CONFIDENTIAL — ATTORNEY WORK PRODUCT / ATTORNEY-CLIENT PRIVILEGED
CALDERWOOD & HARKNESS LLP
INTERNAL DEAL MEMORANDUM
April 23, 2024
To: Deal File — Client Matter No. 1013-00002
From: Audrey Zhou, Associate, Capital Markets (San Francisco Office)
Re: Genome Dx Therapeutics Inc. — $40,000,000 Senior Unsecured Convertible Promissory Note Placement
Reviewed by:
Theodore Langston, Partner, Capital Markets (Responsible Partner)
Vivienne St. Claire, Partner, Capital Markets (Billing Partner)
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I. Executive Summary
Calderwood & Harkness LLP ("C&H" or the "Firm") represented Genome Dx Therapeutics Inc. ("GenomeDx" or "GDT"), a Delaware corporation headquartered in South San Francisco, California, as issuer's counsel in connection with a private placement of $40,000,000 in aggregate principal amount of senior unsecured convertible promissory notes (the "Notes") to three existing institutional investors: Pinnacle BioVentures Fund III, L.P. ("Pinnacle"), Cormorant Health Capital Partners, L.P. ("Cormorant"), and Alder Creek Life Sciences Fund II, L.P. ("Alder Creek" and, together with Pinnacle and Cormorant, the "Purchasers"). The Notes were issued pursuant to a Note Purchase Agreement dated April 9, 2024 (the "NPA").
The transaction closed on April 22, 2024. The original target closing date was April 12, 2024; the ten-day delay resulted from two discrete administrative issues relating to the officers' certificate and the Delaware good standing certificate, each of which is discussed in greater detail in Section IX of this memorandum.
The placement was structured as a private placement exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule 506(b) of Regulation D promulgated thereunder. All three Purchasers are existing equity holders of GenomeDx and qualify as accredited investors within the meaning of Rule 501(a) of Regulation D. No general solicitation or general advertising was used in connection with the offering.
Proceeds from the placement are designated for the following purposes:
(a) approximately $28,000,000 to fund the continuation and expansion of GenomeDx's ongoing Phase 2b clinical trial for GDT-4187, a selective CDK9/FLT3 dual kinase inhibitor being evaluated for the second-line treatment of refractory non-small cell lung cancer;
(b) approximately $7,000,000 for preclinical development of GDT-5201, a next-generation PROTAC degrader compound; and
(c) approximately $5,000,000 for general corporate purposes and working capital.
The C&H engagement team for this matter consisted of Theodore Langston (responsible partner), Vivienne St. Claire (billing partner), Audrey Zhou (lead associate), and Brendan Walsh (working associate). The engagement was opened on February 26, 2024, under client matter number 1013-00002.
This memorandum has been prepared for the internal deal file and is intended to serve as a comprehensive record of the transaction, including the identity and background of the parties, a summary of key economic and legal terms, a discussion of negotiation dynamics and resolved issues, a chronology of the transaction timeline, and a summary of closing deliverables and post-closing obligations.
II. Description of the Issuer
Full Legal Name: Genome Dx Therapeutics Inc.
Entity Type: Corporation incorporated under the laws of the State of Delaware on March 14, 2017. The company's Delaware file number is 6347821. GenomeDx was organized as a Delaware corporation from inception and has maintained its corporate existence in good standing since its date of incorporation.
Registered Agent: Capitol Registered Agents, Inc., 1209 Orange Street, Suite 200, Wilmington, Delaware 19801. Capitol Registered Agents has served as GenomeDx's registered agent in Delaware since incorporation and maintains its principal office in Wilmington for purposes of accepting service of process and official correspondence on behalf of the company.
Foreign Qualification: GenomeDx is qualified to transact business as a foreign corporation in the State of California. The Certificate of Qualification was filed with the California Secretary of State on April 3, 2017, and the company's California entity number is C4085629. GenomeDx maintains its principal place of business in California and, to the knowledge of the engagement team, is not qualified to do business in any other state at this time.
Principal Office: 450 Pinnacle Drive, Suite 300, South San Francisco, California 94080. This location serves as GenomeDx's corporate headquarters and houses its executive offices, legal and finance departments, and a portion of its research and development operations. The company also utilizes laboratory space at an adjacent facility in the South San Francisco biotech corridor, although the details of that lease were not directly relevant to this transaction.
Federal Employer Identification Number: 82-3194507.
Business Description: GenomeDx is a clinical-stage biopharmaceutical company focused on the discovery and development of novel targeted therapies for oncology indications. The company's lead product candidate is GDT-4187, a selective CDK9/FLT3 dual kinase inhibitor currently being evaluated in a Phase 2b clinical trial for the second-line treatment of refractory non-small cell lung cancer (NSCLC). The Phase 2b trial is a multi-center study enrolling approximately 280 patients across 22 clinical sites in 8 states. The trial is being conducted under an active Investigational New Drug (IND) application with the U.S. Food and Drug Administration. Topline efficacy and safety data from the trial are expected in the first quarter of 2025. GenomeDx's development pipeline also includes GDT-5201, a next-generation PROTAC (proteolysis-targeting chimera) degrader compound currently in preclinical development. GDT-5201 is being developed as a potential treatment for hematologic malignancies, although the specific indication has not yet been finalized for clinical development.
Revenue Status: GenomeDx is a pre-revenue company and has not generated any product revenue to date. The company has funded its operations primarily through private equity financings and, now, convertible debt. For the fiscal year ended December 31, 2023, GenomeDx reported a net loss of $62,400,000 as reflected in its audited financial statements. The company's audited financial statements are prepared by Baxter & Calloway, CPAs, which has served as GenomeDx's independent auditor since 2019. The engagement partner at Baxter & Calloway is Nadia Sorensen, CPA. The audited financial statements for fiscal year 2023 were issued with an unqualified opinion.
Financial Snapshot (as of December 31, 2023):
The cash runway estimate of approximately 18 months is calculated inclusive of the $40,000,000 in gross proceeds from this convertible note placement. Absent this financing, the company's remaining cash runway based on the December 31, 2023 cash position and the prevailing monthly burn rate would have been approximately nine to ten months, underscoring the importance of this capital raise to the company's ongoing operations and clinical development timeline.
Prior Financing History: GenomeDx's most recent equity financing prior to this transaction was a $95,000,000 Series C preferred stock financing that closed in September 2022. The Series C round was led by Pinnacle BioVentures and included participation from Cormorant Health Capital Partners and Alder Creek Life Sciences Fund II. All three Purchasers in this convertible note placement are therefore existing stockholders of GenomeDx with established relationships with the company's management and board of directors.
409A Valuation: GenomeDx's most recent Section 409A valuation report is dated January 15, 2024. The valuation was prepared by an independent third-party valuation firm and concluded that the fair market value of GenomeDx's common stock was $4.15 per share as of the valuation date. This valuation is relevant context for purposes of the conversion mechanics described in Section VI below, particularly in relation to the Valuation Cap Price of $4.1451 per share.
Key Management:
• Dr. Marcus Avellino, Ph.D., MBA — Chief Executive Officer and Co-Founder. Dr. Avellino serves as an authorized signatory of GenomeDx and executed the NPA and the officers' certificate on behalf of the company. Dr. Avellino co-founded GenomeDx in 2017 and has served as CEO since inception.
• Diane Kowalski, CPA — Chief Financial Officer. Ms. Kowalski serves as an authorized signatory and co-executed the officers' certificate delivered at closing. Ms. Kowalski joined GenomeDx in 2020 and is responsible for the company's financial reporting, treasury, and investor relations functions.
• Priya Raghunathan, J.D. — General Counsel and Corporate Secretary. Ms. Raghunathan served as the primary C&H client contact throughout the transaction and executed the secretary's certificate at closing. Ms. Raghunathan joined GenomeDx in 2021 and oversees all legal affairs, corporate governance, and intellectual property matters.
• Dr. Helen Tsai, M.D. — Vice President, Clinical Development. Dr. Tsai is responsible for the design and execution of GenomeDx's clinical programs, including the ongoing Phase 2b trial for GDT-4187. Dr. Tsai did not have a direct transactional role in this placement but was consulted in connection with the preparation of certain disclosure schedule items relating to the clinical trial.
Board of Directors Chair: Jonathan Merriweather, who serves as Managing Director of Pinnacle BioVentures. Mr. Merriweather was appointed to the GenomeDx Board of Directors in connection with the Series C preferred stock financing and currently serves as Chairman of the Board. Due to Pinnacle's role as the lead investor and largest holder of Notes in this transaction, Mr. Merriweather recused himself from the Board of Directors' deliberation and vote approving this transaction. The board's written consent authorizing the note placement was dated April 5, 2024, and Mr. Merriweather's recusal is noted on the face of the written consent.
III. Capitalization (Pre-Closing)
As of immediately prior to the closing of this transaction, GenomeDx's capitalization on a fully diluted basis consisted of 48,250,000 shares, as set forth in the table below:
Reconciliation: 12,400,000 + 6,850,000 + 11,500,000 + 14,000,000 + 3,500,000 = 48,250,000 shares.
The fully diluted share count of 48,250,000 is used as the denominator for purposes of calculating the Valuation Cap Price under the Notes, as described in Section VI.F below. This share count was confirmed by GenomeDx's General Counsel and verified against the company's stock ledger maintained by its transfer agent. The fully diluted share count includes all outstanding shares of common stock, all shares of preferred stock on an as-converted-to-common-stock basis (assuming one-to-one conversion for all series of preferred stock), and all shares subject to outstanding stock options under the 2018 Equity Incentive Plan, regardless of vesting status. The fully diluted share count does not include any shares reserved but unissued under the 2018 Equity Incentive Plan or any shares issuable upon conversion of the Notes issued in this transaction.
IV. The Purchasers
A. Pinnacle BioVentures Fund III, L.P. (Lead Investor)
Pinnacle BioVentures Fund III, L.P. ("Pinnacle") is a Delaware limited partnership whose general partner is Pinnacle BioVentures Management III, LLC, a Delaware limited liability company. Pinnacle's principal office is located at 101 Federal Street, 26th Floor, Boston, Massachusetts 02110. Pinnacle is a life sciences–focused venture capital fund with approximately $620 million in committed capital (Fund III). Pinnacle led GenomeDx's Series C preferred stock financing in September 2022 and currently holds approximately 22.4% of GenomeDx's equity on a fully diluted basis.
Pinnacle served as the lead investor in this convertible note placement and committed to purchase a Note in the principal amount of $22,000,000, representing 55.0% of the total aggregate placement amount.
Key Contacts:
• Jonathan Merriweather — Managing Director and authorized signatory. Mr. Merriweather executed the NPA and the Note on behalf of Pinnacle. As noted above, Mr. Merriweather also serves as Chairman of the GenomeDx Board of Directors and recused himself from the board vote approving this transaction.
• Sarah Lindholm — Principal and transaction lead. Ms. Lindholm served as the primary day-to-day contact on the Pinnacle side for purposes of document review, negotiation, and diligence coordination.
• Robert Echevarria, J.D. — General Counsel of Pinnacle BioVentures. Mr. Echevarria participated in certain legal discussions and document review but was not the primary legal contact for the transaction; investors' outside counsel (Whitfield, Greer & Cavanaugh LLP) served that role.
B. Cormorant Health Capital Partners, L.P. (Co-Investor)
Cormorant Health Capital Partners, L.P. ("Cormorant") is a Delaware limited partnership whose general partner is Cormorant Health Capital Management, LLC, a Delaware limited liability company. Cormorant's principal office is located at 375 Park Avenue, Suite 3201, New York, New York 10152. Cormorant is a healthcare-focused growth equity fund with approximately $430 million in assets under management. Cormorant participated in both GenomeDx's Series B and Series C preferred stock financings and currently holds approximately 14.8% of GenomeDx's equity on a fully diluted basis.
Cormorant committed to purchase a Note in the principal amount of $12,000,000, representing 30.0% of the total aggregate placement amount.
Key Contacts:
• Victor Nakamura — Managing Partner and authorized signatory. Mr. Nakamura executed the NPA and the Note on behalf of Cormorant.
• Angela Ferraro — Vice President, Investments, and transaction lead. Ms. Ferraro was the primary point of contact for Cormorant throughout the document negotiation and closing process.
Outside Counsel: Cormorant was represented in this transaction by Whitfield, Greer & Cavanaugh LLP (New York, New York), which served as investors' counsel for all three Purchasers.
C. Alder Creek Life Sciences Fund II, L.P. (Co-Investor)
Alder Creek Life Sciences Fund II, L.P. ("Alder Creek") is a Delaware limited partnership whose general partner is Alder Creek Life Sciences Management II, LLC, a Delaware limited liability company. Alder Creek's principal office is located at 555 Mission Street, Suite 2800, San Francisco, California 94105. Alder Creek is a San Francisco–based venture fund specializing in Series A through pre-IPO stage investments in biopharmaceutical companies, with approximately $285 million in assets under management. Alder Creek participated in GenomeDx's Series C preferred stock financing and currently holds approximately 6.1% of GenomeDx's equity on a fully diluted basis.
Alder Creek committed to purchase a Note in the principal amount of $6,000,000, representing 15.0% of the total aggregate placement amount.
Key Contacts:
• Katharine Ostrowski — General Partner and authorized signatory. Ms. Ostrowski executed the NPA and the Note on behalf of Alder Creek.
• Daniel Yoo — Associate; provided transaction support on behalf of Alder Creek during the document review and closing process.
D. Allocation Reconciliation
The aggregate commitments of the three Purchasers are reconciled as follows:
The allocation of the aggregate $40,000,000 placement among the three Purchasers was determined by the investors among themselves and reflected in the executed term sheet dated March 11, 2024. GenomeDx did not direct the allocation among the Purchasers.
V. Investors' Counsel
Firm: Whitfield, Greer & Cavanaugh LLP ("WGC")
Address: 1251 Avenue of the Americas, 34th Floor, New York, New York 10020
Lead Partner: Elizabeth Hargrove
Senior Associate: James Petrosian
WGC represented all three Purchasers as a group in the transaction. The decision to engage a single law firm to represent all three investors was made by the Purchasers prior to C&H's involvement and reflected the investors' established working relationship and aligned interests in this placement. WGC was the primary counterparty counsel throughout the drafting, negotiation, and closing process. Elizabeth Hargrove served as the lead negotiating partner for the investors' side, and James Petrosian managed the day-to-day document exchange and comment process. All substantive markup and comment on the NPA, the form of Note, the disclosure schedules, and the ancillary closing documents were received from WGC on behalf of all three Purchasers collectively. There were no instances during the negotiation in which the interests of the individual Purchasers diverged to the extent that separate representation would have been required.
VI. Key Terms of the Notes
A. Security
The Notes are senior unsecured convertible promissory notes of GenomeDx. The Notes were issued pursuant to the Note Purchase Agreement dated April 9, 2024, by and among GenomeDx and the Purchasers. The Notes are unsecured obligations and are not guaranteed by any subsidiary or affiliate of GenomeDx. GenomeDx does not currently have any subsidiaries. The Notes rank senior to all existing and future indebtedness of GenomeDx, subject to the terms and conditions set forth in the NPA.
B. Aggregate Principal Amount
The aggregate principal amount of the Notes is $40,000,000. Three individual Notes were issued: (i) a Note in the principal amount of $22,000,000 to Pinnacle BioVentures Fund III, L.P.; (ii) a Note in the principal amount of $12,000,000 to Cormorant Health Capital Partners, L.P.; and (iii) a Note in the principal amount of $6,000,000 to Alder Creek Life Sciences Fund II, L.P. Each Note was issued in the name of the respective Purchaser and delivered to such Purchaser at closing on April 22, 2024.
C. Interest Rate
Interest on the Notes accrues at a rate of 6.0% per annum, calculated on the basis of simple interest using a 365-day year and the actual number of days elapsed. Interest accrues daily from the date of issuance on the outstanding principal amount of each Note (including, after the first anniversary of issuance, any PIK interest that has been capitalized to principal, as described below).
Interest is payable in kind ("PIK") by capitalizing all accrued and unpaid interest to the outstanding principal balance of the applicable Note on each anniversary of the date of issuance. No cash interest payments are required during the term of the Notes unless and until the Notes are repaid at maturity or upon a Change of Control event. The PIK interest structure was selected to preserve GenomeDx's cash resources for operational purposes, consistent with prevailing market practice for convertible note financings in the pre-revenue biotech sector.
D. PIK Interest Calculations (Illustrative, Full Term)
The following table illustrates the effect of the PIK interest compounding mechanism over the full three-year term of the Notes, assuming no conversion or prepayment occurs prior to maturity:
At maturity, assuming no conversion occurs and the full term of the Notes elapses, the total outstanding principal amount (inclusive of capitalized PIK interest) would be $47,640,640, representing total PIK interest of $7,640,640 over the three-year term. This represents an effective total return to the noteholders of approximately 19.1% on the original principal investment if the Notes are repaid in cash at maturity.
E. Maturity Date
The Notes mature on April 12, 2027, which is 36 months from the Closing Date as defined in the NPA. It should be noted that the actual closing of the transaction occurred on April 22, 2024, which was ten days after the contractually defined Closing Date of April 12, 2024. The Maturity Date is anchored to the contractual Closing Date definition set forth in the NPA rather than the actual date on which funds were wired and Notes were delivered. This approach was agreed upon by the parties during the closing delay discussions to avoid the need to amend the NPA and to maintain consistency across the transaction documents. The practical effect is that the Notes have an effective term from the actual closing date (April 22, 2024) to the Maturity Date (April 12, 2027) of approximately 35 months and 21 days, rather than a full 36 months.
F. Conversion Mechanics — Qualified Financing (Automatic Conversion)
The Notes provide for automatic conversion upon the closing of a "Qualified Financing," which is defined in the NPA as an equity financing of GenomeDx in which the company raises at least $50,000,000 in gross proceeds (inclusive of the conversion of the Notes). Upon the occurrence of a Qualified Financing, the outstanding principal balance of each Note, together with all accrued and unpaid interest (including capitalized PIK interest), will automatically convert into shares of the series of preferred stock issued in the Qualified Financing at the applicable conversion price.
Conversion Price: The per-share conversion price upon a Qualified Financing is the lesser of:
(a) 80% of the per-share price paid by new investors participating in the Qualified Financing (i.e., a 20% discount to the Qualified Financing price); or
(b) the Valuation Cap Price.
Valuation Cap Price Calculation:
The NPA sets forth a pre-money valuation cap of $200,000,000. The Valuation Cap Price is calculated by dividing the pre-money valuation cap by the fully diluted share count of GenomeDx immediately prior to the closing of this convertible note placement:
Valuation Cap Price = $200,000,000 ÷ 48,250,000 shares = $4.1451 per share (rounded to four decimal places)
The "lesser of" conversion price mechanic ensures that the noteholders receive the benefit of the more favorable of the two conversion methodologies, whether the discount-based price or the cap-based price. The relative economics depend on the per-share price at which the Qualified Financing is priced, as illustrated below.
Illustrative Conversion Scenarios:
The following scenarios illustrate the operation of the conversion mechanic under various hypothetical Qualified Financing prices, using the original $40,000,000 aggregate principal amount (and excluding accrued PIK interest for simplicity of illustration):
Scenario 1: Qualified Financing at $5.00 per share
Discount Price: 80% × $5.00 = $4.00 per share
Valuation Cap Price: $4.1451 per share
Since $4.00 < $4.1451, the discount price governs.
Shares issued upon conversion: $40,000,000 ÷ $4.00 = 10,000,000 shares
Scenario 2: Qualified Financing at $4.80 per share
Discount Price: 80% × $4.80 = $3.84 per share
Valuation Cap Price: $4.1451 per share
Since $3.84 < $4.1451, the discount price governs.
Shares issued upon conversion: $40,000,000 ÷ $3.84 = 10,416,667 shares (rounded to nearest whole share)
Scenario 3: Qualified Financing at $5.50 per share
Discount Price: 80% × $5.50 = $4.40 per share
Valuation Cap Price: $4.1451 per share
Since $4.40 > $4.1451, the Valuation Cap Price governs.
Shares issued upon conversion: $40,000,000 ÷ $4.1451 = approximately 9,650,906 shares
As the illustrative scenarios demonstrate, the Valuation Cap Price becomes the operative conversion price when the Qualified Financing is priced at a per-share price above approximately $5.18 (i.e., the price at which 80% of the per-share price equals the Valuation Cap Price of $4.1451). Below that threshold, the 20% discount mechanism produces a lower (and therefore more favorable to the noteholders) per-share conversion price.
Upon conversion, the Notes convert into shares of the next series of preferred stock issued by GenomeDx in the Qualified Financing. The converted shares will carry the same rights, preferences, and privileges as the shares issued to new investors in the Qualified Financing, subject to any modifications set forth in the NPA.
G. Conversion — Voluntary (at Maturity or Change of Control)
If no Qualified Financing occurs prior to the Maturity Date, each holder of a Note may, at its election, either:
(i) convert its Note (including all outstanding principal and accrued and unpaid interest) into shares of GenomeDx common stock at the Valuation Cap Price of $4.1451 per share; or
(ii) demand repayment in cash of the outstanding principal balance of its Note, together with all accrued and unpaid interest (including capitalized PIK interest).
The election is made by written notice delivered to GenomeDx no later than 30 days prior to the Maturity Date. If a holder fails to deliver a timely election notice, the Note will be deemed to have been presented for cash repayment at maturity.
Upon the occurrence of a Change of Control (as defined in the NPA), each holder may elect either:
(i) conversion of its Note at the Valuation Cap Price of $4.1451 per share into shares of GenomeDx common stock; or
(ii) repayment of the outstanding principal balance plus all accrued and unpaid interest, multiplied by the Change of Control repayment premium of 1.5×, as described below.
H. Change of Control Repayment Premium
In the event a holder elects cash repayment upon a Change of Control, the repayment amount is calculated as 1.5× the outstanding principal balance plus all accrued and unpaid interest as of the date of the Change of Control. "Change of Control" is defined in the NPA to include (a) any merger, consolidation, or similar transaction in which GenomeDx is not the surviving entity or in which the stockholders of GenomeDx immediately prior to such transaction hold less than 50% of the voting power of the surviving entity, (b) the sale of all or substantially all of the assets of GenomeDx, and (c) any transaction or series of related transactions in which a person or group of affiliated persons acquires more than 50% of the outstanding voting securities of GenomeDx. The negotiation history of the Change of Control premium is discussed in Section X.E below.
VII. Key Covenants
The NPA contains a number of affirmative and negative covenants applicable to GenomeDx during the period in which any Notes remain outstanding. The key covenants are summarized below.
A. Information Rights
GenomeDx is required to provide the following financial information to each holder of Notes:
• Quarterly unaudited financial statements: To be delivered within 45 days following the end of each fiscal quarter, consisting of an unaudited balance sheet, income statement, and statement of cash flows for the applicable quarter and year-to-date period.
• Annual audited financial statements: To be delivered within 120 days following the end of each fiscal year, consisting of audited financial statements prepared in accordance with generally accepted accounting principles and accompanied by the report of GenomeDx's independent auditors (currently Baxter & Calloway, CPAs).
• Monthly cash burn reports: To be delivered within 30 days following the end of each calendar month, setting forth the company's monthly cash expenditures, remaining cash balance, and projected cash runway based on the then-current operating budget.
The information rights provisions are standard for convertible note financings of this type and are consistent with the information rights held by the Purchasers in their capacity as holders of GenomeDx preferred stock under the existing Investors' Rights Agreement.
B. Negative Covenants (Requiring Majority Holder Consent)
The following actions by GenomeDx require the prior written consent of the Majority Holders (as defined in Section VII.D below):
• Incurrence of additional indebtedness in excess of $2,000,000 in the aggregate, excluding trade payables and other current liabilities incurred in the ordinary course of business consistent with past practice. The negotiation history of this threshold is discussed in Section X.B below.
• Creation or imposition of any lien, pledge, security interest, or other encumbrance on any material assets of GenomeDx, other than statutory liens arising in the ordinary course and purchase money security interests in connection with equipment financing not exceeding $2,000,000 in the aggregate.
• Declaration or payment of any dividends, distributions, or other payments to holders of equity securities of GenomeDx (other than repurchases of common stock from departing employees pursuant to existing contractual repurchase rights at a price not exceeding the original exercise or purchase price).
• Consummation of any Change of Control transaction.
• Issuance of any equity securities or equity-linked securities (including convertible notes, warrants, and stock appreciation rights) other than grants of stock options, restricted stock units, or other equity awards pursuant to the existing 2018 Equity Incentive Plan, up to the existing share reserve under such plan.
C. Most Favored Nation (MFN) Provision
The NPA includes a most favored nation provision pursuant to which, if GenomeDx issues any convertible promissory notes or other convertible debt securities on terms more favorable to the holders thereof than the terms of the Notes within the 12-month period following the closing of this transaction (i.e., through April 22, 2025), each holder of Notes issued in this placement may elect, by written notice delivered to GenomeDx within 30 days of receiving notice of such subsequent issuance, to adopt such more favorable terms in substitution for the corresponding terms of its Note. The MFN provision applies to all material economic terms, including (without limitation) interest rate, conversion discount, valuation cap, and maturity date. The negotiation of the MFN period is discussed in Section X.C below.
D. Majority Holder Definition and Threshold Analysis
"Majority Holders" is defined in the NPA as the holders of Notes representing more than 50% of the aggregate outstanding principal amount of all Notes then outstanding. This definition is used throughout the NPA for purposes of determining the requisite consent threshold for amendments, waivers, and approvals under the negative covenants and other protective provisions.
Threshold Calculation:
Aggregate principal amount: $40,000,000
50% threshold: $40,000,000 × 50% = $20,000,000
Required to constitute Majority Holders: more than $20,000,000, i.e., at least $20,000,001 in outstanding principal.
Key Observation Regarding Pinnacle's Unilateral Majority Holder Status: Pinnacle BioVentures Fund III, L.P. holds a Note in the principal amount of $22,000,000, which alone exceeds the $20,000,001 threshold necessary to constitute the Majority Holders. Accordingly, Pinnacle has the ability to act unilaterally as the Majority Holder for purposes of all consent, waiver, and approval provisions requiring Majority Holder action under the NPA. This includes consent to additional indebtedness, liens, distributions, Change of Control transactions, and equity issuances, as well as amendments to and waivers of the terms of the NPA and the Notes.
This dynamic was a known feature of the transaction among all parties during the negotiation process. WGC, as investors' counsel representing all three Purchasers, did not object to this structure. The absence of objection is attributable to several factors, including (i) Pinnacle's existing board seat on the GenomeDx Board of Directors, (ii) Pinnacle's established status as the lead investor and largest equity holder of GenomeDx, (iii) the general alignment of interests among the three Purchasers as existing investors in the company, and (iv) the fact that Cormorant and Alder Creek could achieve a collective blocking position on any matter requiring unanimous holder consent (although no such provisions exist in the NPA as executed). This structural feature should be noted for purposes of any future transactions involving amendments to or waivers under the NPA, as Pinnacle's unilateral consent authority could become relevant in scenarios where the interests of the Purchasers diverge.
VIII. Transaction Timeline and Key Dates
The following table sets forth the material dates and events in the transaction timeline from engagement through post-closing:
The total elapsed time from engagement to closing was approximately 56 days (February 26 to April 22, 2024). The total elapsed time from term sheet execution to closing was approximately 42 days (March 11 to April 22, 2024). The negotiation and drafting process proceeded in an orderly and collaborative manner, with the principal areas of negotiation described in Section X below.
IX. Closing Delay and Resolution
The closing of the transaction was delayed by ten calendar days from the original target closing date of April 12, 2024, to the actual closing date of April 22, 2024. The delay was attributable to two discrete issues, each of which required resolution prior to the satisfaction of the closing conditions set forth in the NPA. Neither issue was a substantive legal or commercial concern, and the delay did not result in any modification to the economic terms of the transaction.
Issue 1: Updated Officers' Certificate
The NPA required, as a condition to closing, delivery of an officers' certificate executed by the Chief Executive Officer and the Chief Financial Officer of GenomeDx certifying, among other things, the accuracy and completeness of the representations and warranties set forth in the NPA and the disclosure schedules as of the closing date. The disclosure schedules, which include schedules relating to intellectual property, material contracts, litigation, capitalization, and other customary subject matters, were subject to ongoing revision and refinement during the period between the signing of the NPA on April 9, 2024, and the original target closing date of April 12, 2024.
Final revisions to the disclosure schedules were not completed until after April 12, 2024. Specifically, updates were required to the intellectual property schedule (to reflect a patent application filed on April 10, 2024) and to the material contracts schedule (to reflect an amendment to a clinical research organization agreement executed on April 11, 2024). As a result, the officers' certificate originally prepared for the April 12 closing could not be delivered in its intended form, and an updated certificate reflecting the final disclosure schedule content was required. The updated officers' certificate was executed by Dr. Marcus Avellino and Diane Kowalski on April 22, 2024, and delivered at closing on that date.
Issue 2: Delaware Good Standing Certificate Refresh
The NPA required, as a condition to closing, delivery of a Certificate of Good Standing for GenomeDx issued by the Secretary of State of the State of Delaware that was dated within ten business days of the closing date. The original Certificate of Good Standing had been obtained on March 28, 2024, and was therefore dated more than ten business days prior to the rescheduled closing date of April 22, 2024 (the original certificate would have satisfied the freshness requirement had closing occurred on April 12 as originally planned).
GenomeDx requested a refreshed Certificate of Good Standing from the Delaware Secretary of State. The refreshed certificate was received on April 19, 2024, and was dated as of that date, satisfying the ten-business-day freshness requirement for the April 22 closing.
Both conditions were fully satisfied prior to April 22, 2024, and closing proceeded on that date without further issue. The Purchasers and WGC were advised of the reasons for the delay and did not raise any objections. No amendment to the NPA or any other transaction document was required in connection with the closing delay.
X. Key Negotiation Issues
This section summarizes the principal issues that were the subject of negotiation between C&H (on behalf of GenomeDx) and WGC (on behalf of the Purchasers) during the drafting and negotiation of the NPA and the form of Note. The economic terms that were substantially agreed upon at the term sheet stage (i.e., the valuation cap, conversion discount, and interest rate) are noted for completeness but were not the subject of material renegotiation during the definitive document process.
A. Scope of Negative Covenants
The scope of the negative covenants was a significant area of negotiation. WGC's initial markup of the NPA proposed a broader set of negative covenants than what was ultimately included in the final agreement. In particular, WGC proposed the following additional restrictions, each of which would have required the prior written consent of the Majority Holders:
• Capital expenditures in excess of $1,000,000 in any fiscal quarter.
• Hiring or replacement of any C-level executive officer without Majority Holder consent.
C&H, on behalf of GenomeDx, pushed back on both proposed restrictions. With respect to the capital expenditure covenant, C&H argued that a $1,000,000 quarterly cap would be impractical and potentially disruptive for a clinical-stage biopharmaceutical company actively conducting a large-scale Phase 2b clinical trial, where expenditures for clinical supplies, laboratory equipment, and site preparation costs can routinely exceed that threshold. With respect to the C-level hiring restriction, C&H argued that such a covenant was atypical in convertible note transactions, would infringe on the board's governance prerogatives, and could impede GenomeDx's ability to attract and retain executive talent in a competitive market.
After several rounds of negotiation, WGC agreed to withdraw both proposed covenants. The final NPA includes negative covenants limited to the five categories described in Section VII.B above: additional indebtedness, liens, distributions, Change of Control transactions, and equity issuances (outside the existing plan). These covenants are consistent with market norms for comparable convertible note placements in the pre-revenue biotech sector.
B. Additional Indebtedness Threshold
The threshold for additional indebtedness requiring Majority Holder consent was the subject of extended negotiation. In its initial term sheet, Pinnacle proposed a threshold of $1,000,000. GenomeDx, through C&H, requested a threshold of $5,000,000, citing the company's need for flexibility to enter into equipment financing arrangements, potential bridge credit facilities, and other short-term borrowing arrangements that are common in the clinical-stage biotech industry.
After multiple discussions between Sarah Lindholm (Pinnacle), Angela Ferraro (Cormorant), and Priya Raghunathan (GenomeDx), with input from counsel on both sides, the parties agreed to a threshold of $2,000,000. The $2,000,000 threshold excludes trade payables and other current liabilities incurred in the ordinary course of business consistent with past practice. This compromise was viewed by both sides as striking an appropriate balance between providing GenomeDx with operational flexibility and protecting the noteholders' interests in limiting excessive leverage during the note term.
C. MFN Period
The Purchasers initially requested an 18-month most favored nation period, running through October 22, 2025 (18 months from the original target closing date). C&H advocated for a shorter MFN period of 12 months post-closing, arguing that an 18-month period was above market for comparable pre-revenue biotech convertible note placements and would unnecessarily constrain GenomeDx's ability to raise additional capital on competitive terms. C&H cited comparable transactions in which MFN periods of 6 to 12 months were typical. WGC ultimately agreed to a 12-month post-closing MFN period, running through April 22, 2025. The reduction from 18 to 12 months was consistent with the market data presented by C&H and was not a significant point of contention after initial discussions.
D. Valuation Cap and Conversion discount
The pre-money valuation cap of $200,000,000 and the 20% conversion discount were substantially agreed upon in the term sheet executed on March 11, 2024, and were not the subject of material renegotiation during the definitive document drafting process. Both terms were consistent with the valuation parameters discussed by GenomeDx and the Purchasers during the preliminary term sheet negotiations, and both terms were viewed by the engagement team as within market range for a clinical-stage biotech company at GenomeDx's stage of development, taking into account the company's most recent 409A valuation of $4.15 per share and the prior Series C financing.
E. Change of Control Premium
The Change of Control repayment premium was a negotiated term that evolved from the investors' initial proposal to the final agreed-upon level. WGC, on behalf of the Purchasers, initially proposed a repayment premium of 2.0× the outstanding principal plus accrued interest upon a Change of Control event. C&H countered with a proposed premium of 1.25× on the basis that a 2.0× premium was excessive and could create a significant impediment to a Change of Control transaction that might otherwise be in the best interests of all GenomeDx stockholders, including the noteholders themselves (who also hold equity in the company through their existing preferred stock positions).
After negotiation, the parties settled on a Change of Control repayment premium of 1.5× the outstanding principal plus accrued and unpaid interest. This compromise was viewed by both sides as consistent with market norms and as appropriately compensating the noteholders for the involuntary nature of a Change of Control repayment while not creating an undue deterrent to otherwise attractive acquisition opportunities.
XI. Closing Deliverables Summary
The following is a comprehensive list of all closing deliverables executed and/or delivered at or prior to the closing on April 22, 2024:
1. Note Purchase Agreement — Executed by GenomeDx and each of the three Purchasers, dated April 9, 2024. Original executed copies delivered to each party and to C&H for the deal file.
2. Convertible Promissory Notes — Three individually executed Notes in the following principal amounts:
(a) $22,000,000 Note payable to Pinnacle BioVentures Fund III, L.P.
(b) $12,000,000 Note payable to Cormorant Health Capital Partners, L.P.
(c) $6,000,000 Note payable to Alder Creek Life Sciences Fund II, L.P.
3. Disclosure Schedules — Final version (reflecting all updates through April 22, 2024), attached to and incorporated by reference into the NPA.
4. Board Written Consent — Unanimous written consent of the Board of Directors of GenomeDx dated April 5, 2024, approving the transaction and authorizing the execution and delivery of the NPA, the Notes, and all ancillary transaction documents (with Jonathan Merriweather recused).
5. Officers' Certificate — Dated April 22, 2024, executed by Dr. Marcus Avellino (CEO) and Diane Kowalski (CFO), certifying (among other things) the accuracy and completeness of representations and warranties, the satisfaction of closing conditions, and the absence of any material adverse change since the date of the most recent audited financial statements.
6. Secretary's Certificate — Dated April 22, 2024, executed by Priya Raghunathan (General Counsel and Corporate Secretary), attaching certified copies of (a) the Restated Certificate of Incorporation of GenomeDx, (b) the Bylaws of GenomeDx, and (c) the Board Written Consent dated April 5, 2024, and certifying the incumbency and authority of the officers executing the transaction documents.
7. Legal Opinion of Calderwood & Harkness LLP — Dated April 22, 2024, addressed to GenomeDx and the Purchasers, covering the following matters: (a) due organization and good standing of GenomeDx in Delaware, (b) corporate authorization of the transaction, (c) enforceability of the NPA and the Notes, (d) no conflicts with the certificate of incorporation, bylaws, or applicable law, (e) availability of the exemption from registration under Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D, and (f) no governmental approvals required other than those already obtained.
8. Delaware Certificate of Good Standing — Refreshed certificate dated April 19, 2024, issued by the Secretary of State of the State of Delaware.
9. California Certificate of Good Standing — Certificate of status issued by the California Secretary of State, confirming GenomeDx's qualification and good standing as a foreign corporation in California.
10. Funds Flow Memorandum — Prepared by C&H and distributed to all parties, reflecting the wire transfer instructions and funds flow for the aggregate purchase price of $40,000,000, with all funds directed to the escrow account at Meridian Pacific Bank, N.A., Trust Account No. 7841-0093-22, for subsequent release to GenomeDx's operating account.
11. Wire Transfer Confirmations — Wire transfer confirmations from each of the three Purchasers evidencing the transfer of funds to the escrow account in the amounts of $22,000,000 (Pinnacle), $12,000,000 (Cormorant), and $6,000,000 (Alder Creek).
12. Accredited Investor Questionnaires — Completed and executed accredited investor questionnaires from each of the three Purchasers, confirming their status as accredited investors within the meaning of Rule 501(a) of Regulation D.
All closing deliverables were reviewed and approved by the engagement team prior to closing. Original executed copies of all documents were collected and assembled into the closing binder, which was provided to GenomeDx's General Counsel and retained in copy by C&H as described in Section XVII below.
XII. Escrow and Funds Flow
Escrow Agent/Paying Agent: Meridian Pacific Bank, N.A., a national banking association headquartered in San Francisco, California.