SEC Form 10-Q filed by Tevogen Bio Holdings Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Table of Contents
| i |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Tevogen Bio Holdings Inc.
UNAUDITED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other assets | ||||||||
| Due from related party | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets - operating leases | ||||||||
| Deferred transaction costs | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other liabilities | ||||||||
| Operating lease liabilities | ||||||||
| Notes payable | ||||||||
| Convertible promissory notes | ||||||||
| Loan agreement | ||||||||
| Due to related party | ||||||||
| Total current liabilities | ||||||||
| Convertible promissory notes | ||||||||
| Operating lease liabilities | ||||||||
| Derivative warrant liabilities | ||||||||
| Written call option derivative liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ deficit | ||||||||
| Series A Preferred Stock, $ par value; shares authorized; shares issued and outstanding as of September 30, 2024 | ||||||||
| Series C Preferred Stock, $ par value; shares authorized; shares issued and outstanding as of September 30, 2024 | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding at September 30, 2024 and December 31, 2023 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
See accompanying notes to the unaudited consolidated financial statements.
| 1 |
TEVOGEN BIO HOLDINGS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| General and administrative | $ | |||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Merger transaction costs | ( | ) | ||||||||||||||
| Change in fair value of warrants | ||||||||||||||||
| Change in fair value of convertible promissory notes | ( | ) | ( | ) | ||||||||||||
| Change in fair value of written call option derivative liabilities | ( | ) | ||||||||||||||
| Loss on issuance of commitment shares | ( | ) | ||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss attributable to common stockholders, basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss attributable to common stockholders, diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share attributable to common stockholders, basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share attributable to common stockholders, diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted-average common stock outstanding, basic | ||||||||||||||||
| Weighted-average common stock outstanding, diluted | ||||||||||||||||
See accompanying notes to the unaudited consolidated financial statements.
| 2 |
Tevogen Bio Holdings Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
| Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Common Stock | Additional paid-in | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | capital | deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance at January 1, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of Series A preferred stock | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Nonrefundable prepaid proceeds towards anticipated Series A-1 preferred stock issuance | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Issuance of Series B preferred stock | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible promissory notes into common stock in connection with merger | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Merger, net of redemptions and transaction costs | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance of restricted common stock | — | — | — | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for Sponsor advisory service fee | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Issuance of commitment shares in connection with the unsecured equity line of credit facility | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with Polar note payable | — | — | — | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in settlement of vested restricted stock units | — | — | — | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Nonrefundable prepaid proceeds towards anticipated Series A-1 preferred stock issuance | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Contribution from related party | — | ( | ) | $ | ( | ) | — | — | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of Series C preferred stock | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in settlement of vested restricted stock units | — | — | — | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Series A Preferred Stock | Series B Preferred Stock | Series C Preferred Stock | Common Stock | paid-in | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | capital | deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited consolidated financial statements.
| 3 |
Tevogen Bio Holdings Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the nine months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation expense | ||||||||
| Stock-based compensation expense | ||||||||
| Non-cash interest expense | ||||||||
| Merger transaction costs | ||||||||
| Change in fair value of convertible promissory notes | ( | ) | ||||||
| Loss on Series A Preferred Stock issuance | ||||||||
| Loss on issuance of commitment shares | ||||||||
| Change in fair value of warrants | ( | ) | ||||||
| Change in fair value of written call option derivative liabilities | ||||||||
| Amortization of right-of-use asset | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued expenses and other liabilities | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Cash acquired in connection with the reverse recapitalization | ||||||||
| Proceeds from issuance of Series A Preferred Stock | ||||||||
| Proceeds from issuance of Series C Preferred Stock | ||||||||
| Nonrefundable prepaid proceeds towards anticipated Series A-1 Preferred Stock Issuance | ||||||||
| Proceeds from loan agreement | ||||||||
| Payments of deferred transaction costs | ( | ) | ||||||
| Proceeds from issuance of convertible promissory notes | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash – beginning of period | ||||||||
| Cash – end of period | $ | $ | ||||||
| Supplementary disclosure of noncash investing and financing activities: | ||||||||
| de-SPAC transaction fees included in accrued expenses and other liabilities | ||||||||
| Conversion of convertible promissory notes into common stock in connection with Merger | ||||||||
| Repurchase of Series B preferred stock | ||||||||
| Issuance of common stock for net liabilities upon reverse recapitalization, net of transaction costs | ( | ) | ||||||
See accompanying notes to the unaudited consolidated financial statements.
| 4 |
TEVOGEN BIO HOLDINGS INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS
Tevogen Bio Holdings Inc., a Delaware corporation (the “Company”), is a clinical-stage specialty immunotherapy company harnessing the power of CD8+ cytotoxic T lymphocytes to develop off-the-shelf, precision T cell therapeutics for the treatment of infectious diseases and cancers. The Company’s precision T cell technology, ExacTcell, is a set of processes and methodologies to develop, enrich, and expand single human leukocyte antigen-restricted CTL therapies with proactively selected, precisely defined targets. The Company has completed a Phase 1 proof-of-concept trial for the first clinical product of ExacTcell, TVGN 489, for the treatment of ambulatory, high-risk adult COVID-19 patients, and has other product candidates in its pipeline.
On February 14, 2024 (the “Closing Date”), pursuant to the agreement and plan of merger dated June 28, 2023 (the “Merger Agreement”), by and among Semper Paratus Acquisition Corporation (“Semper Paratus”), Semper Merger Sub, Inc., a wholly owned subsidiary of Semper Paratus (“Merger Sub”) SSVK Associates, LLC, (the “Sponsor”) Tevogen Bio Inc (n/k/a Tevogen Bio Inc.) (“Tevogen Bio”), and Dr. Ryan Saadi in his capacity as seller representative, Merger Sub merged with and into Tevogen Bio with Tevogen Bio being the surviving company and a wholly owned subsidiary of the Company (the “Merger,” and together with the other transactions contemplated by the Merger Agreement, the “Business Combination”), and Semper Paratus was renamed Tevogen Bio Holdings Inc.
In connection with the closing of the Business Combination (the “Closing”), the then-outstanding shares of common stock of Tevogen Bio, were converted into shares of the common stock of the Company at an exchange ratio of approximately shares of Company common stock for each share of Tevogen Bio common stock (the “Exchange Ratio”). See Note 4 for more information on the Business Combination.
As discussed in Note 4, the Merger was accounted for as a reverse recapitalization under which the historical financial statements of the Company prior to the Merger are those of Tevogen Bio. All information related to the common stock of Tevogen Bio prior to the Closing and presented in the consolidated financial statements and notes thereto has been retroactively adjusted to reflect the Exchange Ratio.
Following
the Merger, the former equity holders and holders of convertible promissory notes of Tevogen Bio held
NOTE 2. DEVELOPMENT-STAGE RISKS AND LIQUIDITY
The
Company has generally incurred losses and negative cash flows from operations since inception. The Company anticipates incurring additional
losses until such time, if ever, that it can generate significant sales from its product candidates currently in development. Management
believes that cash of $
Management regularly evaluates different strategies to obtain funding for operations for subsequent periods. These strategies may include but are not limited to private placements of securities, licensing and/or marketing arrangements, partnerships with other pharmaceutical or biotechnology companies, and public offerings of securities. The Company may not be able to obtain financing on acceptable terms and the Company may not be able to enter into strategic alliances or other arrangements on favorable terms. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to obtain sufficient funding, the Company could be required to delay, reduce or eliminate research and development programs, product portfolio expansion, or future commercialization efforts, which could adversely affect its business prospects.
Operations since inception have consisted primarily of organizing the Company, securing financing, developing licensed technologies, performing research, conducting pre-clinical studies and a clinical trial, and pursuing and completing the Business Combination. The Company is subject to risks associated with any specialty biotechnology company that requires considerable expenditures for research and development. The Company’s research and development projects may not be successful, products developed may not obtain necessary regulatory approval, and any approved product may not be commercially viable. In addition, the Company operates in an environment of rapid technological change and is largely dependent on the services of its employees and consultants.
| 5 |
Tevogen Bio Holdings Inc.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies included in the Company’s annual financial statements that can be found in Exhibit 99.1 of the Company’s Current Report on Form 8-K/A filed with the SEC on April 29, 2024 (the “Form 8-K”), have not materially changed, except as reflected in the following:
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company are presented in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the SEC. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments, consisting of a normal recurring nature, (which consist primarily of accruals, estimates, and assumptions that impact the consolidated financial statements) that are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations of Tevogen Bio filed as Exhibits 99.1 and 99.2 to the Form 8-K. The interim results for the period presented are not necessarily indicative of the results to be expected for the year ending December 31, 2024, or for any future interim periods.
Use of Estimates
In preparing unaudited consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of expenses. Actual results could differ from those estimates. Estimates and assumptions are periodically reviewed, and the effects of revisions are reflected in the unaudited consolidated financial statements in the period they are determined to be necessary.
Significant areas that require management’s estimates include the fair value of the common stock and convertible promissory notes prior to the Merger, the fair value of the Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock, fair value of the purchase options under the Loan Agreement, stock-based compensation assumptions, the estimated useful lives of property and equipment and accrued research and development expenses.
Freestanding and Embedded Common Stock Purchase Options
Equity-linked purchase options issued in connection with the Company’s debt agreements are assessed to determine whether they are freestanding or embedded with the host instrument under ASC 815, Derivatives and Hedging Contracts in Entity’s Own Equity (“ASC 815”). Each type of purchase option is then assessed for equity or liability classification under ASC 815. The Company’s embedded and freestanding purchase options were determined to be liability-classified derivative instruments and are measured at fair value both on the date of issuance and at each subsequent balance sheet date, with changes in fair value recorded to ‘Change in fair value of written call option derivative liabilities’ within the consolidated statements of operations and consolidated statements of cash flows.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash.
Segment Reporting
Operating
segments are defined as components of an entity for which discrete financial information is both available and regularly reviewed by
its chief operating decision maker or decision-making group. The Company views its operations and manages its business in
| 6 |
Tevogen Bio Holdings Inc.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Warrants
As the result of the Merger, the Company accounts for its warrants originally sold as part of Semper Paratus’s initial public offering (the “IPO”) in accordance with ASC 815 and ASC 480, Distinguishing Liabilities from Equity (“ASC 480”). The assessment considers whether the warrants are freestanding financial instruments and meet the definition of a liability pursuant to ASC 480 and meet all of the conditions for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own shares of common stock, among other conditions. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter until settlement. Changes in the estimated fair value of the warrants are recognized as a non-cash loss on the consolidated statements of operations. Under these standards, the Company’s private placement warrants sold at the time of the IPO do not meet the criteria for equity classification and must be recorded as liabilities while the public warrants sold in connection with the IPO do meet the criteria for equity classification and must be recorded as equity.
Fair Value Measurements
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
| Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities; |
| Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar, but not identical, assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data; |
| Level 3 | Unobservable inputs in which there is little or no market data available and which require the Company to develop its own assumptions that market participants would use in pricing an asset or liability. |
Financial instruments recognized at historical amounts in the balance sheets consist of accounts payable and notes payable. The Company believes that the carrying value of accounts payable and notes payable approximates their fair values due to the short-term nature of these instruments.
The Company’s recurring fair value measurements consist of the convertible promissory notes prior to the Merger, for which the Company elected the fair value option to reduce accounting complexity and private warrants after the Merger. Such fair value measurements are Level 3 inputs. The following table provides a roll-forward of the aggregate fair values of the Company’s convertible promissory notes.
| Balance at January 1, 2024 | $ | |||
| Accrued interest expense | ||||
| Change in fair value | ( | ) | ||
| Derecognition upon conversion of convertible promissory notes | ( | ) | ||
| Balance at September 30, 2024 | $ | |||
| Balance at January 1, 2023 | $ | |||
| Initial fair value at issuance | ||||
| Accrued interest expense | ||||
| Change in fair value | ||||
| Balance at September 30, 2023 | $ |
The
Company used the probability weighted expected return method valuation methodology to determine the fair value of the convertible promissory
notes prior to the Merger. Significant assumptions and ranges used in determining the fair value of convertible promissory notes prior
to the Merger included volatility (
There were no transfers between levels during the nine months ended September 30, 2024 and 2023.
| 7 |
Tevogen Bio Holdings Inc.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Upon
the Closing, the Company acquired private warrants, the fair value of which decreased by $
Derivative warrant liabilities | Written call option derivative liabilities | |||||||
| Balance at February 15, 2024 | $ | $ | ||||||
| Initial fair value at issuance | ||||||||
| Change in fair value | ( | ) | ( | ) | ||||
| Balance at September 30, 2024 | $ | $ | ||||||
The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2024, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.
| Level | Quoted
Prices in Active Markets (Level 1) | Significant
Other Observable Inputs (Level 2) | Significant
Other Unobservable Inputs (Level 3) | |||||||||||
| Liabilities: | ||||||||||||||
| Derivative warrant liabilities | 3 | $ | $ | $ | | |||||||||
| Written call option derivative liabilities | 3 | $ | $ | $ | ||||||||||
The
Company’s nonrecurring fair value measurements consist of Series A Preferred Stock. Such fair value measurements are Level 3 inputs.
The Company determined the fair value of Series A Preferred Stock using a Monte Carlo Simulation (“MCS”). Key inputs utilized
in the MCS to estimate fair value of Series A Preferred Stock included a range of volatility between
The
Company used a MCS valuation methodology to determine the fair value of the freestanding $
The Company computes basic net loss per share by dividing net loss by the weighted-average common stock outstanding during the period. The Company determined that each outstanding share of preferred stock and restricted common stock would participate in earnings available to common stockholders but would not participate in losses. The Company computes diluted net loss per share by dividing the net loss by the sum of the weighted-average number of common stock outstanding during the period, plus the potential dilutive effects, if any, of potentially dilutive securities.
Recently Issued Accounting Standards
In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815 -40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. ASU 2020-06 also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. Effective January 1, 2024, the Company adopted ASU 2020-06 and that adoption did not have an impact on its consolidated financial statements and related disclosures.
| 8 |
Tevogen Bio Holdings Inc.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 enhances reportable segment disclosures by requiring disclosures such as significant segment expenses, information on the chief operating decision maker and disclosures for entities with a single reportable segment. Additionally, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, and contain other disclosure requirements. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company does not expect the adoption of ASU 2023-07 to have a material impact on its consolidated financial statements and related disclosures.
NOTE 4. BUSINESS COMBINATION
On
the Closing Date, the Company completed the Business Combination described in Note 1. The Merger was accounted for as a reverse recapitalization
under GAAP because Tevogen Bio was determined to be the accounting acquirer based upon the terms of the Merger and other factors, including
that following the Merger, former Tevogen Bio (i) equityholders and holders of convertible promissory notes owned approximately
The following table shows the net liabilities acquired in the Merger:
| February
14, 2024 | ||||
| Cash | $ | |||
| Due from Sponsor | ||||
| Prepaid expenses and other assets | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses | ( | ) | ||
| Notes payable | ( | ) | ||
| Derivative warrant liabilities | ( | ) | ||
| Total net liabilities acquired | ( | ) | ||
| Plus: Merger transaction costs limited to cash acquired | ( | ) | ||
| Total net liabilities acquired plus transaction costs | $ | ( | ) | |
Total
transaction costs of $
Former holders of Tevogen Bio common stock and the Sponsor are eligible to receive up to an aggregate of shares of common stock (“Earnout Shares”) if the volume-weighted average price (the “VWAP”) of the Company’s common stock reaches specified threshold levels during the three-year period commencing on the Closing Date. Refer to Note 5, Earnout Shares, for further details of the earnout arrangement.
In
connection with the Merger, the Company issued Series B Preferred Stock to the Sponsor in return for the Sponsor assuming $
Following the Closing, former holders of Tevogen Bio common stock may receive up to Earnout Shares in tranches of , , and shares of common stock per tranche, respectively. The first, second, and third tranches are issuable if the VWAP per share of the Company’s common stock is greater or equal to $, $, and $, respectively, over any twenty trading days within any thirty consecutive day trading period during the three-year period after the Closing.
The Sponsor received the right to Earnout Shares with the same terms above, except that each of the Sponsor’s three earnout tranches are for shares of common stock, for an aggregate of shares of common stock across the entire Sponsor earnout. The Earnout Shares are a form of dividend for holders of Tevogen Bio common stock, and the Earnout Shares earnable by the Sponsor are treated as contingent consideration in a reverse recapitalization. In accordance with ASC 815, the Earnout Shares were considered to be indexed to the Company’s common stock and are classified within permanent equity.
| 9 |
Tevogen Bio Holdings Inc.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consisted of the following:
| September 30, | December, 31 | |||||||
| 2024 | 2023 | |||||||
| Professional services | $ | $ | ||||||
| Other | ||||||||
| Total | $ | $ | ||||||
NOTE 7. DEBT
Loan Agreement
In
June 2024, the Company entered into a Loan Agreement (the “Loan Agreement”) with The Patel Family, LLP (the “Lender”),
a related party of the Company, providing for an unsecured line of credit facility (the “Facility”) for term loans of up
to an initial total of $
The
Loan Agreement includes a purchase option whereby the Lender has the option to purchase up to $ of shares of common stock at
a purchase price equal to % of the Trailing VWAP per share (the “$ million Purchase Option”). The $ million Purchase
Option only becomes exercisable once Trailing VWAP reaches $ per share. The $
The Loan Agreement also includes a purchase option (the “Additional Amount Purchase Option”) that is identical to the $ million Purchase Option, except that the option is exercisable for an amount up to the then-remaining undrawn term loan amount under the Loan Agreement at the time Trailing VWAP reaches $ per share. The Additional Amount Purchase Option was determined to be an embedded derivative within the written loan commitment that requires bifurcation under ASC 815, and thus is carried at fair value with changes in fair value recorded to change in fair value of written call option derivatives liabilities within the consolidated statements of operations and consolidated statements of cash flows.
The
$
The
Loan Agreement is a written loan commitment that is not eligible for the fair value option under ASC 825, Financial Instruments.
However, management intends to elect the fair value option for future draws under this commitment, and therefore has expensed all issuance
costs associated with the Loan Agreement, which are comprised of the fair value of the shares of common stock issued to the
Lender as well as the issuance date fair value of the $
Notes Payable
As
a result of the Merger, the Company assumed notes payable held by Polar Multi-Strategy Master Fund (“Polar”) for which the
proceeds were to be used for working capital purposes by Semper Paratus with an outstanding balance of $
| 10 |
Tevogen Bio Holdings Inc.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In connection with the Closing, the Company adopted the Tevogen Bio Holdings Inc. 2024 Omnibus Incentive Plan (the “2024 Plan”) and no longer grants awards pursuant to the 2020 Equity Incentive Plan (the “2020 Plan”). Each restricted stock unit (“RSU”) award granted under the 2020 Plan that was outstanding and unvested as of the Closing Date was automatically canceled and converted into an award under the 2024 Plan with respect to the common stock of the Company (the “Rollover RSUs”). Such Rollover RSUs remain subject to the same terms and conditions as set forth under the applicable award agreement prior to the Closing.
In addition to covering the Rollover RSUs, under the 2024 Plan, the Company is authorized to grant awards up to an aggregate shares of common stock. The 2024 Plan provides for the grant of options, stock appreciation rights, restricted stock, restricted stock units, and other equity-based awards. As of September 30, 2024, awards for shares remained available to be granted under the 2024 Plan.
The Company has issued RSUs that are subject to either service-based vesting conditions or service-based and performance-based vesting conditions. Compensation expense for service-based RSUs are recognized on a straight-line basis over the vesting period of the award. Compensation expense for service-based and performance-based RSUs (“Performance-Based RSUs”) are recognized when the performance condition, which is based on a liquidity event condition being satisfied, is deemed probable of achievement.
On the Closing Date, the Company issued an aggregate of RSUs under the 2024 Plan to the Company’s Chief Executive Officer, Dr. Ryan Saadi (the “Special RSU Award”). Such RSUs immediately converted into shares of restricted common stock (“Restricted Stock”), the restrictions on which lapse in four equal annual installments beginning on February 14, 2031 (“Vesting Period”). Pursuant to the terms of the Special RSU Award, Dr. Saadi will be entitled to vote the Restricted Stock, but the shares may not be sold, assigned, transferred, pledged, hypothecated, or otherwise encumbered, subject to forfeit. Dr. Saadi will automatically forfeit all unvested Restricted Stock in the event he departs the Company. The fair value per share for the Special RSU Award was determined to be $ per share, equivalent to the Company’s stock price on the Closing Date, resulting in a total grant date fair value of $. In accordance with ASC 718, Compensation - Stock Compensation (“ASC 718”), the Company will recognize compensation expense on a straight-line basis from the Closing Date until the completion of the Vesting Period.
Restricted Stock and RSU activity was as follows:
| Service-Based Restricted Stock and RSUs | Performance-Based RSUs | |||||||||||||||
| Shares | Weighted average grant-date fair value | Shares | Weighted average grant-date fair value | |||||||||||||
| Nonvested as of January 1, 2024 | $ | $ | | |||||||||||||
| Granted | ||||||||||||||||
| Vested | ( | ) | ( | ) | ||||||||||||
| Forfeited | ||||||||||||||||
| Nonvested as of September 30, 2024 | $ | $ | ||||||||||||||
As
a result of the Merger, the liquidity event performance condition was achieved and therefore compensation cost of $
for the three months ended September 30, 2024 and $
for the nine months ended September 30, 2024 was recognized for the Performance-Based RSUs, of which
shares were issued and outstanding as of September 30, 2024, and
| 11 |
Tevogen Bio Holdings Inc.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| Three months ended | Nine months ended | |||||||
September 30, 2024 | September 30, 2024 | |||||||
| Research and development | $ | $ | ||||||
| General and administrative | ||||||||
| Total | $ | $ | ||||||
stock-based compensation expense was recognized during the nine months ended September 30, 2023.
NOTE 9. STOCKHOLDERS’ DEFICIT
Common Stock
As of February 15, 2024, the Company’s common stock and warrants began trading on The Nasdaq Stock Market LLC under the symbols “TVGN” and “TVGNW”, respectively.
As of September 30, 2024, the Company had shares of common stock issued and outstanding. For accounting purposes related to earnings per share, only shares that are fully vested or are not subject to repurchase are considered issued and outstanding.
Below is a reconciliation of shares of common stock issued and outstanding:
| September 30, | ||||
| 2024 | ||||
| Total shares of common stock legally issued and outstanding | ||||
| Plus: shares to be issued: | ||||
| Vested RSUs not yet legally settled into common stock (a) | ||||
| Less: Shares subject to future vesting: | ||||
| Issuance of restricted common stock subject to forfeiture (b) | ( | ) | ||
| Total shares issued and outstanding | ||||
| (a) | ||
| (b) |
Prior to the Merger, Tevogen Bio had outstanding shares of voting and non-voting common stock. Upon the Closing, Tevogen Bio’s common stockholders received shares of the Company’s common stock in an amount determined by application of the Exchange Ratio, as discussed in Note 1.
Preferred Stock
The Company is authorized to issue up to shares of preferred stock, par value $ per share.
Series A Preferred Stock
In
March 2024, the Company authorized and issued and shares, respectively, of Series A Preferred Stock (the “Series A”)
to an investor at a price of $ per share (the “Series A Original Issue Price”), for gross proceeds of $
Dividends
Holders
of Series A are entitled to receive dividends accruing daily on a cumulative basis payable at a fixed rate of
| 12 |
Tevogen Bio Holdings Inc.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Liquidation
The Series A ranks senior to common stock and Series C Preferred Stock in liquidation priority. In the event of a liquidation of the Company, or certain deemed liquidation events, the Series A is redeemable for a price equal to the greater of the Series A Original Issue Price plus all Series A Accruing Dividends that are unpaid through the redemption date, or such amount that would have been payable had the Series A converted into shares of common stock immediately before the liquidation or deemed liquidation event.
Voting
The Series A does not have any voting rights.
Redemption
The
holders of Series A are not entitled to redeem their shares outside of the liquidation of the Company or the occurrence of a deemed liquidation
event. The Company is entitled to redeem that Series A at a price equal to the Series A Original Issue Price plus any Series A Accruing
Dividends accrued but unpaid thereon, if the VWAP of the Company’s common stock exceeds $ per share for
Conversion
The holders of Series A have the option to convert the Series A into shares of common stock at a ratio equal to the Series A Original Issue Price divided by the Series A Conversion Price, which is initially $ per share and is subject to standard antidilution adjustments.
Series A-1 Preferred Stock
On
March 27, 2024, the Company entered into an Amended and Restated Securities Purchase Agreement with the Series A investor covering the
issuance of shares of Series A-1 Preferred Stock for a gross purchase price of $
Series B Preferred Stock
In
connection with the Closing, the Company entered into an agreement to issue shares of Series B to the Sponsor in return for the Sponsor
assuming certain liabilities and obligations of Semper Paratus and Tevogen Bio. In March 2024, shares of Series B were issued in
return for the assumption of the Assumed Liabilities. The issuance date fair value of the Series B was determined to be $
On
June 15, 2024, the Company and the Sponsor entered into the Preferred Stock Repurchase Agreement, pursuant to which the Company repurchased
all outstanding Series B in exchange for the release of the Sponsor from its obligations related to the Assumed Liabilities, but no cash
consideration. The repurchase was recorded as a deemed contribution from a related party and recorded to additional paid-in capital.
As of June 30, 2024, there were shares of Series B outstanding, and on August 9, 2024, the Company filed a Certificate of Elimination
to eliminate the Series B. Although the Company was not legally released by the creditors, the Company has made payments towards the
Assumed Liabilities and approximately $
Series C Preferred Stock
On
August 21, 2024, the Company entered into a securities purchase agreement (the “Series C Agreement”) with an investor, pursuant
to which the investor purchased shares of Series C Preferred Stock (the “Series C”) of the Company at a price of $
per share (the “Series C Original Issue Price”), for gross proceeds of $
The Series C is subject to a call right providing the Company the right to call the stock at any time after the fifth anniversary of the date of issuance. The Company also agreed that so long as the Series C is outstanding, the Company will not, without the written consent of the holders of 50.1% of the Series C, amend, alter, or repeal any provision of the Company’s certificate of incorporation or bylaws in a manner adverse to the Series C. Assessed under accounting guidance within ASC 480 and ASC 815, as the Series C is unregistered and without mandatory redemption features, the Series C is classified within equity at issued face value as of September 30, 2024.
| 13 |
Tevogen Bio Holdings Inc.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Dividends
The
Series C carries an annual
Liquidation
The Series C ranks subordinate to the Series A and Series A-1 Preferred Stock and ranks senior to common stock in liquidation priority. In the event of a liquidation of the Company, or certain deemed liquidation events, the Series C is redeemable for a price equal to the greater of the Series C Original Issue Price plus all Series C Accruing Dividends that are unpaid through the redemption date, or such asset amount as would have been payable had the Series C converted into shares of common stock immediately before the liquidation or deemed liquidation event.
Voting
The Series C does not have any voting rights.
Redemption
The holders of Series C are not entitled to redeem their shares outside of the liquidation of the Company or the occurrence of a deemed liquidation event. The Company is entitled to redeem that Series C at a price equal to the Series C Original Issue Price plus any Series C Accruing Dividends accrued but unpaid thereon, subject to the conversion right described below.
Conversion
The shares of Series C will be convertible at the election of the holder, beginning six months after the date of issuance, into shares of common stock at a conversion price equal to the volume-weighted average price of the Common Stock for the 30 trading days immediately prior to the exercise of the holder’s conversion option, subject to a floor price of $.
Warrants
Upon
the Closing,
Public Warrants
The
public warrants have an exercise price of $
Private Placement Warrants
Each
private placement warrant is identical to the public warrants, except that the private placement warrants, so long as they are held by
the initial purchasers or their permitted transferees, (i) will not be redeemable by the Company and (ii) may be exercised by the holders
on a cashless basis. As of September 30, 2024, there are
See Note 3 for additional information on the Company’s warrant accounting policy.
| 14 |
Tevogen Bio Holdings Inc.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. RELATED PARTY TRANSACTIONS
Transactions with Sponsor
Pursuant
to the Merger Agreement, the Company incurred $
As
of September 30, 2024, the Sponsor owes the Company $
See Note 9 for additional information on the Series B issued to the Sponsor.
Stock-Based Compensation
In
January 2023, the Company issued Performance-Based RSUs to the wife of the Company’s chair and chief executive officer for
advisory services provided to the Company, and Performance-Based RSUs to Mehtaphoric Consulting Inc, a company controlled by the
daughter of the Company’s chief financial officer, for information technology services provided to the Company. In connection with
the Closing, the performance condition was achieved and therefore compensation cost of $
Loan Agreement
See
Note 7 for additional information on the Loan Agreement, which provides for an unsecured line of credit facility for term loans of up
to an initial amount of $
| 15 |
Tevogen Bio Holdings Inc.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company computes basic net loss per share by dividing net loss by the weighted-average common stock outstanding during the period. The Company computes diluted net loss per share by dividing the net loss by the sum of the weighted-average number of common stock outstanding during the period, plus the potential dilutive effects, if any, of unvested shares of common stock and the convertible promissory notes on an as-converted basis. Given the Company’s net loss, the impact of the unvested shares of common stock and the convertible promissory notes are anti-dilutive, and basic and diluted net loss per share for the three and nine months ended September 30, 2024 and 2023 are the same.
The Company excluded the following potential shares from the computation of diluted net loss per share because including them would have had an anti-dilutive effect:
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Outstanding restricted stock units (a) | ||||||||
| Restricted Stock | ||||||||
| Public warrants | ||||||||
| Private warrants | ||||||||
| Convertible promissory notes (b) | ||||||||
| Earnout Shares | ||||||||
| Total | ||||||||
| (a) | |
| (b) |
The
above table excludes any potentially anti-dilutive shares as a result of the $
NOTE 12. SUBSEQUENT EVENTS
The Company has evaluated subsequent events and transactions for potential recognition or disclosure from the balance sheet date through November 19, 2024, the issuance date of these financial statements, and has not identified any additional items requiring disclosure except as noted below.
Series C Preferred Stock
On
October 25, 2024, the Company received $
| 16 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In this Quarterly Report on Form 10-Q (this “Report”), “we,” “our,” “us,” “Tevogen,” “the Company” and similar terms refer to Tevogen Bio Holdings Inc. and its subsidiaries collectively unless the context indicates otherwise. All quarterly information in this Management’s Discussion and Analysis is unaudited. The following discussion and analysis of our results of operations and our liquidity and capital resources should be read together with our unaudited consolidated financial statements and the related notes appearing elsewhere in this Report and the audited financial information and related notes, as well as the Management’s Discussion and Analysis of Financial Condition and Results of Operations and other disclosures, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Annual Report”), and in Exhibits 99.1 and 99.2 to our Current Report on Form 8-K/A dated April 29, 2024 (the “Form 8-K”).
Forward-Looking Statements
This Report contains forward-looking statements intended to be covered by the safe harbor provisions for forward-looking statements in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We may use words such as “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “potentially,” “will,” or “may,” or other words or expressions that convey future events, conditions, circumstances, or outcomes to identify these forward-looking statements. Forward-looking statements in this Report include, without limitation, statements regarding:
| ● | the development of, potential benefits of, and patient access to our product candidates for the treatment of infectious diseases and cancer, including TVGN 489 for the treatment of COVID-19 and Long COVID; | |
| ● | our ability to develop additional product candidates, including through the use of our ExacTcellTM technology; | |
| ● | the anticipated benefits of ExacTcell; | |
| ● | our expectations regarding our future clinical trials; | |
| ● | our manufacturing plans; | |
| ● | our ability to generate revenue in the future; | |
| ● | our ability to manage, grow, and diversify our business and execute our business initiatives and strategy; | |
| ● | expectations regarding the healthcare and biopharmaceutical industries; | |
| ● | the potential liquidity and trading of our securities; and | |
| ● | the future business, operations, and financial performance of our company. |
Forward-looking statements are based on our beliefs, assumptions, and expectations of our future performance, taking into account information currently available to us and are not guarantees of future results. A number of important factors could cause actual results to differ materially from the results anticipated by these forward-looking statements, including without limitation risks and uncertainties related to:
| ● | the effect of the recent Business Combination (as defined below) of Semper Paratus Acquisition Corporation (n/k/a Tevogen Bio Holdings Inc.) and Tevogen Bio Inc (n/k/a Tevogen Bio Inc.) (“Tevogen Bio”) on our business relationships, operating results, and business generally; | |
| ● | the outcome of any legal proceedings that may be instituted against us related to the Business Combination; | |
| ● | changes in the markets in which we compete, including with respect to its competitive landscape, technology evolution, or regulatory changes; | |
| ● | changes in domestic and global general economic conditions; | |
| ● | our ability to execute our growth strategies or manage growth and expanding operations; |
| 17 |
| ● | our ability to develop and maintain effective internal controls; | |
| ● | costs related to the Business Combination and our ability to realize anticipated benefits of the Business Combination; | |
| ● | we may fail to achieve our commercialization and development plans and identify and realize additional opportunities, which may be affected by, among other things, competition and our ability to grow and manage growth economically and hire and retain key employees; | |
| ● | risks related to our ability to develop, license, or acquire new therapeutics; | |
| ● | our ability to raise capital, which may not be available on acceptable terms, as needed to fully execute our business plan and meet our obligations on a timely basis; | |
| ● | the risk of regulatory lawsuits or proceedings relating to our business; | |
| ● | uncertainties inherent in the execution, cost, and completion of pre-clinical studies and clinical trials; | |
| ● | risks related to regulatory review and approval and commercial development; | |
| ● | risks associated with intellectual property protection; | |
| ● | our limited operating history; | |
| ● | our ability to maintain compliance with the continued listing requirements of The Nasdaq Stock Market LLC (“Nasdaq”); and | |
| ● | our failure to timely file certain periodic reports with the Securities and Exchange Commission (“SEC”) and our ability to timely file such reports in the future. |
Forward-looking statements should be considered in light of these factors and the factors described elsewhere in this Report, including in the “Risk Factors” section, in the “Risk Factors” section of our Annual Report, and in our various filings with the SEC. It is important that you read these factors and the other cautionary statements made in this Report as being applicable to all related forward-looking statements wherever they appear in this Report. If any of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance, or achievements may differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. You should also read the more detailed description of our business in our Annual Report when considering forward-looking statements. We caution readers not to place undue reliance on any forward-looking statements herein, which speak only as of the date of this Report. We undertake no obligation to publicly update any forward-looking statements, except as required by law.
Overview
We are a clinical-stage specialty immunotherapy company harnessing one of nature’s most powerful immunological weapons, CD8+ cytotoxic T lymphocytes (“CD8+ CTLs”), to develop off-the-shelf, precision T cell therapeutics for the treatment of infectious diseases and cancers with the aim of addressing the significant unmet needs of large patient populations. We believe that sustainability and commercial success in the forthcoming era of medicine will rely on ensuring patient accessibility through advanced science, innovative business models, and engagement across the development lifecycle and healthcare system. We believe the full potential of T cell therapies remains largely untapped, and aspire to be the first biotechnology company offering commercially attractive, economically viable, and cost-effective personalized T cell therapies.
We believe our allogeneic, precision T cell technology, ExacTcellTM, represents a significant scientific breakthrough with the potential to mainstream cell therapy with a new class of off the shelf - manufactured and stored for immediate use – T cell therapies with diverse applications across virology, oncology, and neurology. ExacTcell is a set of processes and methodologies to develop, enrich, and expand single human leukocyte antigen (“HLA”) restricted CTL therapies with proactively selected, precisely defined targets. HLA molecules are proteins that play an important role in the immune system’s ability to recognize “self” versus “foreign.” There are numerous HLA types that vary from person to person. CD8+ CTLs, also known as killer T cells, are white blood cells that are part of the immune system and destroy infected, malignant, or otherwise damaged cells. We are focused on using ExacTcell to develop allogeneic therapeutics, meaning therapeutics that are intended to be infused in patients other than the original donor.
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ExacTcell therapies are based on carefully selected, naturally occurring CTLs that recognize targets of interest from the body’s native T cell receptor pool, unlike genetically engineered T cell therapies. CD8+ CTLs in ExacTcell-based products target multiple and distinct antigens, with the aim to circumvent the impact of mutations in viruses and cancer cells that can render existing treatments ineffective. ExacTcell is designed to maximize the immunologic specificity of our products in order to eliminate malignant and virally infected cells while allowing healthy cells to remain intact. We believe this high degree of specificity has the potential to significantly reduce the chances of cross-reactivity or adverse impact on healthy cells. Our confidence in ExacTcell is reflected in our development pipeline, which has been carefully tailored to address the unmet needs of large patient populations grappling with life-threatening viral diseases, both viral and non-viral induced cancers, and neurological disorders such as multiple sclerosis. Through our Tevogen.AI artificial intelligence initiative, we are exploring ways to deploy artificial intelligence-powered target detection to further accelerate our product development pace, either internally or in collaboration with leading entities in the field of artificial intelligence, such as through our recently announced enrollment in the Microsoft for Startups program.
The first clinical product of ExacTcell, TVGN 489, is being developed to fill a critical gap in COVID-19 therapeutics for the immunocompromised and the high-risk elderly, with potential applications in both treatment and prevention of chronic lingering symptoms of the disease (“Long COVID”). Viruses, including COVID-19, hijack cellular machinery to transform infected cells into virus production plants. Elimination of infected cells is necessary to allow them to be replaced by healthy, uninfected counterparts. TVGN 489 consists of CTLs active against multiple precise, well defined, and well characterized targets across the SARS-CoV-2 genome. The product progressed from pre-discovery to the clinic in less than 18 months, and in January 2023, we completed the Phase 1 proof-of-concept clinical trial of TVGN 489 for the treatment of ambulatory, high-risk adult COVID-19 patients. No dose-limiting toxicities or significant treatment-related adverse events were observed in the treatment arm. Secondary endpoints showing a rapid reduction of viral load and that infusion of TVGN 489 did not prevent development of the patients’ own T cell-related (cellular) or antibody-related (humoral) anti-COVID-19 immunity were also met. None of the patients who participated in the trial reported progression of infection, reinfection, or the development of Long COVID during the six-month follow-up period. These clinical observations were mirrored by laboratory evidence of the persistence of TVGN 489 cells for at least six months after treatment. The results of the trial were submitted for peer-review and were published in Blood Advances in June 2024. We believe these findings validate our initiative to develop off-the-shelf T cell therapies for outpatient administration, targeting diseases that affect large patient populations – for the very first time. We plan to launch a pivotal trial of TVGN 489 in COVID-19 patients with B cell malignancies, with studies of other highly vulnerable populations thereafter. TVGN 489 is also in pre-clinical development for treatment and prevention of Long COVID, and we have other product candidates in our pipeline for other indications.
Our commercial success depends in part on our ability to obtain and maintain patents and other protection of our proprietary intellectual property to safeguard developed products and scientific methods, preserve the confidentiality of our trade secrets, operate without infringing, misappropriating, or otherwise violating the valid, enforceable proprietary rights of others, and prevent others from infringing, misappropriating, or otherwise violating our proprietary rights. Our ability to stop third parties from improperly making, using, selling, offering to sell, or importing products without the right to do so may depend on the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities.
We continue to build our intellectual property portfolio and seek to protect our proprietary position by, among other things, filing patent applications. Our patent estate includes patents and patent applications with claims relating to our product candidates, methods of use, and methods of preparing the product candidates. To date, our U.S. intellectual property portfolio includes three U.S. patents relating to TVGN 489 for the treatment of COVID-19, nine pending U.S. patent applications, including two patent applications relating to the treatment of COVID-19, five relating to the treatment of other viruses or cancer, and two related to artificial intelligence-driven T cell target identification and receptor engagement. Our portfolio also includes eleven ex-U.S. patent applications, including applications in Australia, Canada, Europe, Japan, Qatar, and the United Arab Emirates directed at viral specific T cells, methods of treating and preventing viral infections, and methods for developing CD3+CD+ cells against multiple viral epitopes for the treatment of viral infections, which have anticipated expiration dates through July 29, 2042.
In the United States, our three issued utility patents, all of which expire on December 9, 2040, are U.S. Patent No. 11,191,827 covering methods of treating COVID-19 infection using COVID-19 peptide specific CTLs; U.S. Patent No. 11,207,401 covering COVID-19 peptide-specific CTLs; and U.S. Patent No. 11,219,684 covering methods of manufacturing COVID-19 peptide specific CTLs. A pending utility patent application in the United States directed at viral specific T cells and methods of treating and preventing viral infections has an anticipated expiration of December 9, 2041. In addition, we have applied for registered trademark protection for “Tevogen Bio” (and design) as well as “ExacTcell” and “Tevogen AI” with the United States Patent and Trademark Office.
We determine strategy for patents’ claims scope for our applications on a case-by-case basis, taking into account advice of counsel and our business model. We file patents containing claims for protection of useful applications of our proprietary technologies and any product candidates, including new applications or uses we discover for existing technologies and product candidates, based on our assessment of their strategic value. We continuously reassess the number and type of patent applications, as well as our pending and issued patent claims, to ensure maximum coverage and value are obtained for our processes and compositions, given existing patent office rules and regulations.
As the aforementioned patents were developed internally, historical expenditures related to their development were all expensed as incurred per U.S. generally accepted accounting principles (“GAAP”). We believe these patents have significant value as the basis of our product pipeline. Our continued investment in our pipeline highlights our belief in future commercial viability of these products.
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On February 14, 2024 (the “Closing Date”), pursuant to the agreement and plan of merger dated June 28, 2023 (the “Merger Agreement”) by and among Semper Paratus, Semper Merger Sub, Inc., a wholly owned subsidiary of Semper Paratus (“Merger Sub”), SSVK Associates, LLC, Tevogen Bio, and Dr. Ryan Saadi, in his capacity as seller representative, Merger Sub merged with and into Tevogen Bio, with Tevogen Bio being the surviving company and a wholly owned subsidiary of Semper Paratus (the “Merger,” and together with the other transactions contemplated by the Merger Agreement, the “Business Combination”) and Semper Paratus was renamed Tevogen Bio Holdings Inc. (the “Closing”). See Note 4 to our unaudited consolidated financial statements in this quarterly Report 10-Q for additional information regarding the net assets acquired through the Merger. The Merger was accounted for as a reverse recapitalization under GAAP because the Company was determined to be the accounting acquirer.
Since commencing operations in June 2020, we have devoted substantially all our efforts and financial resources to establishing corporate governance, recruiting essential staff, establishing research and development capability including securing laboratory space and equipment, conducting scientific research, securing intellectual property rights to our inventions related to our product candidates and ExacTcell, carrying out drug discovery including pre-clinical studies and our Phase 1 clinical trial of TVGN 489, raising capital, and pursuing the Business Combination.
To date, we have not generated any revenue. Our net loss for the three months ended September 30, 2024 and 2023 was $5.9 million and $3.9 million, respectively. Net loss for the three months ended September 30, 2024 was primarily attributable to a $6.1 million loss from operations. Our net loss for the nine months ended September 30, 2024 and 2023 was $4.3 million and $56.8 million, respectively. Net loss for the nine months ended September 30, 2024 was primarily attributable to a loss from operations of $44.2 million that primarily resulted from non-cash, stock-based compensation expense recognized with the liquidity event condition contained in certain stock awards was satisfied upon the closing of the Business Combination as well as $7.5 million in transaction costs in connection with the Business Combination, partially offset by the change in fair value of convertible promissory notes of $48.5 million. As of September 30, 2024, we had cash of $2.3 million.
On February 14, 2024, we entered into a securities purchase agreement with The Patel Family, LLP (the “Patel Family”) pursuant to which the Patel Family purchased 500 shares of our Series A Preferred Stock for an aggregate purchase price of $2.0 million. On March 27, 2024, we entered into an Amended and Restated Securities Purchase Agreement with the Patel Family pursuant to which we amended and restated the original agreement and the Patel Family agreed to purchase 600 shares of our Series A-1 Preferred Stock for an aggregate purchase price of $6.0 million, of which $3.0 million has been received through November 19, 2024. On August 21, 2024, we entered into a securities purchase agreement with the Patel Family, pursuant to which the investor purchased 600 shares of our Series C Preferred Stock for an aggregate purchase price of $6.0 million.
As described in more detail in “Liquidity and Capital Resources - Funding Requirements” below, on June 6, 2024, we entered into a Loan Agreement (the “Loan Agreement”) with the Patel Family providing for (i) an unsecured line of credit facility (the “Facility”), pursuant to which the Patel Family agreed to lend us up to an initial amount of $36.0 million (the “Maximum Loan Amount”) of term loans in $1.0 million increments on a monthly basis, over a draw period of thirty-six months, and (ii) a contingent option for the Patel Family to purchase at least $14.0 million of our common stock, par value $0.0001 per share (the “Common Stock”), in a future private placement (the “Optional PIPE”). The Loan Agreement also contains a contingent option for the Patel Family to purchase at least $14.0 million of our Common Stock plus up to the then-remaining available amount under the Facility, in a future private placement if the ten-day trailing volume weighted average price per share of the Common Stock (the “Trailing VWAP”) reaches $10.00 per share. Pursuant to the terms of the Loan Agreement, the Company also issued to the Patel Family 1,000,000 shares of Common Stock as a commitment fee (the “Commitment Shares”), subject to forfeiture by the Patel Family of the Commitment Shares or an equal number of shares of Common Stock in the event the Patel Family fails to (i) make a deposit under the Facility when due or (ii) pay the purchase price for the Optional PIPE within 30 days after the Threshold Price Notice Date (as defined in the Loan Agreement) in the event the Company has satisfied all applicable closing conditions.
Based on cash on hand as of the date of this Report, the $2.0 million received from the sale of Series C Preferred Stock in October 2024, as well as our Loan Agreement, we have concluded that we have sufficient cash to fund our operations for at least the next 12 months from the issuance date of our unaudited consolidated financial statements.
We do not expect to generate product revenue unless and until we obtain marketing approval or other authorization for and successfully commercialize TVGN 489 or another product candidate. We expect to incur expenses related to expanding our research and development capability, building our manufacturing infrastructure including through acquisitions, and developing our commercialization organization, including reimbursement, marketing, managed market, and distribution functions, and training and deploying a specialty medical science liaison team.
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Recent Developments
Nasdaq Minimum Bid Price Compliance
On June 14, 2024, we received a letter from Nasdaq’s Listing Qualifications Department (the “Staff”) notifying us that we no longer met the $1.00 per share minimum bid price requirement for continued listing on Nasdaq (the “Minimum Bid Price Requirement”) based on the closing bid price for our Common Stock for the previous 35 consecutive business days. The letter had no immediate effect on the listing of our Common Stock and outstanding public warrants to purchase Common Stock, and we were provided an initial compliance period of 180 calendar days from receipt of the letter, or until December 11, 2024, to regain compliance with the Minimum Bid Price Requirement. On October 28, 2024, we received a letter from the Staff notifying us that we had regained compliance with the Minimum Bid Price Requirement. The letter confirmed that, from October 14, 2024 through October 25, 2024, the closing bid price of our Common Stock had been $1.00 per share or higher and, accordingly, we had regained compliance with the Minimum Bid Price Requirement and that the matter was closed.
Components of our Results of Operations
Revenue
To date, we have not generated any revenue, and we do not expect to generate any revenue from the sale of products unless and until we obtain marketing approval or other authorization for and commercialize TVGN 489 or another product candidate.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including staffing, discovery efforts, pre-clinical studies, and clinical development of TVGN 489, and pre-clinical studies of other product candidates, and include:
| ● | acquisition of supplies and equipment and leasing lab spaces; | |
| ● | expenses incurred to conduct the necessary pre-clinical studies required by the U.S. Food and Drug Administration to obtain the regulatory approval necessary to conduct our TVGN 489 clinical trial; | |
| ● | salaries, benefits, and other related costs for personnel engaged in research and development functions; | |
| ● | costs of funding research performed by third parties, including pursuant to agreements with contract research organizations (“CROs”), and investigative site costs to conduct our pre-clinical studies and clinical trials; | |
| ● | manufacturing costs, including expenses incurred under agreements with contract manufacturing organizations (“CMOs”), including manufacturing scale-up expenses, and the cost of acquiring and manufacturing pre-clinical study and clinical trial materials; | |
| ● | costs of outside consultants, including their fees, stock-based compensation, and related travel expenses; | |
| ● | costs of laboratory supplies and acquiring materials for pre-clinical studies and clinical trials; and | |
| ● | facility-related expenses, which include direct depreciation costs of equipment and expenses for rent and maintenance of facilities and other operating costs. |
Research and development activities are central to the biotechnology business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages, primarily due to the increased study sizes, which also leads generally to longer patient enrollment times in later-stage clinical trials. We expect our research and development expenses to increase over the next several years as we increase manufacturing, shipping, and storage of clinical batches required for clinical trials, personnel costs, including stock-based compensation, conduct planned clinical trials for TVGN 489 and other clinical and pre-clinical activities for other product candidates, and prepare regulatory filings for any of our product candidates.
The successful development of our current or future product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing, and costs of the efforts that will be necessary to complete the development of any product candidates. The success of TVGN 489 and our other product candidates will depend on several factors, including the following:
| ● | with respect to products other than TVGN 489, successfully completing pre-clinical studies; | |
| ● | successfully initiating future clinical trials; | |
| ● | successfully enrolling patients in and completing clinical trials; | |
| ● | applying for and receiving marketing approvals from applicable regulatory authorities; |
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| ● | obtaining and maintaining intellectual property protection and regulatory exclusivity for TVGN 489 and any other product candidates we are developing or may develop in the future and enforcing, defending, and protecting these rights; | |
| ● | making arrangements with third-party manufacturers, or establishing adequate commercial manufacturing capabilities; | |
| ● | establishing sales, marketing, and distribution capabilities and launching sales of our products, if and when approved, whether alone or in collaboration with others; | |
| ● | market adoption of TVGN 489 and any other product candidates, if and when approved, by patients and the medical community; | |
| ● | competing effectively with potential therapeutic alternatives in our target disease areas; and | |
| ● | adequate reimbursement by private and public payors including health technology appraisal entities in non-U.S. countries. |
A change in the outcome of any of these variables concerning the development, manufacturing, or commercialization activities of a product candidate could result in a change in the costs and timing associated with the development of that product candidate. For example, if we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive, if there are safety concerns or if we determine that the observed safety or efficacy profile would not be competitive in the marketplace, we could be required to expend significant additional financial resources and time on the completion of clinical development. We anticipate that product commercialization may take several years, and we expect to spend a significant amount in development costs.
General and Administrative Expenses
General and administrative expenses primarily consist of personnel expenses, which include salaries, benefits, and stock-based long term incentive compensation for employees. These expenses also encompass corporate facility costs such as rent, utilities, depreciation, and maintenance, as well as costs not classified under research and development expenses. Legal fees pertaining to intellectual property and corporate matters, as well as fees for accounting and consulting services, are also included in general and administrative expenses.
We expect that our general and administrative expenses will increase in the future to support our continued research and development activities, potential commercialization efforts, and increased costs of operating as a public company. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers, accountants, and recruitment firms, among other expenses. Increased costs associated with being a public company will also include expenses related to services associated with maintaining compliance with SEC and Nasdaq Stock Market requirements, insurance, and investor relations costs. If any of our current or future product candidates obtains marketing approval, we expect that we would incur significantly increased expenses associated with sales and marketing efforts.
Interest Expense, Net
Interest expense, net consists primarily of interest on our convertible promissory notes and loan agreement, partially offset by interest earned on bank deposits. (See “—Sources of Liquidity” below).
Merger Transaction Costs
Transaction costs we incurred in relation to the Merger were initially capitalized as deferred transaction costs up through the Closing Date, at which time such costs were charged to expense in our statements of operations less the amount of cash received in the Merger.
Change in Fair Value of Convertible Promissory Notes
U.S. accounting standards provide entities with an option to measure many financial instruments and certain other items at fair value. As a result of us electing this option, we recorded all convertible promissory notes at fair value with changes in fair value reported in our statements of operations at each balance sheet date through the settlement of the convertible promissory notes in connection with the Closing, at which time the convertible promissory notes were converted into our Common Stock.
Change in Fair Value of Written Call Option Derivative Liabilities
Equity-linked purchase options issued in connection with our debt agreements are assessed to determine whether they are freestanding or embedded with the host instrument under ASC 815. Our embedded and freestanding purchase options were determined to be liability-classified derivative instruments and are measured at fair value both on the date of issuance and at each subsequent balance sheet date, with changes in fair value recorded to “Change in fair value of written call option derivative liabilities” within the consolidated statements of operations and consolidated statements of cash flows.
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Loss on Issuance of Commitment Shares
Our other expenses consist of losses on the issuance of the Commitment Shares during the nine months ended September 30, 2024 associated with the Loan Agreement. Since we intend to elect the fair value option for future draws under the Loan Agreement, we expense all issuance costs associated with the Loan Agreement, which are comprised of the fair value of the Commitment Shares as well as the issuance date fair value of the $14 million Purchase Option and Additional Amount Purchase Option. For more information about the Loan Agreement, see “—Liquidity and Capital Resources—Funding Requirements” below.
Results of Operations
Comparison of the three months ended September 30, 2024 and 2023
The following table summarizes our results of operations for the three months ended September 30, 2024 and 2023:
| Three months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Operating expenses: | ||||||||
| Research and development | $ | 3,260,938 | $ | 1,116,911 | ||||
| General and administrative | 2,824,589 | 1,208,097 | ||||||
| Total operating expenses | 6,085,527 | 2,325,008 | ||||||
| Loss from operations | (6,085,527 | ) | (2,325,008 | ) | ||||
| Interest expense, net | (12,459 | ) | (299,887 | ) | ||||
| Change in fair value of warrants | 7,613 | — | ||||||
| Change in fair value of convertible promissory notes | — | (1,280,000 | ) | |||||
| Change in fair value of written call option derivative liabilities | 206,150 | — | ||||||
| Loss on issuance of commitment shares | — | — | ||||||
| Net loss | (5,884,223 | ) | (3,904,951 | ) | ||||
Research and Development Expenses
We do not track our internal research and development costs on a program-by-program basis. The following table summarizes our research and development expenses for the three months ended September 30, 2024 and 2023:
| Three months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Personnel costs | 675,976 | $ | 573,832 | |||||
| Stock-based compensation | 2,185,958 | — | ||||||
| Other clinical and pre-clinical development expenses | 148,145 | 513,843 | ||||||
| Facilities and other expenses | 250,859 | 29,236 | ||||||
| Total research and development expenses | $ | 3,260,938 | $ | 1,116,911 | ||||
Research and development expenses for the three months ended September 30, 2024 were $3.3 million, compared to $1.1 million for the three months ended September 30, 2023. The increase was primarily attributable to an increase in stock-based compensation due to stock compensation expense related to the RSUs granted to Dr. Saadi.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the three months ended September 30, 2024 and 2023:
| Three months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Personnel costs | $ | 343,129 | $ | 256,840 | ||||
| Stock-based compensation | 1,141,693 | — | ||||||
| Legal and professional fees | 1,272,181 | 753,813 | ||||||
| Facilities and other expenses | 67,586 | 197,444 | ||||||
| Total general and administrative expenses | $ | 2,824,589 | $ | 1,208,097 | ||||
General and administrative expenses for the three months ended September 30, 2024 were $2.8 million compared to $1.2 million for the three months ended September 30, 2023. The $0.5 million increase in legal and professional fees was primarily attributable to additional services incurred as a result of the Merger. The $1.1 million in stock-based compensation was due to stock compensation expense related to the RSUs granted to Dr. Saadi.
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Interest Expense, Net
We recognized $0.0 million and $0.3 million in interest expense for the three months ended September 30, 2024 and 2023, respectively. Interest expense for the three months ended September 30, 2023 was attributable primarily to the outstanding principal balance associated with our convertible promissory notes which converted into Common Stock in connection with the Closing.
Change in Fair Value of Convertible Promissory Notes
We recognized a non-cash charge of $1.3 million for the change in fair value of the convertible promissory notes for the three months ended September 30, 2023. The change in fair value of the convertible promissory notes was primarily a result of the increase in the underlying estimated fair value of our Common Stock during the three months ended September 30, 2023. The convertible promissory notes were converted into shares of Common Stock in connection with the Closing.
Change in Fair Value of Written Call Option Derivative Liabilities
We recognized a non-cash charge of $0.2 million for the fair value of our written call option derivative liabilities associated with our Loan Agreement for the three months ended September 30, 2024.
Comparison of the nine months ended September 30, 2024 and 2023
The following table summarizes our results of operations for the nine months ended September 30, 2024 and 2023:
| Nine months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Operating expenses: | ||||||||
| Research and development | $ | 28,196,970 | $ | 3,495,477 | ||||
| General and administrative | 16,004,308 | 3,338,279 | ||||||
| Total operating expenses | 44,201,278 | 6,833,756 | ||||||
| Loss from operations | (44,201,278 | ) | (6,833,756 | ) | ||||
| Interest expense, net | (168,239 | ) | (888,827 | ) | ||||
| Merger transaction costs | (7,499,353 | ) | — | |||||
| Change in fair value of warrants | 14,428 | — | ||||||
| Change in fair value of convertible promissory notes | 48,468,678 | (49,122,865 | ) | |||||
| Change in fair value of written call option derivative liabilities | (7,064 | ) | — | |||||
| Loss on issuance of commitment shares | (890,000 | ) | — | |||||
| Net loss | $ | (4,282,828 | ) | $ | (56,845,448 | ) | ||
Research and Development Expenses
We do not track our internal research and development costs on a program-by-program basis. The following table summarizes our research and development expenses for the nine months ended September 30, 2024 and 2023:
| Nine months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Personnel costs | $ | 1,892,839 | $ | 1,526,871 | ||||
| Stock-based compensation | 24,932,798 | — | ||||||
| Other clinical and pre-clinical development expenses | 636,402 | 1,677,644 | ||||||
| Facilities and other expenses | 734,931 | 290,962 | ||||||
| Total research and development expenses | $ | 28,196,970 | $ | 3,495,477 | ||||
Research and development expenses for the nine months ended September 30, 2024 were $28.2 million, compared to $3.5 million for the nine months ended September 30, 2023. The increase was primarily attributable to an increase in stock-based compensation due to a non-cash stock-based compensation expense of $20.5 million recognized from certain stock-based awards that continue to vest through satisfaction of service conditions subsequent to the satisfaction of the liquidity condition upon the Closing.
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General and Administrative Expenses
The following table summarizes our general and administrative expenses for the nine months ended September 30, 2024 and 2023:
| Nine months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Personnel costs | $ | 2,031,536 | $ | 819,209 | ||||
| Stock-based compensation | 8,810,322 | — | ||||||
| Legal and professional fees | 4,683,607 | 1,953,748 | ||||||
| Facilities and other expenses | 418,843 | 565,322 | ||||||
| Total general and administrative expenses | $ | 16,004,308 | $ | 3,338,279 | ||||
General and administrative expenses for the nine months ended September 30, 2024 were $16.0 million compared to $3.3 million for the nine months ended September 30, 2023. The increase was primarily attributable to stock-based compensation expense of $8.9 million, of which $6.7 million was recognized as a non-cash stock-based compensation expense from certain stock-based awards that continue to vest through satisfaction of service conditions subsequent to the satisfaction of the liquidity condition upon the Closing, and $2.2 million was recognized as restricted stock compensation expense related to the RSUs granted. The increase of $1.2 million in personnel costs was primarily attributable to an increase in headcount and an increase in premium for the Company’s director and officer insurance policy, and $0.8 million was recognized as a loss from the issuance of Series A Preferred Stock. The increase of $2.7 million in legal and professional fees was primarily attributable to the additional services incurred as a result of the Merger.
Interest Expense, Net
We recognized $0.2 million and $0.9 million in interest expense for the nine months ended September 30, 2024 and 2023, respectively, which was attributable primarily to the outstanding principal balance associated with our convertible promissory notes that converted into Common Stock in connection with the Closing.
Merger Transaction Costs
Merger transaction costs in excess of cash received from the Merger of $7.5 million were recognized as period expenses for the nine months ended September 30, 2024.
Change in Fair Value of Convertible Promissory Notes
We recognized a non-cash gain of $48.5 million and a non-cash loss of $49.1 million for the change in fair value of the convertible promissory notes for the nine months ended September 30, 2024 and 2023, respectively. The change was primarily a result of the increase in the underlying estimated fair value of our Common Stock during the nine months ended September 30, 2023 compared to a decrease in the underlying estimated fair value of our Common Stock from January 1, 2024 to the settlement of the convertible promissory notes upon the Closing.
Loss on issuance of Commitment Shares
We incurred losses on the issuance of Commitment Shares during the nine months ended September 30, 2024, associated with the Loan Agreement.
Liquidity and Capital Resources
Sources of Liquidity
As of September 30, 2024, we had $2.3 million in cash, as compared to $1.1 million in cash as of December 31, 2023. To date, we have not yet commercialized any products or generated any revenue from product sales and have financed our operations primarily with proceeds from the sale of convertible promissory notes and preferred stock, funds drawn on the Loan Agreement, and research tax credits. Since January 2021, we have raised aggregate gross proceeds of $24.0 million from the sale of convertible promissory notes, $2.0 million from the sale of our Series A Preferred Stock, $3.0 million from deposits related to the future sale of our Series A-1 Preferred Stock, and $6.0 million from the sale of our Series C Preferred Stock. In June 2024, we entered into the Loan Agreement, which provided up to $36.0 million of term loans that can be drawn in $1.0 million increments each month over thirty-six months, as described below. As of September 30, 2024, we have drawn an aggregate of $1.0 million under the Loan Agreement.
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Cash Flows
The following table summarizes our cash flows for the nine months ended September 30, 2024 and 2023:
For the nine months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash provided by (used in) | ||||||||
| Operating activities | $ | (8,981,044 | ) | $ | (6,194,646 | ) | ||
| Investing activities | — | (133,000 | ) | |||||
| Financing activities | 10,229,328 | 3,450,000 | ||||||
| Net change in cash | $ | 1,278,284 | $ | (2,877,646 | ) | |||
Cash Flows from Operating Activities
During the nine months ended September 30, 2024, we used $9.0 million of net cash in operating activities. Cash used in operating activities reflected $9.7 million of net loss, non-cash charges related to the change in the fair value of the convertible promissory notes, stock-based compensation expense, Merger transaction costs, loss on the issuance of Series A Preferred Stock, loss on issuance of the Commitment Shares, depreciation expense, reductions in the operating right of use (“ROU”) assets, and non-cash interest on the convertible promissory notes, partially offset by a $0.7 million net change in our operating assets and liabilities attributable to the timing of our payments to our vendors for research and development activities.
During the nine months ended September 30, 2023, we used $6.2 million of net cash in operating activities. Cash used in operating activities reflected our net loss of $56.9 million offset by $49.1 million of non-cash charges related to the change in the fair value of the convertible promissory notes, depreciation expense, and reductions in the operating ROU assets, offset by a $0.4 million net change in our operating assets and liabilities attributable to the timing of our payments to our vendors for research and development activities.
Cash Flows from Investing Activities
During the nine months ended September 30, 2023, we purchased $0.1 million of property and equipment. There was no investing activities during the nine months ended September 30, 2024.
Cash Flows from Financing Activities
During the nine months ended September 30, 2024, we received $10.2 million of net cash from financing activities attributable to $2.0 million in proceeds from the sale of Series A Preferred Stock, $4.0 million in proceeds from the sale of Series C Preferred Stock, $3.0 million of non-refundable prepaid proceeds towards the anticipated issuance of Series A-1 Preferred Stock, $1.0 million drawn under the Loan Agreement, and $0.2 million of cash in connection with the Merger.
During the nine months ended September 30, 2023, we received $3.7 million of net cash from financing activities attributable to the proceeds from the convertible promissory notes, partially offset by $0.2 million in payment of deferred transaction costs.
Funding Requirements
Our primary sources of funds to meet our near-term liquidity and capital requirements include cash on hand, including the funding we have received from the sale of our Series A and Series C Preferred Stock and the funding we expect to receive from the sale of our Series A-1 Preferred Stock, and our access to an unsecured line of credit (limited to a $1.0 million monthly draw) under the Loan Agreement described below. On February 14, 2024, we entered into a securities purchase agreement with an investor pursuant to which the investor agreed to purchase shares of our Series A Preferred Stock for an aggregate purchase price of $8.0 million. On March 27, 2024, we entered into an agreement pursuant to which that amount was reduced to $2.0 million and the investor agreed to purchase shares of our Series A-1 Preferred Stock for an aggregate purchase price of $6.0 million. We have not yet received $3.0 million of the $6.0 million purchase price for the Series A-1 Preferred Stock. Even if we receive such proceeds, we will still need additional capital to fully implement our business, operating, and development plans. On August 21, 2024, we entered into a securities purchase agreement with an investor pursuant to which the investor agreed to purchase shares of our Series C Preferred Stock for an aggregate purchase price of $6.0 million.
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On June 6, 2024, we entered into the Loan Agreement, pursuant to which the Lender agreed to provide to the Company up to the Maximum Loan Amount of $36.0 million under the Facility. The Lender is also the investor in our Series A, Series A-1, and Series C Preferred Stock. The Facility permits us to borrow up to $1.0 million monthly in a single monthly draw over a period of up to three years. Draws will accrue interest at a fixed annual rate of the lower of (i) the daily secured overnight financing rate, measured on the date we receive the draw (the “Deposit Date”), plus 2.00% and (ii) 7.00%, accruing quarterly beginning on the Deposit Date and payable quarterly beginning on the three-month anniversary of the Deposit Date. Interest will be payable in shares of Common Stock with an effective purchase price of $1.50 per share, and each draw will mature 48 months after the Deposit Date. Prepayment will be permitted without penalty. The Company may repay or prepay any amount of outstanding principal balance under the Facility at the Company’s election in cash or in shares of Common Stock with an effective purchase price of the greater of $1.50 per share and the 10-day trailing volume weighted average price of the Common Stock (the “Trailing VWAP”) as of the trading day prior to payment, subject to certain requirements related to resale registration. Pursuant to the Loan Agreement, we also agreed to provide the Lender an option to purchase $14.0 million of shares of our Common Stock plus an additional amount up to the total then-remaining available and undrawn portion of the Maximum Loan Amount (which amount would thereafter no longer be available under the Facility). The Optional PIPE would be priced at a 30% discount to the Trailing VWAP on the date such price first reaches at least $10.00 per share (the “Threshold Price Date”) and will be exercisable by the Lender by written notice within three business days after the Company has notified the Lender of the Threshold Price Date (the date of such notice, the “Threshold Price Notice Date”). Pursuant to the terms of the Loan Agreement, we issued to the Lender the Commitment Shares, subject to forfeiture by the Lender of the Commitment Shares or an equal number of shares of Common Stock in the event the Lender fails to (i) make a deposit under the Facility when due or (ii) pay the purchase price for the Optional PIPE within 30 days after the Threshold Price Notice Date in the event the Company has satisfied all applicable closing conditions. There is no assurance as to the amount of proceeds we will ultimately receive under the Loan Agreement. As of September 30, 2024, we have drawn an aggregate of $1.0 million under the Loan Agreement
We expect to devote considerable financial resources to our ongoing and planned activities, particularly as we conduct our planned clinical trials of TVGN 489 and other product candidates.
Identifying potential product candidates and conducting pre-clinical testing and clinical trials is a time-consuming, expensive, and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success.
We expect our expenses to increase in connection with our ongoing activities, particularly as we advance our pre-clinical studies and clinical trials. In addition, if we obtain marketing approval for TVGN 489 in any indication or for any other product candidate we are developing or develop in the future, we expect to incur commercialization expenses related to product manufacturing, sales, marketing, and distribution. Furthermore, we expect to continue to incur increased costs associated with operating as a public company. Accordingly, we will need additional funding to fully implement our business plans.
Our future capital requirements will depend on many factors, including:
| ● | the progress, costs, and results of our planned clinical trials of TVGN 489 and other planned and future clinical trials; | |
| ● | the scope, progress, costs and results of our pre-clinical testing and clinical trials of TVGN 489 for additional combinations, targets, and indications; | |
| ● | the number of and development requirements for additional indications for TVGN 489 or for any other product candidates; | |
| ● | our ability to scale up our manufacturing processes and capabilities to support clinical trials of TVGN 489 and other product candidates we are developing and may develop in the future; | |
| ● | the costs, timing, and outcome of regulatory review of TVGN 489 and other product candidates we are developing and may develop in the future; | |
| ● | potential changes in the regulatory environment and enforcement rules; | |
| ● | our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such arrangements; | |
| ● | the costs and timing of future commercialization activities, including product manufacturing, sales, marketing, and distribution, for TVGN 489 and other product candidates we are developing and may develop in the future for which we may receive marketing approval; | |
| ● | our ability to obtain and maintain acceptance of any approved products by patients, the medical community, and third-party payors; | |
| ● | the amount and timing of revenue, if any, received from commercial sales of TVGN 489 and any other product candidates we are developing or develop in the future for which we receive marketing approval; |
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| ● | potential changes in pharmaceutical pricing and reimbursement infrastructure; | |
| ● | the availability of raw materials for use in production of our product candidates; and | |
| ● | the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights, and defending any intellectual property-related claims. |
As of September 30, 2024, we had cash of $2.3 million. Our cash balance, the $2.0 million received from the sale of Series C Preferred Shares, and the Loan Agreement, which allows us to draw down term loans of $1.0 million per month over thirty-six months, will allow us to have adequate cash and financial resources, to operate for at least the next 12 months from the date of issuance of our unaudited consolidated financial statements included in this Report.
We regularly evaluate different strategies to obtain funding for operations for subsequent periods. These strategies may include but are not limited to private placements of securities, licensing and/or marketing arrangements, partnerships with other pharmaceutical or biotechnology companies, and public offerings of securities. We may not be able to obtain financing on acceptable terms and may not be able to enter into strategic alliances or other arrangements on favorable terms. The terms of any financing may adversely affect the holdings or the rights of our stockholders. If we are unable to obtain sufficient funding, we could be required to delay, reduce or eliminate research and development programs, product portfolio expansion, or future commercialization efforts, which could adversely affect our business prospects.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations and commitments as of September 30, 2024:
| Total | Less than 1 Year | 1 to 3 Years | 3+ Years | |||||||||||||
| Contractual obligations: | ||||||||||||||||
| Operating lease commitments (1) | $ | 391,067 | $ | 146,621 | $ | 244,446 | $ | 0 | ||||||||
| Line of Credit repayment (2)(3) | $ | 1,012,466 | $ | 0 | $ | 0 | $ | 1,012,466 | ||||||||
| Total contractual obligations | $ | 1,403,533 | $ | 146,621 | $ | 244,446 | $ | 1,012,466 | ||||||||
| (1) | Reflects obligations pursuant to our office and laboratory leases in Philadelphia, Pennsylvania and Warren, New Jersey. |
| (2) | Reflects obligations to settle outstanding balances on our Line of Credit, if paid in cash at time of settlement. |
| (3) | Reflects balance of loans drawn on line of credit and accrued interest. |
The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum, or variable price provisions, and the approximate timing of the actions under the contracts. Our contracts with CROs, CMOs, and other third parties for the manufacture of our product candidates and to support pre-clinical research studies and clinical testing are generally cancelable by us upon prior notice and do not contain any minimum purchase commitments. Payments due upon cancellation consisting only of payments for services provided or expenses incurred, including non-cancelable obligations of our service providers, up to the date of cancellation are not included in the table above as the amount and timing of such payments are not known.
Critical Accounting Policies and Estimates
This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of the financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses, the fair value of our Common Stock, the fair value of our convertible promissory notes, and stock-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, including those factors set out in the “Risk Factors” section of our Annual Report. See also the section entitled “–Forward-Looking Statements” above.
While our significant accounting policies are described in more detail in Note 3 to our financial statements contained in this Report and Note 3 to the audited financial statements included as Exhibit 99.1 to the Form 8-K, we believe the following accounting policies are the most critical to the judgments and estimates used in the preparation of our financial statements or involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operation.
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Research and Development Expenses
Research and development activities are expensed as incurred. As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses, including those related to clinical trials and product candidate manufacturing. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the services when we have not yet been invoiced or otherwise notified of actual costs. Our service providers invoice us in arrears or require prepayments for services performed, as well as on a pre-determined schedule or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of the estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees paid to:
| ● | vendors in connection with pre-clinical and clinical development activities; | |
| ● | CROs in connection with clinical trials; and | |
| ● | CMOs in connection with the process development and scale-up activities and the production of pre-clinical and clinical trial materials. |
Costs for clinical trials and manufacturing activities are recognized based on an evaluation of our vendors’ progress towards completion of specific tasks, using data such as participant enrollment, clinical site activations, or information provided to us by our vendors regarding their actual costs incurred. Payments for these activities are based on the terms of individual contracts and payment timing may differ significantly from the period in which the services were performed. We determine accrual estimates through reports from and discussions with applicable personnel and outside service providers as to the progress or state of completion of studies, or the services completed. Our estimates of accrued expenses as of each balance sheet date are based on the facts and circumstances known at the time. Costs that are paid in advance of performance are deferred as a prepaid expense and amortized over the service period as the services are provided.
Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses. However, due to the nature of estimates, we cannot assure that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials and other research activities.
Stock-Based Compensation
Awards under our compensation plans are accounted for in accordance with ASC 718. Compensation cost is measured at the grant date fair value of the award and is recognized over the vesting period of the award. We use the straight-line method to record compensation expense of awards with service-based vesting conditions. We account for forfeitures of stock-based awards as they occur. We recognize share-based compensation expense for awards with performance conditions when it is probable that the condition will be met, and the award will vest. Prior to the Merger, we estimated the fair value of our Common Stock in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.
Estimating the fair value of Common Stock
Prior to the Closing, we were required to estimate the fair value of shares of our Common Stock underlying our stock-based awards and in connection with valuing our convertible promissory notes. Because our Common Stock was not publicly traded prior to February 15, 2024, the fair value of our Common Stock prior to such date had been estimated on each grant date by our board of directors, with input from our management, considering third-party valuations of our Common Stock.
Our board of directors considered various objective and subjective factors to estimate the estimated fair value of our Common Stock, including:
| ● | the estimated value of all classes of securities outstanding; | |
| ● | the anticipated capital structure that will directly impact the value of the currently outstanding securities; | |
| ● | our results of operations and financial position; | |
| ● | the status of our research and development efforts; |
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| ● | the composition of, and changes to, our management team and board of directors; | |
| ● | the lack of liquidity of our Common Stock as a private company; | |
| ● | our stage of development and business strategy and the material risks related to our business and industry; | |
| ● | external market conditions affecting the life sciences and biotechnology industry sectors; | |
| ● | the likelihood of achieving a liquidity event for the holders of our Common Stock, such as an initial public offering, or a sale of the company, given the prevailing market conditions; and | |
| ● | the market value and volatility of comparable companies. |
Fair Value Measurements
Our recurring fair value measurements primarily consist of the convertible promissory notes prior to the Merger, for which we elected the fair value option, the freestanding $14 million purchase option under the Loan Agreement, and the bifurcated purchase option that is embedded within the loan commitment under the Loan Agreement.
We used the Probability Weighted Expected Return Method (“PWERM”) valuation methodology to determine the fair value of the convertible promissory notes prior to the Merger for all the periods presented. The PWERM is a scenario-based methodology that estimates the fair value based upon an analysis of future values for the company, assuming various outcomes. The value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available. The future value under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value. Significant assumptions used in determining the fair value of convertible promissory notes include volatility, discount rate, and probability of a future liquidity event. In February 2024, concurrent with the Merger, we converted our outstanding convertible promissory notes into 10,337,419 shares of Common Stock.
We used a Monte Carlo Simulation (“MCS”) valuation methodology to determine the fair value of the freestanding $14 million purchase option and embedded purchase option associated with the Loan Agreement at inception and as of September 30, 2024. The MCS methodology simulates the Company’s future stock price to estimate if and when the Trailing VWAP will reach $10.00 per share, and discounts the resulting payoff back to each valuation date using a present value factor. Significant assumptions used in determining the fair value of these options include volatility and discount rate.
Recent Accounting Pronouncements
See Note 3 to our unaudited consolidated financial statements found in this Report for a description of recent accounting pronouncements applicable to our financial statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon the evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of the end of the period covered by this report due to the material weaknesses in our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Report 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 1. Legal Proceedings.
In the ordinary conduct of our business, we may be subject from time to time to legal proceedings. We currently have no material legal proceedings pending.
Item 1A. Risk Factors.
An investment in our Common Stock involves a high degree of risk. You should carefully consider the risks set forth in the “Risk Factors” section of our Annual Report, other information set forth in this Report, and the additional information in the other reports we file with the SEC. If any of the risks contained in those reports occur, our business, results of operation, financial condition, and liquidity could be harmed, the value of our securities could decline, and you could lose all or part of your investment.
Except as described below, there have been no material changes to the risk factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Any failure to meet the continued listing requirements of Nasdaq could result in a delisting of our Common Stock and our outstanding public warrants to purchase Common Stock.
Our Common Stock and our outstanding public warrants to purchase Common Stock (our “Warrants”) are listed on Nasdaq. We are required to meet specified financial and other requirements in order to maintain such listing, including a requirement that the closing bid price for our Common Stock remain above $1.00.
On June 14, 2024, we received a letter from Nasdaq’s Listing Qualifications Department (the “Staff”) notifying us that we no longer met the $1.00 per share minimum bid price requirement for continued listing on Nasdaq (the “Minimum Bid Price Requirement”) based on the closing bid price for our Common Stock for the previous 35 consecutive business days. On October 28, 2024, we received a notification letter from the Staff notifying us that from October 14, 2024 through October 25, 2024, the closing bid price of our Common Stock had been $1.00 per share or higher and, accordingly, we had regained compliance with the Minimum Bid Price Requirement and that the matter was closed. However, there can be no assurance that we will be able to maintain compliance with the Minimum Bid Price Requirement or other Nasdaq listing standards.
If we fail to maintain compliance with the continued listing requirements of Nasdaq, Nasdaq may take steps to delist our securities. Such a delisting would likely have a negative effect on the price of our securities and would impair your ability to sell or purchase the securities when you wish to do so. In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our securities to become listed again, stabilize the market price or improve the liquidity of our securities, or prevent future non-compliance with listing requirements in the future. Additionally, if our securities are not listed on, or become delisted from, Nasdaq for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of our securities may be more limited than if our securities were quoted or listed on Nasdaq or another national securities exchange. You may be unable to sell your securities unless a market can be established or sustained.
We have previously failed to timely file certain periodic reports with the SEC. Potential future delays in the filing of our reports with the SEC pose significant risks to our business, and could materially and adversely affect our financial condition and results of operations.
We did not timely file our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, or our Form 10-Q for the quarterly period ended March 31, 2024, and missed the initial deadline for the filing of our Form 10-Q for the quarterly period ended September 30, 2024. While we are now current in our filing of periodic reports under the Exchange Act, there is no assurance that in the future our reporting will always be timely. Our access to financing may be impaired by any untimely filing of our periodic reports. For example, we will not be eligible to register the offer and sale of our securities using a short-form registration statement on Form S-3 until we have timely filed all periodic reports required under the Exchange Act for a period of twelve calendar months and any portion of a month immediately preceding the filing of such registration statement. In addition, in the event the filing of our periodic reporting is delayed in the future, we may experience a material adverse effect on our ability to grow our business.
Future failures to timely file periodic reports with the SEC could subject us to enforcement action by the SEC and stockholder lawsuits, and result in the delisting of our Common Stock and Warrants from Nasdaq, regulatory sanctions from the SEC, or breach of covenants in any future credit facilities or of any preferred equity or debt securities that we may issue in the future, any of which could have a material adverse impact on our operations, your investment in our Common Stock and Warrants, and our ability to register with the SEC public offerings of our securities for our benefit or the benefit of our security holders. Additionally, any potential failure to timely file future periodic reports could result in investors not receiving access to current or timely information regarding our business and operations with which to make investment decisions.
Item 5. Other Information.
Insider Trading Arrangements
During
the three months ended September 30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act)
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Item 6. Exhibits.
INDEX TO EXHIBITS
| * | Filed herewith. |
| ** | Furnished herewith |
| † | Schedules and exhibits to this Exhibit omitted pursuant to Regulation S-K Item 601(a)(5). The Registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request. |
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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.
Tevogen Bio Holdings Inc. | |||
| Date: | November 19, 2024 | By: | /s/ Ryan Saadi |
| Ryan Saadi | |||
Chief Executive Officer (Duly Authorized Officer and Principal Executive Officer) | |||
| Date: | November 19, 2024 | By: | /s/ Kirti Desai |
| Kirti Desai | |||
Chief Financial Officer (Principal Financial Officer) | |||
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