31, 2023, an allowance for credit losses had not not
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The financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash deposits. Accounts at each of our two U.S. banking institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per depositor. As of June 30, 2024 and December 31, 2023, cash deposits at the Company's U.S. banking institutions exceeded the FDIC limits. Uninsured foreign cash deposits were immaterial for both periods.
There were no 1.8 million and $0.9 million, respectively.
The following table summarizes the contractual maturities of the Company’s marketable securities at estimated fair value (in thousands):
| June 30, 2024 | December 31, 2023 | ||||||||||
| Due in one year or less | $ | $ | |||||||||
| Due in 1 - 2 years | |||||||||||
| Total marketable securities | $ | $ | |||||||||
The Company may sell investments at any time for use in current operations even if they have not yet reached maturity. As a result, the Company classifies marketable securities, including securities with maturities beyond twelve months as current assets.
5. Accrued and Other Current Liabilities
Accrued and other current liabilities consist of the following (in thousands):
| June 30, 2024 | December 31, 2023 | ||||||||||
| Accrued compensation | $ | $ | |||||||||
| Accrued contracted research and development costs | |||||||||||
| Accrued professional and consulting fees | |||||||||||
| Accrued other | |||||||||||
| Total accrued and other current liabilities | $ | $ | |||||||||
6. Asset Acquisition
On June 22, 2023, the Company acquired Pre-Merger Spyre pursuant to the Acquisition Agreement, by and among the Company, Aspen Merger Sub I, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“First Merger Sub”), Sequoia Merger Sub II, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (“Second Merger Sub”), and Pre-Merger Spyre. Pursuant to the Acquisition Agreement, First Merger Sub merged with and into Pre-Merger Spyre, pursuant to which Pre-Merger Spyre was the surviving corporation and became a wholly owned subsidiary of the Company (the “First Merger”). Immediately following the First Merger, Pre-Merger Spyre merged with and into Second Merger Sub, pursuant to which Second Merger Sub became the surviving entity. Pre-Merger Spyre was a pre-clinical stage biotechnology company that was incorporated on April 28, 2023 under the direction of Peter Harwin, a Managing Member of Fairmount, for the purpose of holding rights to certain intellectual property being developed by Paragon. Fairmount is a founder of Paragon.
The Company completed the Asset Acquisition of Pre-Merger Spyre, in accordance with the terms of the Acquisition Agreement. Under the terms of the Acquisition Agreement, the Company issued 517,809 shares of Common Stock and 364,887 shares of Series A Preferred Stock to former Pre-Merger Spyre security holders. In addition, outstanding and unexercised stock options to purchase 2,734 shares of common stock were assumed from the Amended and Restated Spyre 2023 Equity Incentive Plan.
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At the acquisition date, the Company recorded forward contracts to represent the obligation to issue shares of Common Stock and shares of Series A Preferred Stock, respectively. The forward contract related to the Common Stock was recorded as Additional paid-in capital as the instrument is indexed to the Common Stock. The forward contract related to the Series A Preferred Stock was recorded as a liability, as the underlying stock has a cash redemption feature. On July 7, 2023, both the shares of Common Stock and Series A Preferred Stock were issued and the forward contract liability associated with the Series A Preferred Stock was settled accordingly.
The Company concluded that the arrangement met the definition of an asset acquisition rather than a business combination, as substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset, Pre-Merger Spyre's option to exclusively license certain intellectual property rights (the "Option"). The Company determined that the Option was a single asset as the Company's strategy relied on developing the entire portfolio of individual treatments to create combination treatments that simultaneously address different mechanisms of inflammatory bowel disease with a single treatment. The Company also determined that the pipeline candidates within the portfolio were similar in nature and risk profile. In addition, the Company did not obtain any substantive processes, assembled workforce, or employees capable of producing outputs in connection with the Asset Acquisition.
The Company determined that the cost to acquire the asset was $113.3 million which was recorded as acquired in-process research and development ("IPR&D"). The fair value of the consideration issued consisted of the 364,887 shares of Series A Preferred Stock (14,595,480 shares of Common Stock on an as-converted basis) and 517,809 shares of Common Stock, valued at $291.08 per share and $7.277 per share, respectively.
The Asset Acquisition costs are shown on the following table (in millions):
| June 22, 2023 | |||||
| Consideration transferred in Series A Preferred Stock and Common Stock | $ | ||||
| Transaction costs incurred by Pre-Merger Spyre | |||||
| Fair value of Parapyre Option Obligation assumed by Pre-Merger Spyre | |||||
| Total cost to acquire asset | $ | ||||
The allocation of the purchase price to net assets acquired is as a follows:
| June 22, 2023 | |||||
| Acquired in-process research and development | $ | ||||
| Cash acquired | |||||
| Assumed liabilities | ( | ||||
| Total cost to acquire asset | $ | ||||
7. Licensing Agreements
On July 12, 2023, December 14, 2023, and June 5, 2024, the Company exercised the Option available under the Paragon Agreement with respect to the SPY001, SPY002, and SPY003 research programs, respectively.
On May 14, 2024, the Company and Paragon entered into (i) a license agreement (the “SPY001 License Agreement”), pursuant to which Paragon granted the Company a royalty-bearing, world-wide, exclusive license to develop, manufacture, commercialize or otherwise exploit certain antibodies and products targeting α4ß7 integrin and (ii) a license agreement (the “SPY002 License Agreement” and, together with the SPY001 License Agreement, the “License Agreements”), pursuant to which Paragon granted the Company a royalty-
15
bearing, world-wide, exclusive license to develop, manufacture, commercialize or otherwise exploit certain licensed antibodies and products targeting TL1A, respectively.
Under the terms of each License Agreement, the Company is obligated to pay Paragon up to $22.0 1.5 2.5
•Paragon will provide the Company with an exclusive license to its patents covering the related antibody, the method of use and its method of manufacture.
•Paragon will not conduct any new campaigns that generate anti-α4ß7 or anti-TL1A monospecific antibodies for at least 5 years.
•The Company will pay Paragon a low single-digit percentage royalty for single antibody products and a mid single-digit percentage royalty for products containing more than one antibody from Paragon.
•There is a royalty step-down of 1/3rd if there is no Paragon patent in effect during the royalty term.
•The royalty term ends on the later of (i) the last-to-expire licensed patent or Company patent directed to a derived antibody or (ii) 12 years from the date of first sale of a Company product.
•Agreement may be terminated on 60 days’ notice by the Company; on material breach without cure; and to the extent permitted by law, on a party’s insolvency or bankruptcy.
•With respect to the SPY002 License Agreement only, on a product by product basis, the Company will pay sublicensing fees of up to approximately $20 million upon the achievement of mostly commercial milestones.
The SPY003 license agreement remains under negotiation as of the date of these consolidated financial statements.
The Company recognizes the expense associated with each milestone when the achievement of the milestone is deemed probable. During the three and six months ended June 30, 2024, the Company recognized $5.5 no
For the three and six months ended June 30, 2024, the Company made milestone payments totaling $3.0 2.5 million of Paragon license milestone payments were outstanding and payable to Paragon.
Additionally, the Company recognized and paid $0.1
8. Related Party Transactions
Paragon and Parapyre each beneficially own less than 5 % of the Company's capital stock through their respective holdings of the Company's Common Stock. Fairmount Funds Management LLC ("Fairmount") beneficially owns more than 5 % of the Company's capital stock on an as-converted basis, has two seats on the Company's board of directors (the "Board") and beneficially owns more than 5 % of Paragon, which is a joint venture between Fairmount and FairJourney Biologics. Fairmount appointed Paragon's board of directors and
16
has the contractual right to approve the appointment of any executive officers. Parapyre is an entity formed by Paragon as a vehicle to hold equity in Spyre in order to share profits with certain employees of Paragon.
The following is the summary of expenses related to the Paragon Agreement and License Agreements, which were ultimately settled in cash (in millions) and recorded within Research and development in the consolidated statement of operations for the periods presented:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Reimbursable costs under the Paragon Agreement | $ | $ | $ | $ | |||||||||||||||||||
| License Agreements milestone and sublicensing fees | |||||||||||||||||||||||
| Total related party expense | $ | $ | $ | $ | |||||||||||||||||||
The following is the summary of Related party accounts payable and other current liabilities (in millions):
| June 30, 2024 | December 31, 2023 | ||||||||||
| Reimbursable costs under the Paragon Agreement | $ | $ | |||||||||
| Parapyre warrants liability | |||||||||||
| License Agreements development milestone liability (see Note 7) | |||||||||||
| Total related party accounts payable | $ | $ | |||||||||
Paragon Agreement
In connection with the Asset Acquisition, the Company assumed the rights and obligations of Pre-Merger Spyre under the Paragon Agreement. Under the Paragon Agreement, Spyre is obligated to compensate Paragon for its services performed under each research program based on the actual costs incurred with mark-up costs pursuant to the terms of the Paragon Agreement. Spyre is also obligated under the Paragon Agreement to issue Parapyre annual equity grants of warrants in accordance with the Parapyre Option Obligation.
For the three and six months ended June 30, 2024, the Company recognized expenses related to services provided by Paragon subsequent to the Asset Acquisition totaling $9.7 million and $26.8 million, respectively, which included $1.5 million and $6.9 million, respectively, of stock-based compensation expense, and were recorded as Research and development expenses in the consolidated statements of operations.
For the three and six months ended June 30, 2024, the Company made payments totaling $11.3 million and $29.5 million respectively, in connection with the Paragon Agreement.
On July 12, 2023, December 14, 2023, and June 5, 2024, the Company exercised the Option available under the Paragon Agreement with respect to the SPY001, SPY002 and SPY003 research programs, respectively. Our Option available under the Paragon Agreement with respect to the SPY004 program remains unexercised. Please refer to Note 7 for additional information on the License Agreements related to the exercised options.
On May 14, 2024, the Company, Paragon and Parapyre entered into a second amended and restated antibody discovery and option agreement that amends and restates that certain amended and restated antibody discovery and option agreement, dated September 29, 2023, by and between Paragon, Parapyre and Spyre Therapeutics, LLC, in order to, among other things, (i) replace the Company’s subsidiary with the Company as a party to the agreement and (ii) amend certain terms related to the SPY003 research program, including without limitation, (a) establishing an SPY003 antibody selection process pursuant to which the Company and Paragon shall alternate in turn to select a project antibody to be included and excluded, respectively, from the Company’s rights under its option to license certain intellectual property rights related to SPY003 from Paragon until all project antibodies under the SPY003 research program have been selected; (b) reducing the development costs invoiced to the Company for the SPY003 research program incurred from and after April 1, 2024 through completion of the SPY003 antibody selection process by 50 %; (c) requiring Paragon to reimburse the Company
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for 50 % of the development costs for the SPY003 research program incurred prior to April 1, 2024; provided, that Paragon receives rights to at least one SPY003 project antibody following completion of the SPY003 antibody selection process; (d) obligating the Company to exercise its option to license the intellectual property rights to SPY003 project antibodies and technology following the completion of the SPY003 antibody selection process; and (e) establishing a license agreement term sheet for the SPY003 research program with substantially similar milestone payment terms and royalty payment terms as the SPY001 License Agreement. Please refer to Note 7 for additional disclosures.
During the second quarter of 2024, the SPY003 antibody selection process was completed and the Company recognized a $5.9 million receivable and a corresponding reduction in Research and development expenses in its condensed consolidated statements of operations for the three and six ended June 30, 2024. As of June 30, 2024, the $5.9 million receivable was outstanding and included as a reduction to Related party accounts payable and other current liabilities on the Company's consolidated balance sheet.
Parapyre Option Obligation
Pursuant to the Paragon Agreement, the Company agreed to issue Parapyre an annual equity grant of warrants, on the last business day of each of the years ended December 31, 2023 and December 31, 2024, to purchase 1 % of the then outstanding shares of the Company's Common Stock, on a fully diluted basis, during the term of the Paragon Agreement.
Paragon License Agreements
See Note 7 for disclosures related to the License Agreements entered into with Paragon.
Mark McKenna Option Grant
On February 1, 2024, the Board appointed Mark McKenna as a Class I director. Mr. McKenna and the Company are parties to a consulting agreement, pursuant to which Mr. McKenna agreed to continue to provide consulting services as an independent contractor to the Company, with an effective date of August 1, 2023 (the “Vesting Commencement Date”). As compensation for Mr. McKenna’s consulting services, on November 22, 2023, he was granted non-qualified stock options to purchase 477,000 shares of the Company’s Common Stock under the 2016 Plan (as defined in Note 8) with an exercise price of $10.39 per share, which vest as to 25 % on the one year anniversary of the Vesting Commencement Date and thereafter vest and become exercisable in 36 equal monthly installments, subject to Mr. McKenna’s continued service to the Company through each applicable vesting date. For the three and six months ended June 30, 2024, the Company recognized $0.2 million and $0.5 million, respectively, in stock-based compensation expense related to Mr. McKenna's consulting agreement. There was no
9. Convertible Preferred Stock and Stockholders’ Equity
Pre-Funded Warrants
In February 2019, April 2020 and May 2022, the Company issued pre-funded warrants to purchase the Company’s Common Stock in underwritten public offerings at the offering price of the Common Stock, less the $0.0025 per share exercise price of each warrant. The warrants were recorded as a component of stockholders’ (deficit) equity within additional paid-in capital and have no expiration date. Per the terms of the warrant agreements, the outstanding warrants to purchase shares of Common Stock may not be exercised if the holder’s ownership of the Company’s Common Stock would exceed 4.99 % (“Maximum Ownership Percentage”), or 9.99 % for certain holders. By written notice to the Company, each holder may increase or decrease the Maximum Ownership Percentage to any other percentage (not in excess of 19.99 % for the majority of such warrants). The revised Maximum Ownership Percentage would be effective 61 days after the notice is received by the Company.
As of June 30, 2024, all pre-funded warrants have been exercised and none remain outstanding.
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Parapyre Warrants
The Company settled its 2023 obligations under the Parapyre Option Obligation by issuing Parapyre 684,407 warrants to purchase the Company's Common Stock, with a $21.52 per share exercise price for each warrant. Pursuant to the terms of the warrant agreement, the outstanding warrants to purchase shares of Common Stock may not be exercised if the holder’s ownership of the Company’s Common Stock would exceed 4.99 %. As of June 30, 2024, none of the warrants issued under the Parapyre Option Obligation have been exercised.
Series A Non-Voting Convertible Preferred Stock
On June 22, 2023, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of the Series A Preferred Stock with the Secretary of State of the State of Delaware (the “Series A Certificate of Designation”) in connection with the Asset Acquisition and the June 2023 PIPE.
Pursuant to the Series A Certificate of Designation, holders of Series A Preferred Stock are entitled to receive dividends on shares of Series A Preferred Stock equal to, on an as-if-converted-to-Common Stock basis, and in the same form as, dividends actually paid on shares of Common Stock. Except as provided in the Series A Certificate of Designation or as otherwise required by law, the Series A Preferred Stock does not have voting rights. However, as long as any shares of Series A Preferred Stock are outstanding, the Company will not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series A Preferred Stock: (a) alter or change adversely the powers, preferences or rights given to the Series A Preferred Stock, or alter or amend the Series A Certificate of Designation, amend or repeal any provision of, or add any provision to, the Company’s Certificate of Incorporation or its Bylaws, or file any articles of amendment, certificate of designations, preferences, limitations and relative rights of any series of preferred stock, if such action would adversely alter or change the preferences, rights, privileges or powers of, or restrictions provided for the benefit of the Series A Preferred Stock, regardless of whether any of the foregoing actions will be by means of amendment to the Certificate of Incorporation or by merger, consolidation, recapitalization, reclassification, conversion or otherwise, (b) issue further shares of Series A Preferred Stock or increase or decrease (other than by conversion) the number of authorized shares of Series A Preferred Stock, (c) prior to the stockholder approval of the conversion of the Series A Preferred Stock into shares of Common Stock in accordance with Nasdaq Stock Market Rules (the “Series A Conversion Proposal”) or at any time while at least 30 % of the originally issued Series A Preferred Stock remains issued and outstanding, consummate (x) any Fundamental Transaction (as defined in the Series A Certificate of Designation) or (y) any merger or consolidation of the Company with or into another entity or any stock sale to, or other business combination in which our stockholders immediately before such transaction do not hold at least a majority of our capital stock immediately after such transaction or (d) enter into any agreement with respect to any of the foregoing. The Series A Preferred Stock does not have a preference upon any liquidation, dissolution or winding-up of the Company.
On June 26, 2023, the Company completed a private placement of 721,452 shares of Series A Preferred Stock in exchange for gross proceeds of approximately $210.0 million, or net proceeds of $197.3 million, after deducting placement agent and other offering costs.
On July 7, 2023, the Company issued 364,887 shares of Series A Preferred Stock as part of its consideration transferred in connection with the Asset Acquisition that closed on June 22, 2023 which settled the related forward contract liability.
On November 21, 2023, the Company's stockholders approved the Series A Conversion Proposal, among other matters, at a special meeting of stockholders. As a result of the approval of the Series A Conversion Proposal, all conditions that could have required cash redemption of the Series A Preferred Stock were satisfied. Since the Series A Preferred Stock is no longer redeemable, the associated balances of the Series A Preferred Stock were reclassified from mezzanine equity to permanent equity during the fourth quarter of 2023.
Following stockholder approval of the Series A Conversion Proposal, each share of Series A Preferred Stock automatically converted into 40 shares of Common Stock, subject to certain limitations, including that a holder of Series A Preferred Stock is prohibited from converting shares of Series A Preferred Stock into shares
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of Common Stock if, as a result of such conversion, such holder, together with its affiliates, would beneficially own more than a specified percentage (established by the holder between 0.0 % and 19.9 %) of the total number of shares of Common Stock issued and outstanding immediately after giving effect to such conversion. 649,302 shares of Series A Preferred Stock automatically converted to 25,972,080 shares of Common Stock; 437,037 shares of Series A Preferred Stock did not automatically convert and remained outstanding following the conversion. This conversion was recorded as a reclassification between Series A Preferred Stock and Common Stock based on the historical per-share contributed capital amount of the Series A Preferred Stock.
On April 23, 2024, in connection with the April 2024 Exchange, the Stockholder agreed to exchange an aggregate of 90,992 shares of Series A Preferred Stock for an aggregate of 3,639,680 shares of the Company's Common Stock. This exchange was recorded as a reclassification between Series A Preferred Stock and Common Stock based on the historical per-share contributed capital amount, inclusive of any forward-contract valuation adjustments, of the Series A Preferred Stock. Following the April 2024 Exchange, 346,045 shares of Series A Preferred Stock remained outstanding.
Series B Non-Voting Convertible Preferred Stock
On December 8, 2023, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series B Non-Voting Convertible Preferred Stock with the Secretary of State of the State of Delaware (the “Series B Certificate of Designation”) in connection with the December 2023 PIPE.
Pursuant to the Series B Certificate of Designation, holders of Series B Preferred Stock are entitled to receive dividends on shares of Series B Preferred Stock equal to, on an as-if-converted-to-Common Stock basis, and in the same form as, dividends actually paid on shares of Common Stock. Except as provided in the Series B Certificate of Designation or as otherwise required by law, the Series B Preferred Stock does not have voting rights. However, as long as any shares of Series B Preferred Stock are outstanding, the Company will not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series B Preferred Stock, alter or change adversely the powers, preferences or rights given to the Series B Preferred Stock, or alter or amend the Series B Certificate of Designation, amend or repeal any provision of, or add any provision to, the Company’s Certificate of Incorporation or its Bylaws, or file any articles of amendment, certificate of designations, preferences, limitations and relative rights of any series of preferred stock, if such action would adversely alter or change the preferences, rights, privileges or powers of, or restrictions provided for the benefit of the Series B Preferred Stock, regardless of whether any of the foregoing actions will be by means of amendment to the Certificate of Incorporation or by merger, consolidation, recapitalization, reclassification, conversion or otherwise. The Series B Preferred Stock does not have a preference upon any liquidation, dissolution or winding-up of the Company.
On December 11, 2023, as part of the December 2023 PIPE, the Company completed a private placement of 150,000 shares of Series B Preferred Stock in exchange for gross proceeds of $90.0 million.
On March 18, 2024, in connection with the March 2024 PIPE, the Company filed a certificate of amendment to its Series B Certificate of Designation to increase the number of authorized shares of Series B Preferred Stock from 150,000 to 271,625 .
On March 20, 2024, as part of the March 2024 PIPE, the Company completed a private placement of 121,625 shares of Series B Preferred Stock in exchange for gross proceeds of approximately $180.0 million.
On May 14, 2024, the Company's stockholders approved the issuance of Common Stock upon the conversion of all issued and outstanding Series B Preferred Stock into shares of Common Stock in accordance with the Nasdaq Stock Market Rules (the "Series B Conversion Proposal"), among other matters, at its 2024 annual meeting of stockholders. As a result of the approval of the Series B Conversion Proposal, all conditions that could have required cash redemption of the Series B Preferred Stock were satisfied. Since the Series B Preferred Stock is no longer redeemable, the associated balances of the Series B Preferred Stock were reclassified from mezzanine equity to permanent equity during the second quarter of 2024.
Following stockholder approval of the Series B Conversion Proposal, each share of Series B Preferred Stock automatically converted into 40 shares of the Common Stock, subject to certain limitations, including that a holder of Series B Preferred Stock is prohibited from converting shares of Series B Preferred Stock into
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shares of Common Stock if, as a result of such conversion, such holder, together with its affiliates, would beneficially own more than a specified percentage (established by the holder between 0.0 % and 19.9 %) of the total number of shares of Common Stock issued and outstanding immediately after giving effect to such conversion. 254,958 shares of Series B Preferred Stock automatically converted to 10,198,320 shares of Common Stock; 16,667 shares of Series B Preferred Stock did not automatically convert and remain outstanding as of June 30, 2024 due to beneficial ownership limitations. This conversion was recorded as a reclassification between Series B Preferred Stock and Common Stock based on the historical per-share contributed capital amount of the Series B Preferred Stock.
10. Stock-Based Compensation
2015 Equity Incentive Plan
In March 2015, the Company adopted the 2015 Equity Incentive Plan (“2015 Plan”), administered by the board of directors, and provides for the Company to sell or issue share of Common Stock or restricted Common Stock, or to grant incentive stock options or nonqualified stock options for the purchase of Common Stock, to employees, members of the board of directors and consultants of the Company. The Company granted options under the 2015 Plan until April 2016 when it was terminated as to future awards, although it continues to govern the terms of options that remain outstanding under the 2015 Plan.
As of June 30, 2024, a total of 3,029 shares of Common Stock are subject to options outstanding under the 2015 Plan and will become available under the 2016 Equity Incentive Plan (“2016 Plan”) to the extent the options are forfeited or lapse unexercised.
2016 Equity Incentive Plan
The 2016 Plan became effective in April 2016 and serves as the successor to the 2015 Plan. Under the 2016 Plan, the Company may grant stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance awards, and stock bonuses. The 2016 Plan, as amended, provides for an automatic increase in the number of shares reserved for issuance thereunder on January 1 of each year for the remaining term of the plan equal to (a) 5.0 % of the number of issued and outstanding shares of Common Stock (including such shares issuable pursuant to the exercise or conversion, as applicable, of any outstanding pre-funded warrants and nonvoting convertible preferred stock) on December 31 of the immediately preceding year, or (b) a lesser amount as approved by the board each year (the “Evergreen Provision”). As a result of the Evergreen Provision, on January 1, 2024 and 2023, an additional 3,023,650 and 104,561 shares, respectively, became available for issuance under the 2016 Plan.
As of June 30, 2024, the 2016 Plan had 7,336,181 shares available for future issuance, of which 3,024,766 shares were subject to outstanding option awards.
2018 Equity Inducement Plan
The 2018 Equity Inducement Plan (“2018 Plan”) became effective in February 2018.
As of June 30, 2024, the 2018 Plan had 6,028,000 shares available for future issuance, of which 5,682,341 shares were subject to outstanding option awards and restricted unit awards.
Service-based awards granted under the 2018 Plan, 2016 Plan, and 2015 Plan generally vest over four years and expire after ten years , although awards have been granted with vesting terms less than four years . Under the 2016 Plan and 2018 Plan, the Company may grant stock-based awards with service conditions (“service-based” awards), performance conditions (“performance-based” awards), and market conditions (“market-based” awards).
Spyre 2023 Equity Incentive Plan
On June 22, 2023, in connection with the Asset Acquisition, the Company assumed the Amended and Restated Spyre 2023 Equity Incentive Plan and its outstanding and unexercised stock options, which were
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converted to options to purchase 2,734 shares of Common Stock. The acquisition-date fair value of these grants will be recognized as an expense on a pro-rata basis over the vesting period.
The following table summarizes the Company’s stock awards granted under all equity incentive and inducement plans for each of the periods indicated:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Grants | Weighted Average Grant Date Fair Value | Grants | Weighted Average Grant Date Fair Value | Grants | Weighted Average Grant Date Fair Value | Grants | Weighted Average Grant Date Fair Value | ||||||||||||||||||||||||||||||||||||||||
| Stock options | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
Parapyre Option Obligation
As of June 30, 2024, the pro-rated estimated fair value of the options to be granted on December 31, 2024 related to the Parapyre Option Obligation, was approximately $6.9 million. For the three and six months ended June 30, 2024, $1.5 million and $6.9 million was recognized as stock compensation expense related to the Parapyre Option Obligation. For the three and six months ended June 30, 2023, $0.2 7.0 million.
2016 Employee Stock Purchase Plan
Under the Company’s 2016 Employee Stock Purchase Plan (“2016 ESPP”), the Company issued and sold 2,330 and 1,793 shares during the six months ended June 30, 2024 and June 30, 2023, respectively. The aggregate cash proceeds were not material for both periods.
Stock-based Compensation Expense
Total stock-based compensation expense recognized from the Company’s equity incentive plans, 2018 Plan, 2016 ESPP and Parapyre Option Obligation during the periods presented was as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
Research and development (1) | $ | $ | $ | $ | |||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
Total stock-based compensation expense (2) | $ | $ | $ | $ | |||||||||||||||||||
(1) For the three and six months ended June 30, 2024, $ (2) Of the total $ | |||||||||||||||||||||||
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The following table summarizes the weighted-average Black-Scholes option pricing model assumptions used to estimate the fair value of stock options granted under the Company's equity incentive plans, and the shares purchasable under the 2016 ESPP during the periods presented:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Stock Options Granted | |||||||||||||||||||||||
| Expected term (in years) | |||||||||||||||||||||||
| Expected volatility | |||||||||||||||||||||||
| Risk-free interest | |||||||||||||||||||||||
| Dividend yield | |||||||||||||||||||||||
| 2016 ESPP | |||||||||||||||||||||||
| Expected term (in years) | |||||||||||||||||||||||
| Expected volatility | |||||||||||||||||||||||
| Risk-free interest | |||||||||||||||||||||||
| Dividend yield | |||||||||||||||||||||||
11. Legacy Strategic License Agreements
On March 21, 2021, the Company entered into an exclusive license and supply agreement with Immedica (the "Immedica Agreement"). On July 27, 2023, the Company announced that it had entered into an agreement to sell the global rights to pegzilarginase, an investigational treatment for the rare metabolic disease Arginase 1 Deficiency, to Immedica for $15.0 million in upfront cash proceeds and up to $100.0 million in contingent milestone payments. The sale of pegzilarginase to Immedica superseded and terminated the Immedica Agreement.
The milestone payments are contingent on formal reimbursement decisions by national authorities in key European markets and pegzilarginase approval by the FDA, among other events. In addition to the payment previously made to holders of the Company's CVRs (as defined in Note 1) related to the upfront cash proceeds, any contingent milestone payments under the Immedica Agreement, if paid within the CVR period, will be distributed to holders of the Company's CVRs net of expenses and adjustments pursuant to the contingent value rights agreement we entered into with Equiniti Trust Company LLC (f/k/a American Stock Transfer & Trust Company LLC) as rights agent in connection with the Asset Acquisition.
The Company did not 0.7 million and $0.9 million, respectively, of development fee revenue in connection with the Immedica Agreement, which was attributable to the PEACE Phase 3 trial and BLA package for pegzilarginase.
For more details on the Immedica Agreement, which was terminated on July 27, 2023, please refer to the Note under Item 1 of Part I, titled "12. Strategic License Agreements" of the Company's Annual Report.
Contract Balances from Customer Contract
The timing of revenue recognition, billings and cash collections results in contract assets and contract liabilities on the Company's balance sheets. The Company recognizes license and development receivables based on billed services, which are derecognized upon reimbursement. When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue after control of the goods or services is transferred to the customer and all revenue recognition criteria have been met.
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The Company did not
12. Net Loss Per Share (as restated)
Restatement
Subsequent to the filing of its Quarterly Report on Form 10-Q for the period ended September 30, 2024, management identified an error related to the calculation and presentation of loss per share. The Company had previously concluded that the Series A Preferred Stock and Series B Preferred Stock had preferences over the Company's Common Stock and were therefore excluded from the calculation of basic and dilutive net loss per share pursuant to the two-class method. The Company has now determined that the Series A Preferred Stock and Series B Preferred Stock do not have preferential rights over the Company’s Common Stock and, accordingly, are considered to be a second and third class of common stock for purposes of calculating net loss per share. Consequently, the Company has now separately calculated and presented net loss per share for its Common Stock, Series A Preferred Stock and Series B Preferred Stock.
For the three months ended June 30, 2024 and 2023, loss per share attributable to common stockholders as previously presented was $0.86 56.79 0.59 40.14 2.02 62.03 1.31 51.26
The Company computes net loss per share of Common Stock, Series A Preferred Stock, and Series B Preferred Stock using the two-class method required for multiple classes of common stock and other participating securities.
The two-class method is an earnings (loss) allocation method under which earnings (loss) per share is calculated for each class of common stock. The Company has determined that the Series A Preferred Stock and Series B Preferred Stock do not have preferential rights when compared to the Company's Common Stock and therefore it must allocate losses to these other classes of common stock, as illustrated in the table below.
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The following table sets forth the computation of basic and diluted net loss per share of Common Stock, Series A Preferred Stock, and Series B Preferred Stock (in thousands, except share and per share amounts):
Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||||||||||||||
| Series A Preferred Stock | Series B Preferred Stock | Common Stock | Series A Preferred Stock | Series B Preferred Stock | Common Stock | ||||||||||||||||||||||||||||||
| Net loss per share, basic and diluted: | |||||||||||||||||||||||||||||||||||
| Numerator | |||||||||||||||||||||||||||||||||||
| Allocation of losses | $ | ( | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||
| Denominator | |||||||||||||||||||||||||||||||||||
| Weighted-average shares outstanding | |||||||||||||||||||||||||||||||||||
| Weighted-average pre-funded warrants outstanding | |||||||||||||||||||||||||||||||||||
| Number of shares used in per share computation | |||||||||||||||||||||||||||||||||||
| Net loss per share, basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||
Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||||||||||||||
| Series A Preferred Stock | Series B Preferred Stock | Common Stock | Series A Preferred Stock | Series B Preferred Stock | Common Stock | ||||||||||||||||||||||||||||||
| Net loss per share, basic and diluted: | |||||||||||||||||||||||||||||||||||
| Numerator | |||||||||||||||||||||||||||||||||||
| Allocation of losses | $ | ( | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||
| Denominator | |||||||||||||||||||||||||||||||||||
| Weighted-average shares outstanding | |||||||||||||||||||||||||||||||||||
| Weighted-average pre-funded warrants outstanding | |||||||||||||||||||||||||||||||||||
| Number of shares used in per share computation | |||||||||||||||||||||||||||||||||||
| Net loss per share, basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||
The following weighted-average equity instruments were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Options to purchase common stock | |||||||||||||||||||||||
| Unvested restricted stock units | |||||||||||||||||||||||
| Outstanding Parapyre warrants | |||||||||||||||||||||||
13. Restructuring Charges
Severance and Stock Compensation
On April 12, 2023, based on the review of the inconclusive interim results from the Company's Phase 1/2 clinical trial of pegtarviliase for the treatment of classical homocystinuria and other business considerations, the Company announced that it had initiated a process to explore strategic alternatives to maximize stockholder value and engaged an independent exclusive financial advisor to support this process.
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As a result, the Company implemented a restructuring plan resulting in an approximate 83 % reduction of the Company’s existing headcount by June 30, 2023. The Company recognized restructuring expenses consisting of cash severance payments and other employee-related costs of $6.4 1.0 million in non-cash stock-based compensation expense related to the accelerated vesting of stock-based awards for certain employees. The Company recorded these restructuring charges based on each employee’s role to the respective research and development and general and administrative operating expense categories on its condensed consolidated statements of operations and comprehensive loss.
Sale of Assets
During the second quarter of 2023, the Company sold various lab equipment, consumables, and furniture and fixtures for total consideration of $0.5 million. After recording the disposal of all property and equipment net of proceeds, the Company recorded a $0.7 million and $0.2 million loss on disposal of long lived assets which is included in Research and development and General and administrative expenses, respectively.
Lease Right-of-use Asset and Leasehold Improvement Impairment
Effective June 30, 2023, the Company abandoned its leased office space in Austin, Texas. As a result, the Company recognized an impairment loss of $0.9 million related to the operating lease right-of-use asset and $1.7 million related to leasehold improvements. On August 7, 2023, the Company terminated its building lease in Austin, Texas. The negotiated termination agreement obligated the Company to pay the lessor a $2.0 million termination fee in exchange for releasing the Company of all further obligations under the lease.
All charges related to the restructuring activities were recognized during the second quarter of 2023. No further restructuring charges were incurred under the restructuring plan. A summary of the charges related to the restructuring activities is as follows (in thousands):
| Severance Related Expenses | Stock Compensation Expenses | Loss on Disposal of Long Lived Assets | Lease Asset Impairment | Total Restructuring Costs | |||||||||||||||||||||||||
| Research and development | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
As of December 31, 2023, $1.1 million of restructuring costs remained outstanding and unpaid. As of June 30, 2024, there were no remaining liabilities under the restructuring plan described above.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company 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 SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, 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 of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
At the time the Company filed the Original Filing, our principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable
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assurance level as of June 30, 2024. Subsequent to the Original Filing and solely in connection with this Amendment, our principal executive officer and principal financial officer reevaluated the effectiveness of the Company’s disclosure controls and procedures and identified a material weakness in the Company’s internal control over financial reporting the Company did not design and maintain effective controls related to the earnings per share calculation. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Specifically, subsequent to the Original Filing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of June 30, 2024 as the Company did not design and maintain effective controls related to the earnings per share calculation, as there was not an effectively designed control in place to evaluate the treatment of the Series A Preferred Stock and the Series B Preferred Stock for the purpose of calculating earnings per share under the two-class method. The material weakness resulted in the restatement of the Company’s previously filed consolidated financial statements as of and for the year ended December 31, 2023, as well as the quarterly condensed consolidated financial information for the 2024 interim periods ended March 31, 2024, June 30, 2024, and September 30, 2024 related to earnings per share. Additionally, the material weakness could result in further misstatements of the earnings per share calculation that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected.
Notwithstanding the material weakness in internal control over financial reporting, our management, including our principal executive officer and the principal financial officer, have concluded that our consolidated financial statements present fairly, in all material respects, our financial position, results of our operations and our cash flows for the periods presented in this Quarterly Report, in conformity with U.S. GAAP.
Remediation Plan
Our remediation process includes, but is not limited to, enhancing the design of the control relevant to the calculation of net earnings (loss) per share calculations and disclosures to ensure that economic substance beyond the legal form of our capital structure is considered when calculating net earnings (loss) per share. We believe that these actions will remediate the material weakness. The material weakness will not be considered remediated, however, until the applicable controls operate, and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. – Other Information
Item 6. Exhibits.
The exhibits filed or furnished as part of this Quarterly Report on Form 10-Q are set forth below.
| Exhibit Number | Description | Form | File No | Date of Filing | Exhibit No. | Filed Herewith | ||||||||||||||||||||||||||||||||
| 2.1 | S-1 | 333-276251 | 12/22/2023 | 2.1 | ||||||||||||||||||||||||||||||||||
| 3.1 | 8-K | 001-37722 | 05/15/2024 | 3.2 | ||||||||||||||||||||||||||||||||||
| 3.2 | S-1/A | 333-276251 | 02/05/2024 | 3.2 | ||||||||||||||||||||||||||||||||||
| 3.3 | S-1 | 333-276251 | 12/22/2023 | 3.3 | ||||||||||||||||||||||||||||||||||
| 3.4 | S-1 | 333-276251 | 12/22/2023 | 3.4 | ||||||||||||||||||||||||||||||||||
| 3.5 | 8-K | 001-37722 | 03/18/2024 | 3.2 | ||||||||||||||||||||||||||||||||||
| 10.1 | 8-K | 001-37722 | 4/25/2024 | 10.1 | ||||||||||||||||||||||||||||||||||
| 10.2 | 10-Q | 001-37722 | 05/09/2024 | 10.6 | ||||||||||||||||||||||||||||||||||
10.3#* | ||||||||||||||||||||||||||||||||||||||
10.4#* | ||||||||||||||||||||||||||||||||||||||
10.5#* | ||||||||||||||||||||||||||||||||||||||
10.6+* | ||||||||||||||||||||||||||||||||||||||
10.7+* | ||||||||||||||||||||||||||||||||||||||
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| Exhibit Number | Description | Form | File No | Date of Filing | Exhibit No. | Filed Herewith | ||||||||||||||||||||||||||||||||
| 31.1 | X | |||||||||||||||||||||||||||||||||||||
| 31.2 | X | |||||||||||||||||||||||||||||||||||||
| 32.1(1) | X | |||||||||||||||||||||||||||||||||||||
| 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | X | ||||||||||||||||||||||||||||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | X | ||||||||||||||||||||||||||||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||||||||||||||||||||||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||||||||||||||||||||||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||||||||||||||||||||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||||||||||||||||||||||||||||
| 104 | The cover page from this Quarterly Report formatted in Inline XBRL and contained in Exhibit 101 | |||||||||||||||||||||||||||||||||||||
+ Indicates management contract or compensatory plan.
* Previously filed with the Original Filing
# Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
(1)The certifications on Exhibit 32 hereto are deemed furnished and not “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 18, 2024
| Spyre Therapeutics, Inc. | ||||||||
| By: | /s/ Scott Burrows | |||||||
Scott Burrows | ||||||||
Chief Financial Officer | ||||||||
(Principal Financial Officer and Principal Accounting Officer) | ||||||||
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