CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
LEGAL DUE DILIGENCE MEMORANDUM
TO: Sandra Tung, Partner, Mergers & Acquisitions, Calderwood & Harkness LLP
FROM: Ryan Kowalski, Associate, and Megan Chu, Associate, Mergers & Acquisitions, Calderwood & Harkness LLP
DATE: March 15, 2023
RE: Legal Due Diligence Summary — Helix Bio Therapeutics Inc. (the "Company" or "HBT") in connection with the proposed de-SPAC Business Combination with Pinnacle Venture Acquisition Corp. ("PVAC")
This memorandum is confidential and protected by the attorney-client privilege and attorney work product doctrine. It has been prepared solely for the internal use of Calderwood & Harkness LLP and its client, Helix Bio Therapeutics Inc. This memorandum should not be disclosed, distributed, or otherwise made available to any third party without the prior written authorization of the undersigned or the supervising partner.
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I. EXECUTIVE SUMMARY
This memorandum summarizes the legal due diligence findings of Calderwood & Harkness LLP (the "Firm") with respect to Helix Bio Therapeutics Inc., a Delaware corporation ("HBT" or the "Company"), in connection with the proposed business combination (the "Business Combination") between the Company and Pinnacle Venture Acquisition Corp., a Delaware corporation ("PVAC"). The Business Combination is to be structured as a forward merger of Pinnacle Merger Sub Inc., a wholly owned subsidiary of PVAC ("Merger Sub"), with and into HBT, with HBT surviving the merger as a wholly owned subsidiary of PVAC (the "Surviving Company"), to be effected pursuant to a Business Combination Agreement (the "BCA") to be entered into by and among PVAC, Merger Sub, and HBT. The implied enterprise value of HBT in connection with the proposed transaction is approximately $40,000,000.
The Firm's due diligence review was conducted over a period of approximately six weeks, from early February 2023 through mid-March 2023. During this period, the Firm reviewed documents and information made available by HBT through a virtual data room hosted by Thackeray Solutions, as well as publicly available records and information. The categories of materials reviewed include, without limitation: corporate formation and organizational documents; minute books and records of board and stockholder actions; capitalization records including the stock ledger, equity incentive plan documents, and securities issuance files; all material contracts (including license agreements, collaboration agreements, lease agreements, employment agreements, consulting agreements, vendor contracts, and clinical trial agreements); intellectual property filings and prosecution files; employment and benefits records; lease agreements; regulatory filings and correspondence with the U.S. Food and Drug Administration; litigation records and correspondence; insurance policies; tax filings and returns; and audited and unaudited financial statements. A complete index of documents reviewed is set forth in Exhibit A hereto.
Overall Assessment. Based on our review, HBT is a properly organized corporation in good standing under the laws of the State of Delaware and qualified to do business in the Commonwealth of Massachusetts, where its sole office is located. The Company's corporate records are well-maintained, and its capitalization is documented and orderly. We have not identified any material legal impediments to the closing of the Business Combination, subject to the Company's obtaining certain required third-party consents and delivering required notices under specified material contracts, as described in detail below.
Key Areas Requiring Attention. Three items have been identified that require affirmative action prior to or in connection with the closing of the Business Combination:
(i) Graystone University License Consent. The Exclusive License Agreement between HBT and the Regents of Graystone University (License No. GU-2019-0914-HBT) contains a consent-to-assignment clause that requires the prior written consent of the Regents before any assignment of the license, including any assignment by operation of law resulting from a change of control of HBT. This consent has not yet been obtained and is critical, as the license underlies HBT's lead product candidate, HBT-301. We recommend that obtaining this consent be established as a condition precedent to closing under the BCA.
(ii) Meridian Pharmaceuticals Notice. The Collaboration and Option Agreement between HBT and Meridian Pharmaceuticals Inc. (Reference No. MPI-COA-2021-0308) requires written notice to Meridian following the occurrence of a change of control of HBT. While no consent is required, the contractual notice obligation must be fulfilled in a timely manner. Notice should be prepared and delivered promptly following the signing of the BCA.
(iii) Kendall Square Lease Landlord Consent. The Lease Agreement between Kendall Square Properties Trust and HBT (Lease No. KSP-2020-0800) requires the landlord's prior written consent to any assignment or subletting, including an assignment deemed to occur upon a change of control of the tenant. This consent has not yet been obtained. Loss of the premises would be disruptive to the Company's operations, and we recommend that the consent request be submitted promptly and that the landlord's written consent be obtained prior to closing.
No pending or threatened litigation, governmental investigations, or enforcement actions involving HBT have been identified. The Company's intellectual property portfolio appears to be well-maintained, and no third-party infringement claims or blocking patents have been identified as of the date of this review. HBT's regulatory profile with the FDA is consistent with expectations for a clinical-stage biotechnology company; its lead candidate HBT-301 is currently in Phase 1b clinical trials, and no clinical holds, warning letters, or material adverse safety findings have been reported.
The sections that follow present our detailed findings organized by subject matter area.
II. CORPORATE ORGANIZATION AND GOOD STANDING
A. Formation and Jurisdiction
Helix Bio Therapeutics Inc. was incorporated in the State of Delaware on June 12, 2018, pursuant to the filing of a Certificate of Incorporation with the Secretary of State of the State of Delaware. The Company is a corporation governed by the Delaware General Corporation Law ("DGCL"). We have reviewed the original Certificate of Incorporation, as filed, together with all amendments thereto through the date of this memorandum. The Company's federal Employer Identification Number (EIN) is 83-2947156.
The Company was founded by Dr. Priya Nandakumar and Dr. James Whitfield, who serve as the Company's Chief Executive Officer and Chief Scientific Officer, respectively. The formation of the Company was effected in connection with the founders' development of a gene-editing therapeutic platform initially conceived in connection with research conducted at Graystone University, which subsequently became the subject of the Exclusive License Agreement discussed in Section IV.A below.
B. Good Standing
We obtained a Certificate of Good Standing from the Secretary of State of the State of Delaware, dated February 27, 2023, confirming that HBT is in good standing in its state of incorporation. The Company has timely paid all franchise taxes owed to the State of Delaware and has maintained its corporate status without lapse or interruption since its date of incorporation.
HBT is qualified to do business as a foreign corporation in the Commonwealth of Massachusetts, where its sole office and headquarters are located. We have confirmed the Company's active registration status with the Massachusetts Secretary of the Commonwealth. Based on our review of the Company's operations, which are limited to a single office and laboratory facility in Cambridge, Massachusetts, and the Company's clinical trial activities (which are conducted through third-party clinical research organizations and hospital-based sites), we have not identified any other jurisdiction in which the Company is required to qualify to do business as a foreign corporation. This conclusion is consistent with the Company's status as a clinical-stage biotechnology company with a single physical location and no direct sales, marketing, or manufacturing operations.
C. Registered Agent
The Company's registered agent in the State of Delaware is CT Statutory Services, located at 1209 Orange Street, Wilmington, Delaware 19801. The registered agent appointment is current and in good standing. We have confirmed with CT Statutory Services that the Company's account is active and that there are no pending service of process matters or delinquencies associated with the Company's account.
D. Principal Office
The Company's principal executive office and sole operating location is at 450 Kendall Street, Suite 800, Cambridge, Massachusetts 02142. This location serves as the Company's headquarters and houses both its corporate offices and its research laboratory facilities. The premises are leased pursuant to the Lease Agreement with Kendall Square Properties Trust discussed in Section IV.C below.
E. Organizational Documents
We have reviewed the Company's Certificate of Incorporation, including all certificates of amendment and certificates of designation (including the certificates of designation relating to the Company's preferred stock issued in connection with its venture capital financing rounds). The Certificate of Incorporation, as amended and restated, sets forth the Company's authorized capital stock, the rights, preferences, and privileges of each class and series of stock, and the governance provisions applicable to the Company. We have also reviewed the Company's Bylaws, which contain standard provisions for a private Delaware corporation, including provisions relating to the calling and conduct of stockholder and board meetings, the appointment of officers, indemnification of directors and officers, and other customary governance matters.
We have not identified any stockholders' agreement, voting agreement, or other arrangement that would impede or prevent the consummation of the proposed Business Combination, subject to our discussion of the Investors' Rights Agreement, the Right of First Refusal and Co-Sale Agreement, and the Voting Agreement in Section III.E below (all of which terminate by their terms upon the closing of the Business Combination).
F. Subsidiaries. HBT has no subsidiaries, whether domestic or foreign. All of the Company's operations are conducted directly by HBT. The Company has not formed any joint ventures, partnerships, or other entities, and does not hold any equity interests in any other person or entity.
G. Board of Directors
The Board of Directors of HBT currently consists of five (5) members, as follows:
1. Dr. Priya Nandakumar — Chair of the Board and Chief Executive Officer (Founder). Dr. Nandakumar has served as a director since the Company's incorporation in June 2018.
2. Dr. James Whitfield — Chief Scientific Officer and Director (Co-Founder). Dr. Whitfield has served as a director since the Company's incorporation in June 2018.
3. Catherine Alcott — Director. Ms. Alcott was designated to the Board by Ridgeline Ventures Fund III, LP, pursuant to the board designation rights set forth in the Voting Agreement among the Company, Ridgeline, Northbridge Life Sciences Partners, LP, and the founders. Ms. Alcott is a Managing Director of Ridgeline Ventures.
4. Marcus Leung — Director. Mr. Leung was designated to the Board by Northbridge Life Sciences Partners, LP, pursuant to the board designation rights set forth in the Voting Agreement. Mr. Leung is a Partner at Northbridge Life Sciences Partners.
5. Dr. Elena Vasquez — Independent Director. Dr. Vasquez was appointed by the Board as an independent director and is not affiliated with any of the Company's stockholders. Dr. Vasquez brings expertise in clinical-stage biotechnology operations and regulatory affairs.
The composition of the Board is consistent with the Company's Certificate of Incorporation and the board designation rights set forth in the Voting Agreement. We have reviewed the minutes of all meetings of the Board of Directors for calendar years 2020, 2021, 2022, and 2023 (year-to-date), as well as all written consents of the Board executed in lieu of meetings during such periods. No irregularities, conflicts of interest, or other matters of concern were noted in our review of the minutes and consents. All actions taken by the Board during the reviewed period appear to have been duly authorized by the requisite vote or consent, and quorum requirements appear to have been satisfied for all meetings.
H. Officers. The Company's officers, as reflected in the Board minutes and officer appointment records, are as follows:
• Dr. Priya Nandakumar — Chair of the Board and Chief Executive Officer
• Dr. James Whitfield — Chief Scientific Officer
Additional officers have been appointed from time to time by the Board, as reflected in the minutes of Board meetings. We have reviewed the officer appointment records and confirmed that all currently serving officers were duly appointed by the Board of Directors in accordance with the Company's Bylaws.
III. CAPITALIZATION
A. Authorized Capital Stock
We have reviewed the Company's Certificate of Incorporation, as amended and restated, to confirm the authorized capital stock of the Company. The certificate authorizes the issuance of shares of common stock and preferred stock, with the preferred stock divided into one or more series with rights, preferences, and privileges as set forth in the applicable certificates of designation. The specific authorized share amounts and par values for each class and series are detailed in the capitalization table attached as Exhibit B hereto.
The preferred stock was issued in connection with the Company's venture capital financing rounds, which included a Series A round led by Ridgeline Ventures Fund III, LP, and a subsequent Series B round that included participation by Northbridge Life Sciences Partners, LP, and existing investors. Each series of preferred stock carries the customary rights, preferences, and privileges associated with venture-backed preferred stock financings, including liquidation preferences, dividend preferences, conversion rights, and anti-dilution protections, the details of which are set forth in the applicable certificates of designation and summarized further below.
B. Outstanding Equity — Key Holders (Pre-Closing)
Based on our review of the Company's capitalization table, stock ledger, equity award records, and related documentation, the beneficial ownership of the Company's outstanding equity (on an as-converted, fully diluted basis) is summarized in the following table:
The foregoing percentages are presented on a fully diluted basis and include all outstanding shares of common stock, shares of preferred stock (on an as-converted-to-common-stock basis), and shares subject to outstanding vested and unvested options and restricted stock awards under the Company's equity incentive plan. A detailed capitalization table, broken down by class, series, and holder, is attached as Exhibit B.
C. Stock Issuance History
We have reviewed the Company's stock ledger and all stock purchase agreements, subscription agreements, and equity incentive plan grant documentation relating to the issuance of the Company's equity securities. Based on our review, all outstanding shares of common stock and preferred stock appear to have been validly issued, are fully paid and nonassessable, and were issued in compliance with the Company's Certificate of Incorporation and applicable corporate authorization requirements.
With respect to securities law compliance, we have reviewed the Company's records relating to the exemptions from registration relied upon in connection with each issuance of securities. The Company's preferred stock financing rounds were conducted in reliance upon the exemptions from registration provided by Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended (the "Securities Act"), and Section 4(a)(2) of the Securities Act. Grants of equity awards under the Company's equity incentive plan were made in reliance upon Rule 701 under the Securities Act and applicable state securities law exemptions. Based on our review, the Company appears to have complied in all material respects with the conditions of such exemptions, including the filing of required Form D notices with the Securities and Exchange Commission and applicable state securities regulators.
We did not identify any shares of the Company's stock that were issued without adequate consideration, without proper corporate authorization, or in violation of applicable preemptive or other rights.
D. Equity Incentive Plans
HBT maintains an equity incentive plan (the "Plan") pursuant to which the Company has granted stock options and restricted stock awards to employees, officers, directors, and consultants of the Company. We have reviewed the Plan document, the forms of stock option agreement and restricted stock agreement used under the Plan, and a schedule of all outstanding grants as of the most recent available date.
The Plan was duly adopted by the Board of Directors and approved by the Company's stockholders. The maximum number of shares authorized for issuance under the Plan, the share reserve, and the remaining available pool for future grants are set forth in the capitalization table attached as Exhibit B.
We have reviewed the vesting schedules applicable to outstanding awards. The standard vesting schedule for employee option grants provides for vesting over a four-year period, with a one-year cliff and monthly or quarterly vesting thereafter. Certain grants to senior executives contain acceleration provisions, including both single-trigger acceleration (accelerating upon a change of control) and double-trigger acceleration (accelerating upon both a change of control and a qualifying termination of employment within a specified period following the change of control). The treatment of outstanding options and restricted stock awards in connection with the Business Combination will be governed by the applicable provisions of the BCA, and the specific conversion mechanics should be addressed in the definitive transaction documents.
E. Investor Rights
We have reviewed the following agreements among the Company, its institutional investors, and the founders:
(i) Investors' Rights Agreement, dated as of the applicable closing date of the Company's Series A and Series B preferred stock financing rounds, among HBT, Ridgeline Ventures Fund III, LP, Northbridge Life Sciences Partners, LP, and the founders;
(ii) Right of First Refusal and Co-Sale Agreement, dated as of the applicable closing date, among the same parties; and
(iii) Voting Agreement, dated as of the applicable closing date, among the same parties.
These agreements contain customary provisions for venture-backed private companies, including:
• Registration Rights: The Investors' Rights Agreement provides the institutional investors with demand registration rights and piggyback registration rights with respect to shares of common stock issuable upon conversion of their preferred stock. These rights may be relevant in the post-closing public company context, and the treatment of such rights should be addressed in the BCA or ancillary transaction documents.
• Information Rights: Customary information rights entitling major investors to receive financial statements and other information regarding the Company.
• Board Designation Rights: The Voting Agreement provides that Ridgeline Ventures Fund III, LP has the right to designate one member of the Board of Directors (currently Catherine Alcott), and Northbridge Life Sciences Partners, LP has the right to designate one member of the Board of Directors (currently Marcus Leung). The founders also have the right to designate members to the Board, and the parties have agreed to vote their shares to elect the designated directors.
• Drag-Along Rights: The Voting Agreement includes drag-along provisions pursuant to which minority stockholders may be required to participate in a sale of the Company approved by the requisite percentage of stockholders.
• Right of First Refusal: The Right of First Refusal and Co-Sale Agreement provides the Company and the institutional investors with a right of first refusal with respect to transfers of shares by the founders and other key holders, as well as co-sale (tag-along) rights.
Critically, each of the foregoing agreements provides that it will terminate automatically upon the consummation of a transaction constituting a "Deemed Liquidation Event" (or equivalent defined term, as applicable), which includes a merger, consolidation, or similar transaction in which the stockholders of the Company do not retain a majority of the voting power of the surviving or acquiring entity. The proposed Business Combination will constitute such an event. Accordingly, all of the foregoing agreements will terminate by their terms upon the closing of the Business Combination. We have confirmed that no provisions of these agreements would impede or prevent the consummation of the proposed transaction.
F. Warrants, Options, and Convertible Securities
In addition to the stock options and restricted stock awards outstanding under the Plan (discussed in Section III.D above), we have reviewed all other outstanding warrants, options, convertible notes, and other convertible or exchangeable securities issued by the Company. All such instruments have been accounted for in the capitalization table and will be addressed in the merger consideration allocation and the conversion mechanics set forth in the BCA. We have not identified any outstanding convertible securities that are not reflected in the Company's records or that present any unusual or unexpected features that would complicate the proposed transaction.
G. Anti-Dilution and Preemptive Rights
The certificates of designation relating to the Company's preferred stock contain customary weighted-average anti-dilution protections in favor of the holders of preferred stock, which are triggered in the event of certain dilutive issuances of equity securities below the applicable conversion price. We have reviewed these provisions and confirmed that no anti-dilution adjustment has been triggered since the most recent preferred stock financing round.
The Investors' Rights Agreement also contains preemptive rights (rights of first offer or participation rights) entitling major investors to participate pro rata in future issuances of equity securities by the Company, subject to customary exceptions. These preemptive rights, like the other provisions of the Investors' Rights Agreement, will terminate by their terms upon the closing of the Business Combination, and they do not survive the closing.
IV. MATERIAL CONTRACTS
We have reviewed all material contracts to which HBT is a party or by which it is bound, with particular attention to change-of-control provisions, consent-to-assignment requirements, termination rights, and other provisions that may be relevant to the proposed Business Combination. A summary of all material contracts reviewed is set forth in Exhibit C hereto. The following contracts warrant specific discussion.
A. Exclusive License Agreement — Regents of Graystone University
Parties: Helix Bio Therapeutics Inc. and the Regents of Graystone University
Date: September 14, 2019
Reference No.: License No. GU-2019-0914-HBT
Subject Matter. Pursuant to this agreement, the Regents of Graystone University granted to HBT an exclusive, worldwide license to certain patents and know-how owned by Graystone University related to a gene-editing platform technology (the "Licensed Technology"). The Licensed Technology underlies HBT's lead clinical candidate, HBT-301, which is being developed for the treatment of Friedreich's ataxia, a rare, progressive neurodegenerative disease. This license agreement is the foundational intellectual property agreement for the Company's lead program and is of critical importance to HBT's business and value.
Key Terms. The material terms of the Exclusive License Agreement include the following:
• Scope of License: The license is exclusive and worldwide, granting HBT the right to make, use, sell, offer to sell, import, and otherwise exploit products covered by the licensed patents and incorporating the licensed know-how.
• Field-of-Use Restrictions: The license is limited to the field of rare monogenic diseases. HBT does not have rights under this agreement to practice the Licensed Technology outside this defined field.
• Financial Terms: HBT is obligated to pay to the Regents royalties on net sales of licensed products at rates specified in the agreement. In addition, HBT is obligated to make milestone payments to the Regents upon the achievement of specified clinical and regulatory milestones, including IND acceptance, initiation of Phase 1 clinical trials, initiation of Phase 2 clinical trials, initiation of Phase 3 clinical trials, filing of a Biologics License Application (BLA) or equivalent, and FDA approval.
• Diligence Obligations: HBT is required to use commercially reasonable efforts to develop and commercialize at least one licensed product, and the agreement contains specified development milestones and timelines that HBT must meet to maintain the license in good standing.
• Term: The license term is co-extensive with the life of the licensed patents, unless the agreement is earlier terminated in accordance with its terms. Upon expiration of the last-to-expire licensed patent, HBT's license to the know-how becomes perpetual, non-exclusive, and fully paid-up.
Change-of-Control Provision. The Exclusive License Agreement contains a consent-to-assignment clause that is directly relevant to the proposed Business Combination. Specifically, the agreement provides that HBT may not assign or transfer the agreement, or any of its rights or obligations hereunder, whether by operation of law or otherwise, without the prior written consent of the Regents of Graystone University. The agreement further provides that any change of control of HBT (whether by merger, consolidation, sale of all or substantially all assets, or otherwise) shall be deemed an assignment for purposes of this restriction.
Status. As of the date of this memorandum, the consent of the Regents of Graystone University to the proposed Business Combination has not yet been obtained.
Recommendation. Obtaining the consent of the Regents of Graystone University is the single most critical third-party consent required in connection with the proposed Business Combination. The Exclusive License Agreement underlies HBT's lead product candidate, HBT-301, and the Company's entire Friedreich's ataxia clinical program. Without this license, HBT would not have the right to develop, manufacture, or commercialize HBT-301, which represents the core of the Company's near-term clinical and commercial pipeline and a substantial portion of the Company's implied enterprise value. Failure to obtain the consent could permit the Regents to terminate the license, which would be a material adverse event for the Company.
We strongly recommend that Calderwood & Harkness work with HBT's management to initiate the consent process with the Regents of Graystone University's Office of Technology Licensing immediately. In our experience, university technology transfer offices may require several weeks to review and approve change-of-control consent requests, and the process may involve review by internal committees or legal counsel. We further recommend that the BCA include the receipt of the Regents' written consent as a condition precedent to the obligation of both HBT and PVAC to consummate the closing of the Business Combination. The target date for receipt of consent should be no later than the closing date.
Subsequent Update. For tracking purposes, we note that the Regents' consent was ultimately obtained on May 30, 2023. This item is to be tracked on the closing checklist and confirmed at closing.
B. Collaboration and Option Agreement — Meridian Pharmaceuticals Inc.
Parties: Helix Bio Therapeutics Inc. and Meridian Pharmaceuticals Inc.
Date: March 8, 2021
Reference No.: MPI-COA-2021-0308
Subject Matter. This agreement establishes a collaboration between HBT and Meridian Pharmaceuticals Inc. ("Meridian") for the preclinical development of HBT-502, a gene-editing therapy candidate being developed for the treatment of Wilson's disease, a rare genetic disorder characterized by copper accumulation in various organs. Under the agreement, Meridian holds an option to co-develop and co-commercialize HBT-502 upon the achievement of specified preclinical milestones.
Key Terms. The material terms of the Collaboration and Option Agreement include the following:
• Collaboration Funding: Meridian provides partial funding for preclinical studies of HBT-502 pursuant to a research plan and budget agreed upon by the parties. This collaboration funding is the source of HBT's collaboration and licensing revenue of $2,100,000 reported for fiscal year 2022.
• Option to Co-Develop and Co-Commercialize: Meridian holds an option to co-develop and co-commercialize HBT-502, exercisable within a specified window following the achievement of designated preclinical milestones. If Meridian exercises its option, the parties will enter into a separate co-development and co-commercialization agreement on terms to be negotiated in good faith based on a term sheet appended to the Collaboration and Option Agreement.
• Revenue Sharing: Upon commercialization of HBT-502, the parties will share revenues in accordance with a revenue-sharing formula set forth in the agreement or, if Meridian exercises its option, in accordance with the co-development and co-commercialization agreement.
• Retention of Rights: If Meridian does not exercise its option within the specified exercise window, HBT retains full rights to HBT-502, subject to Meridian's right to receive a royalty on net sales as specified in the agreement.
Change-of-Control Provision. Unlike the Graystone University license, the Collaboration and Option Agreement does not require the consent or approval of Meridian Pharmaceuticals in connection with a change of control of HBT. However, the agreement does require that HBT deliver written notice to Meridian within a specified period (the agreement specifies thirty (30) days) following the occurrence of a change of control of HBT.
Status. As of the date of this memorandum, the required notice has not yet been delivered to Meridian, as the BCA has not yet been signed.
Recommendation. We recommend that HBT prepare the written notice of the change of control and deliver it to Meridian Pharmaceuticals promptly following the signing of the BCA. The form of notice should be reviewed by Calderwood & Harkness prior to delivery to ensure compliance with the specific notice requirements and delivery provisions set forth in the agreement. While the failure to deliver timely notice would not trigger a termination right in favor of Meridian, it would constitute a breach of the agreement and could give rise to claims for damages or other remedies.
Subsequent Update. For tracking purposes, we note that the notice to Meridian Pharmaceuticals was delivered on April 3, 2023. This item is to be tracked on the closing checklist.
C. Lease Agreement — Kendall Square Properties Trust
Parties: Kendall Square Properties Trust ("Landlord") and Helix Bio Therapeutics Inc. ("Tenant")
Reference No.: Lease No. KSP-2020-0800
Premises: 450 Kendall Street, Suite 800, Cambridge, Massachusetts 02142
Key Terms. The material terms of the Lease Agreement are as follows:
• Lease Commencement Date: January 1, 2020
• Lease Term: Ten (10) years, expiring on or about December 31, 2029
• Rentable square Footage: 18,400 RSF
• Base Rent: $62.00 per RSF per annum
• Annual Base Rent: $1,140,800 (calculated as 18,400 RSF × $62.00 per RSF)
• Additional Rent and Expenses: The lease contains standard commercial lease provisions for the Cambridge/Kendall Square laboratory and office market, including operating expense pass-throughs (including the tenant's proportionate share of increases in real estate taxes, insurance, and common area maintenance costs), maintenance and repair obligations, and insurance requirements.
• Use Restrictions: The premises may be used for general office, laboratory, and research and development purposes consistent with the permitted uses under the lease and applicable zoning regulations.
Change-of-Control / Assignment Provision. The Lease Agreement contains a standard provision requiring the Landlord's prior written consent to any assignment or subletting of the lease by the Tenant, including any transfer deemed to constitute an assignment by reason of a change of control of the Tenant entity. The lease defines "change of control" broadly to include any merger, consolidation, or similar transaction resulting in a change in the controlling ownership interest in the Tenant.
Status. As of the date of this memorandum, the Landlord's consent to the proposed Business Combination has not yet been obtained.
Recommendation. We recommend that HBT submit a consent request to Kendall Square Properties Trust promptly. In the Kendall commercial real estate market, landlords are generally familiar with change-of-control consent requests in the context of biotechnology company mergers and acquisitions, and we do not anticipate unusual difficulty in obtaining the consent, particularly given that the Business Combination will result in HBT becoming a subsidiary of a publicly traded company with access to the public capital markets. However, the landlord may condition its consent on certain requirements, such as the provision of updated financial information, a guarantee from PVAC, or a lease amendment. We recommend allowing adequate time for the landlord's review process and engaging with the landlord's counsel as needed to facilitate a timely resolution. The landlord's written consent should be obtained prior to the closing of the Business Combination.
Subsequent Update. For tracking purposes, we note that the landlord consent was ultimately obtained on June 5, 2023. This item is to be tracked on the closing checklist.
D. Other Contracts
In addition to the three material contracts discussed above, we have reviewed the following categories of contracts and agreements:
Employment Agreements. We have reviewed the employment agreements of the Company's two key executives: Dr. Priya Nandakumar (Chief Executive Officer) and Dr. James Whitfield (Chief Scientific Officer). Both agreements contain standard terms for senior executives of venture-backed life sciences companies, including provisions relating to base salary, annual bonus opportunity, equity compensation, benefits, and termination provisions (including severance payments and benefits upon termination without cause or resignation for good reason). Both agreements also contain change-of-control provisions, including enhanced severance benefits triggered upon a qualifying termination of employment in connection with or following a change of control (i.e., double-trigger severance). In addition, both agreements contain post-employment restrictive covenants, including non-competition and non-solicitation covenants of standard scope and duration. We have not identified any material issues with these agreements that would impede the proposed Business Combination. The change-of-control severance obligations should be quantified and accounted for in the transaction expense budget.
Consulting Agreements. We have reviewed consulting agreements with scientific advisors, clinical consultants, and other service providers. These agreements contain standard terms, including confidentiality obligations and invention assignment provisions. We have not identified any change-of-control consent requirements in any consulting agreement that would impede the proposed transaction.
Vendor Contracts. We have reviewed the Company's material vendor contracts, including agreements with contract research organizations (CROs), contract manufacturing organizations (CMOs), laboratory supply vendors, and information technology service providers. These agreements are generally terminable by HBT upon notice and do not contain change-of-control consent provisions that would be triggered by the Business Combination.
Clinical Trial Agreements. We have reviewed the Company's clinical trial agreements, including agreements with clinical trial sites, investigators, and institutional review boards (IRBs) relating to the Phase 1b clinical trial of HBT-301. These agreements are standard for the industry and do not contain change-of-control provisions that would be implicated by the proposed transaction.
Insurance Policies. We have reviewed the Company's insurance policies, including general liability, clinical trial liability, property, and directors and officers liability coverage. All policies are currently in force, and coverage limits appear adequate for a company of HBT's size and stage of development. No issues were identified in our review of the insurance portfolio. A summary of insurance coverage is attached as Exhibit F.
Government Contracts. We have not identified any government contracts to which HBT is a party.
Joint Venture and Partnership Agreements. HBT has not entered into any joint venture agreements, partnership agreements, or similar arrangements, other than the Collaboration and Option Agreement with Meridian Pharmaceuticals discussed in Section IV.B above.
V. INTELLECTUAL PROPERTY
A summary of HBT's patent portfolio is attached as Exhibit D. Our findings with respect to the Company's intellectual property are as follows.
A. Patents. HBT's patent portfolio consists of two principal components:
(i) Licensed Patents (Graystone University). The core intellectual property underlying HBT's lead clinical candidate, HBT-301, consists of a portfolio of issued patents and pending patent applications owned by the Regents of Graystone University and licensed exclusively to HBT pursuant to the Exclusive License Agreement (License No. GU-2019-0914-HBT) discussed in Section IV.A above. These patents and patent applications relate to the gene-editing platform technology that forms the scientific foundation of HBT's therapeutic approach. Graystone University retains legal title to these patents; HBT holds an exclusive license to practice the patented technology within the licensed field of use (rare monogenic diseases).
(ii) Proprietary Patents and Patent Applications (HBT-Owned). In addition to the licensed Graystone University patents, HBT has filed and maintains its own portfolio of patent applications and, in certain cases, issued patents. These proprietary filings cover delivery mechanisms, formulations, methods of treatment, and other inventions developed by HBT's scientists in the course of the Company's research and development activities. These proprietary patents and applications relate to both the HBT-301 program and the HBT-502 program and are wholly owned by HBT.
We have reviewed the patent schedules provided by HBT, including a listing of all licensed and proprietary patents and patent applications, together with the relevant prosecution files. Based on our review, all maintenance fees for issued patents are current, and no patents have lapsed due to failure to pay maintenance fees or otherwise. We have not identified any adverse patent office actions, rejections, or inter partes review proceedings relating to any patent or patent application in the Company's portfolio. Patent prosecution appears to be proceeding in the ordinary course under the direction of the Company's patent counsel.
B. Trademarks. HBT has applied for or registered trademarks related to its corporate name ("Helix Bio Therapeutics" and related marks) and its product candidate names. We have reviewed the relevant trademark filings and have not identified any opposition proceedings, cancellation proceedings, or infringement claims relating to any of the Company's trademarks. The Company's trademark portfolio is modest, which is consistent with its pre-commercial, clinical-stage status.
C. Trade Secrets and Know-How
HBT maintains trade secret protections with respect to its proprietary know-how, research data, formulations, processes, and other confidential and proprietary information. We have reviewed the Company's policies and procedures for the protection of trade secrets, including:
• Confidentiality Agreements: All employees, consultants, and collaborators of the Company are required to execute confidentiality and non-disclosure agreements as a condition of their engagement. We have reviewed the forms of such agreements and confirmed that they contain standard provisions protecting the Company's confidential information and trade secrets.
• Invention Assignment Agreements: All employees and scientific consultants of the Company are required to execute invention assignment agreements pursuant to which they assign to the Company all rights in inventions, discoveries, and intellectual property conceived or developed in the course of their employment or engagement with the Company. We have reviewed the forms of such agreements and confirmed that they contain standard and enforceable assignment provisions.
We have not identified any breaches of confidentiality obligations by current or former employees, consultants, or collaborators, and the Company has not reported any incidents involving the unauthorized disclosure or misappropriation of trade secrets.
D. IP Risks and Litigation
There is no pending intellectual property litigation against or by HBT as of the date of this memorandum. We have not identified any written threats of intellectual property infringement claims, cease and desist letters, or other demands relating to the Company's intellectual property or its use of third-party intellectual property.
We note that a freedom-to-operate analysis was previously conducted by the Company's patent counsel with respect to the Company's lead candidates, HBT-301 and HBT-502. Based on the results of that analysis, as reported to us by the Company, no blocking third-party patents were identified that would prevent or materially impede the development or commercialization of either HBT-301 or HBT-502 as of the date of the analysis. However, we note that the gene-editing therapeutic space is an active and rapidly evolving area of patent activity, and the Company's freedom-to-operate position should be monitored on an ongoing basis. We recommend that the Company continue to work with its patent counsel to monitor the patent landscape and update its freedom-to-operate analysis periodically, particularly as HBT-301 advances through clinical development and approaches commercialization.
VI. LITIGATION AND DISPUTES
A. Pending Litigation
We have reviewed the Company's litigation records and conducted searches of applicable federal and state court dockets and arbitration records. As of the date of this memorandum, there are no pending lawsuits, arbitrations, or administrative proceedings involving HBT, whether as plaintiff, defendant, or otherwise. The Company has not initiated any litigation against any third party, and no third party has filed suit against the Company.
B. Threatened Claims
We have reviewed the Company's correspondence files and conducted interviews with the Company's management regarding any threatened claims. As of the date of this memorandum, HBT has not received any written threats of litigation, demand letters, or other communications threatening legal action against the Company. Management has confirmed that they are not aware of any circumstances that are reasonably likely to give rise to threatened claims.
C. Governmental Investigations
There are no pending or threatened governmental investigations, enforcement actions, or regulatory proceedings involving HBT as of the date of this memorandum. The Company has not received any subpoenas, civil investigative demands, or requests for information from any governmental agency in connection with any investigation or enforcement matter.
D. Assessment. HBT presents a clean litigation profile. The Company has not established any litigation reserves on its financial statements, and no contingent liabilities related to litigation have been disclosed. This is consistent with our findings, and we have no reason to believe that any undisclosed litigation matters exist. The absence of litigation is not unusual for a clinical-stage biotechnology company of HBT's size and age, particularly one that has not yet commercialized any products and has a limited number of commercial relationships.
VII. REGULATORY MATTERS
A. FDA and Clinical Trial Regulatory Status
HBT is a clinical-stage biotechnology company, and its operations are subject to extensive regulation by the U.S. Food and Drug Administration ("FDA") and other regulatory authorities. The Company is not yet generating revenue from product sales, and none of its product candidates have received FDA approval. The regulatory status of the Company's product candidates is as follows:
HBT-301 (Friedreich's Ataxia — Lead Candidate). HBT-301 is a gene-editing therapy being developed for the treatment of Friedreich's ataxia, a rare, progressive, autosomal recessive neurodegenerative disease caused by mutations in the FXN gene. HBT-301 is the Company's most advanced clinical candidate and is currently in Phase 1b clinical trials.
• The Company submitted an Investigational New Drug application ("IND") for HBT-301 to the FDA, and the IND has been accepted. The IND is in good standing, and the Company is authorized to conduct clinical trials of HBT-301 in the United States.
• Clinical trial sites are operational and enrolling patients. The Phase 1b trial is an open-label, dose-escalation study designed to evaluate the safety, tolerability, and preliminary efficacy of HBT-301 in patients with Friedreich's ataxia.
• As of the date of this memorandum, there are no clinical holds on the HBT-301 program. The FDA has not issued any warning letters, untitled letters, or other regulatory correspondence raising concerns about the HBT-301 program.
• No material adverse safety findings have been reported to date. Adverse events observed in the clinical trial to date have been consistent with expectations based on the preclinical safety profile and the mechanism of action of the therapy.
HBT-502 (Wilson's Disease — Preclinical Stage). HBT-502 is a gene-editing therapy being developed for the treatment of Wilson's disease, a rare genetic disorder of copper metabolism. HBT-502 is in the preclinical stage of development.
• An IND for HBT-502 has not yet been filed with the FDA.
• Preclinical studies of HBT-502 are ongoing under the Collaboration and Option Agreement with Meridian Pharmaceuticals Inc. (Reference No. MPI-COA-2021-0308), as described in Section IV.B above.
B. DEA and Controlled Substances
This area is not applicable to HBT. The Company's product candidates are gene-editing therapies and are not classified as controlled substances under the Controlled Substances Act or the regulations of the U.S. Drug Enforcement Administration.
C. Environmental. We have not identified any material environmental liabilities associated with HBT's operations. The Company's laboratory operations at the Kendall Street facility are subject to standard biosafety regulations and environmental permits, including permits related to the handling, storage, and disposal of biological materials and hazardous chemicals used in research and development activities. Based on our review, all applicable permits are current and in good standing, and the Company has not received any notices of violation or non-compliance from any environmental regulatory agency.
D. Privacy and Data Security
HBT collects and processes personal data, including protected health information ("PHI"), in connection with its clinical trial activities. We have reviewed the Company's HIPAA compliance program, including its policies and procedures for the collection, use, storage, and disclosure of PHI, its business associate agreements with third-party service providers that handle PHI on its behalf, and its data security policies and incident response plan.
Based on our review, the Company maintains a HIPAA compliance program that is appropriate for a company of its size and the nature of its clinical trial activities. We have not identified any data breaches, security incidents, or other privacy-related incidents reported by the Company. The Company has not received any complaints or inquiries from the U.S. Department of Health and Human Services Office for Civil Rights or any other governmental authority regarding its data privacy or security practices.
E. Export Controls and Sanctions
We have not identified any issues related to export controls, economic sanctions, or trade compliance. HBT's operations are primarily domestic, and we have not identified any transactions or relationships involving sanctioned jurisdictions, sanctioned persons, or items subject to export control restrictions under the Export Administration Regulations (EAR) or the International Traffic in Arms Regulations (ITAR). The Company has confirmed that it does not export any products, technology, or data to any foreign country and that it does not engage in any transactions with persons or entities on the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) Specially Designated Nationals and blocked Persons List.
VIII. EMPLOYMENT AND BENEFITS
A. Employees. As of the date of the due diligence review, HBT employs approximately eighty-five (85) full-time employees. All employees are based at the Company's headquarters in Cambridge, Massachusetts. The Company does not maintain any additional office locations or employ any individuals outside of the Commonwealth of Massachusetts. The workforce includes research scientists, clinical development professionals, regulatory affairs specialists, and administrative and corporate personnel.
B. Employment Agreements
We have reviewed the employment agreements of the Company's key executives, including Dr. Priya Nandakumar (Chief Executive Officer) and Dr. James Whitfield (Chief Scientific Officer). As discussed in Section IV.D above, these agreements include standard terms regarding compensation, benefits, and termination provisions, including change-of-control severance protections. We have not identified any material issues with these agreements.
The Company's workforce is not represented by any labor union, and the Company is not a party to any collective bargaining agreement. There are no pending or threatened union organizing activities.
We have reviewed the Company's records relating to employment-related claims and have confirmed that there are no pending employment-related lawsuits, charges filed with the Equal Employment Opportunity Commission ("EEOC") or any state or local fair employment agency, wage-and-hour claims, workers' compensation claims (other than routine claims), or other employment-related disputes.
C. Employee Benefit Plans
HBT maintains employee benefit plans that are standard for a company of its size and industry, including:
• A 401(k) retirement savings plan;
• Group health insurance coverage (medical, dental, and vision);
• Group life insurance and disability insurance; and
• Other standard benefits, including paid time off and flexible spending accounts.
We have reviewed the plan documents and summary plan descriptions for these benefit plans. Based on our review, the plans appear to be in material compliance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and applicable tax qualification requirements under the Internal Revenue Code. The Company does not maintain any defined benefit pension plan, and accordingly, there are no underfunded pension obligations. The 401(k) plan has received a favorable determination letter or relies on a prototype plan opinion letter from the Internal Revenue Service.
D. Equity Compensation
The Company's equity incentive plan is discussed in Section III.D above. The treatment of outstanding options and restricted stock awards in the Business Combination will be governed by the applicable provisions of the BCA. We recommend that the BCA include detailed provisions addressing the conversion, assumption, or cash-out of outstanding equity awards, as well as any provisions relating to the adoption of a new equity incentive plan by PVAC for the benefit of HBT employees post-closing.
IX. TAX MATTERS
A. Federal and State Tax Filings
We have reviewed the Company's federal income tax returns (IRS Form 1120) and Massachusetts state income tax returns for fiscal years 2020, 2021, and 2022. The Company's federal Employer Identification Number is 83-2947156. Based on our review, all returns were filed on a timely basis (including any applicable extensions), and no material underpayments, penalties, or interest charges have been identified.
As a clinical-stage biotechnology company that has not yet generated product revenue, HBT has reported net operating losses in each year since its inception. The Company's net loss for fiscal year 2022 was ($18,400,000), and prior year losses have been similarly substantial. As a result, HBT has accumulated significant federal and state net operating loss ("NOL") carryforwards, which may be available to offset taxable income in future periods, subject to the limitations discussed in Section IX.D below.
B. Tax Audits
The Company has not been the subject of any federal or state income tax audit, examination, or assessment, and no such audits, examinations, or assessments are currently pending or, to the Company's knowledge, threatened. The Company's federal income tax returns for fiscal years 2020 through 2022 remain open for examination under the applicable statute of limitations.
C. Sales and Use Tax
HBT is not currently generating product revenue and therefore does not collect or remit sales tax on product sales. The Company's sales and use tax exposure is limited to its purchases of laboratory equipment, supplies, and other tangible personal property. We have reviewed the Company's sales and use tax compliance and have not identified any material issues. The Company has generally been claiming applicable exemptions for purchases of equipment and supplies used in research and development activities in the Commonwealth of Massachusetts.
D. Section 382 Considerations