Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should carefully read, consider, and evaluate the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included in Part II. Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K (“Annual Report”). This discussion and other parts of this Annual Report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions, which are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those discussed in these forward-looking statements. Please also see the section titled “Cautionary Note Regarding Forward-Looking Statements.” Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part I. Item 1A. “Risk Factors.”
Overview
We are a clinical stage global biopharmaceutical company aiming to develop and deliver novel oral therapeutics to treat a wide range of chronic diseases with unmet medical need. Our differentiated technology platform leverages structure-based drug discovery and computational chemistry expertise and enables us to develop oral small molecule therapeutics for the treatment of various diseases including those impacting the metabolic, cardiovascular, and pulmonary systems. In February 2023, we completed our Initial Public Offering (“IPO”) for net proceeds of $166.7 million.
Our initial focus is on G-protein coupled receptors (“GPCRs”) as a therapeutic target class. GPCRs regulate numerous diverse physiological and pathological processes, and approximately one in every three marketed medicines targets GPCR-associated pathways. By leveraging our world-class GPCR know-how, we aim to design differentiated small molecule therapies to overcome the limitations of biologics and peptide therapies targeting this family of receptors. We are developing GSBR-1290, our oral small molecule product candidate targeting the validated GLP-1R for the treatment of type 2 diabetes mellitus (“T2DM”) and obesity. We completed our Phase 1 single ascending dose (“SAD”) study of GSBR-1290 in September 2022. GSBR-1290 was generally well tolerated and demonstrated dose-dependent pharmacokinetic (“PK”) and pharmacodynamic (“PD”) activity. We submitted an investigational new drug (“IND”) application to the U.S. Food and Drug Administration (“FDA”) to support initiation of a Phase 1b study in T2DM and obesity and received FDA allowance in September 2022. We initiated the Phase 1b multiple ascending dose (“MAD”) study in January 2023 and completed dosing in healthy overweight subjects in March 2023. We plan to submit a protocol amendment to the FDA to transition to a Phase 2a proof-of-concept study in T2DM and obesity in the second half of 2023. We expect to report topline data for the Phase 1b study and Phase 2a study with the expected initiation in the second half of 2023. Beyond GSBR-1290, we are developing next generation GLP-1R candidates, including dual GLP-1R/GIPR agonists, each designed with customized properties to achieve additional benefit. In September 2022, we completed a Phase 1 SAD and MAD study evaluating ANPA-0073, our small molecule product candidate targeting APJR. ANPA-0073 was generally well tolerated in healthy human volunteers. ANPA-0073 is in development for the treatment of patients with idiopathic pulmonary fibrosis (“IPF”) and pulmonary arterial hypertension (“PAH”). We expect to conduct additional preclinical studies to be followed by a Phase 1 formulation bridging PK study in Australia. Moreover, we are advancing a differentiated LPA1R antagonist for the treatment of IPF. We selected a development candidate in January 2023 and expect to initiate a first-in-human study in 2024.
159
Table of Contents
We are advancing a robust pipeline of small molecule therapeutic candidates for chronic diseases with unmet medical need.
We outsource clinical drug manufacturing, storage, distribution and quality testing to third-party manufacturers. We believe this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment and personnel while also enabling us to focus our expertise and resources on the design and development of our product candidates. As our development programs progress and we build new process efficiencies, we expect to continually evaluate this strategy with the objective of satisfying demand for registration trials and, if approved, the manufacture, sale and distribution of commercial products.
We are a Cayman Islands exempted company incorporated with limited liability. We were initially formed as a Delaware limited liability company in 2016 under the name ShouTi Inc., and reorganized as a Cayman Islands exempted company in February 2019. Our primary activities to date have included organizing and staffing our company, business and scientific planning, raising capital, conducting research and development activities, entering into strategic and corporate structuring transactions, enabling manufacturing activities in support of our product candidate development efforts, and establishing our intellectual property portfolio, and providing general and administrative support for these activities. We do not have any product candidates approved for sale and have not generated any revenue from our products. Since our inception, we have incurred net operating losses and negative cash flows from operations. We had net losses of $51.3 million and $38.0 million in the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of $117.0 million. As of December 31, 2022, we have financed our operations primarily through the private placement of equity securities and have received aggregate gross proceeds of approximately $198.0 million, and have cash, cash equivalents and short-term investments of $90.8 million. On February 7, 2023, we completed our initial public offering (“IPO”) of our American depositary shares (“ADSs”), in which we issued and sold an aggregate of 12,351,000 ADSs (inclusive of 1,611,000 ADSs pursuant to the exercise by the underwriters of their option) at a price of $15.00 per ADS for net cash proceeds of approximately $166.7 million, net of underwriting discounts and commissions and estimated offering costs. Upon the closing of the IPO, all outstanding shares of redeemable convertible preferred shares automatically converted into 67,018,087 ordinary shares. Subsequent to the closing of the IPO, there were no shares of redeemable convertible preferred shares outstanding.
Based on our current business plan, we estimate that our existing cash, cash equivalents and short-term investments, together with the net proceeds from our IPO, will be sufficient to fund our projected operations through at least 2025. We have based this estimate on assumptions that may prove to be wrong, and we may exhaust our available capital resources sooner than we expect.
We expect to continue to incur significant and increasing expenses and operating losses for the foreseeable future, particularly if and as we continue to invest in our research and development activities and initiate additional clinical trials, expand our product pipeline, hire additional personnel and invest in and grow our business, maintain, expand and protect our intellectual property portfolio, and seek regulatory approvals for
160
Table of Contents
and commercialize any approved product candidates. In addition, following the closing of our IPO, we expect to incur additional costs associated with operating as a public company, including significant legal, audit, accounting, regulatory, consulting, and tax-related services associated with being a public company, compliance with Nasdaq listing and Securities Exchange Commission (“SEC”) requirements, director and officer insurance premiums and investor relations costs that we did not incur as a private company. As a result, we will need substantial additional capital to develop our product candidates and fund operations for the foreseeable future. Moreover, we may in the future seek to acquire or invest in additional businesses, products, or technologies that we believe could complement or enhance our product, enhance our technical capabilities or otherwise offer growth opportunities, although we currently have no agreements or understandings with respect to any such acquisitions or investments. Until such time as we can generate significant revenue from our products, if ever, we expect to finance our operations through the public or private sale of equity, government or private party grants, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. If we are unable to obtain additional funding, we could be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or any commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations. If we raise funds through strategic collaborations or other similar arrangements with third-parties, we may have to relinquish valuable rights to our platform technology, future revenue streams, research programs or product candidates or may have to grant licenses on terms that may not be favorable to us and/or may reduce the value of our ordinary shares. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic or other events. Because of the numerous risks and uncertainties associated with product development, we cannot predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability.
Impact of the COVID-19 Pandemic and Other Macroeconomic Factors
In December 2019, a novel strain of coronavirus (including its variants, “COVID-19”), was reported in China. Since then, COVID-19 has spread globally. The spread of COVID-19 from China to other countries has resulted in the World Health Organization (“WHO”) declaring the outbreak of COVID-19 as a pandemic. Many countries around the world had imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus and had closed non-essential businesses. If local jurisdictions continue to put restrictions in place, our ability to continue to operate our business may also be limited. Such events may result in a period of business, supply and research activities’ disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations.
To date, we have experienced delays in our patient enrollment and our supply chain as a direct result of COVID 19 on our suppliers’ ability to timely manufacture and ship certain supplies such as reagents and other lab consumables. However, we cannot, at this time, predict the specific extent, duration or full impact that the COVID 19 pandemic will continue to have on our financial condition and operations, including our ongoing and planned preclinical studies and clinical trials. While the pandemic appears to have waned, there may be significant uncertainty resulting from any changes with regards to COVID-19 infections, along with the impact of other macroeconomic factors such as inflation, supply chain issues, rising interest rates, future bank failures and the impact of the Russian/Ukraine conflict. The impact of related responses and disruptions caused by the COVID-19 pandemic as well as prevailing macroeconomic factors has and may in the future More specifically, the COVID 19 pandemic could disrupt the supply chain and the manufacture or shipment of drug substances and finished drug products for our product candidates for use in our research, preclinical studies and clinical trials, impede our clinical trial initiation and recruitment and the ability of patients to continue in clinical trials and cause delays in the FDA’s review and approval processes, any of which could delay our preclinical studies and clinical trials and increase our development costs.
In addition, the spread of COVID 19, which has caused a broad impact globally, and other macroeconomic factors, may materially affect us economically. While the potential economic impact brought by, and the duration of, any continuing impact of COVID 19 and the impact of macroeconomic factors may be difficult to assess or predict, a widespread pandemic, actual or anticipated changes in interest rates and economic
161
Table of Contents
inflation, current and future bank failures and the impact of the Russian/Ukraine conflict has caused higher prices of supplies, declines in global confidence and could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity, or make any necessary financing more costly or more dilutive. In addition, a recession or market correction resulting from the spread of COVID 19 and such macroeconomic factors could materially affect our business. Possible effects of COVID-19 may also include absenteeism in our labor workforce and unavailability of products and supplies used in operations.
Lhotse Collaboration Agreement with Schrödinger, LLC
In October 2020, Lhotse Bio, Inc., our wholly-owned subsidiary, entered into a Collaboration Agreement (the “Lhotse-Schrödinger Agreement”) with Schrödinger, LLC (“Schrödinger”) to discover and develop novel, orally bioavailable, small molecule inhibitors of LPA1R. Under the Lhotse-Schrödinger Agreement, Schrödinger is obligated to provide computational modeling and design support, including by using its technology platform to perform virtual screens, and Lhotse is obligated to provide day-to-day chemistry and biology support. Pursuant to the Lhotse-Schrödinger Agreement, a joint steering committee comprised of representatives from both parties oversees the research performed under the agreement. During the term of the Lhotse-Schrödinger Agreement and for a specified period thereafter while Lhotse is engaged in active development of any compound having activity against LPA1R that is discovered or developed under the Lhotse-Schrödinger Agreement, Schrödinger is obligated to work exclusively with Lhotse on the design, research, development and commercialization of compounds that inhibit LPA1R. Lhotse will solely own the research results, work product, inventions and other intellectual property generated under the Lhotse-Schrödinger Agreement that are directed to LPA1R.
Under the Lhotse-Schrödinger Agreement, Lhotse is obligated to pay Schrödinger a quarterly active program payment in the low six digits for each successive three-month period during which Schrödinger continues to perform research work as agreed by the parties, and as of December 31, 2022, we have paid to Schrödinger an aggregate of $0.8 million. If Lhotse develops and commercializes a product containing a compound (a “Collaboration Compound”), that is discovered or developed under the Lhotse-Schrödinger Agreement (a “Collaboration Product”), Lhotse is obligated to pay Schrödinger development and regulatory milestone payments of up to an aggregate of $17.0 million, regardless of the number of Collaboration Products that reach such milestones. Lhotse will also be obligated to pay Schrödinger tiered royalties on a Collaboration Product-by-Collaboration Product basis equal to low single digit percentages on aggregate worldwide net sales of Collaboration Products, subject to specified reductions and offsets. Lhotse’s obligation to pay royalties to Schrödinger will expire on a Collaboration Product-by-Collaboration Product and country-by-country basis on the later of (i) the expiration of the last-to-expire Lhotse patent claim covering the composition of matter of the Collaboration Compound contained in such Collaboration Product in such country, (ii) the expiration of regulatory, pediatric, orphan drug, or data exclusivity with respect to such Collaboration Product in such country, and (iii) ten years after the first commercial sale of such Collaboration Product in such country (the “Royalty Term”).
Unless terminated earlier, the Lhotse-Schrödinger Agreement will continue for three years, subject to extension by mutual written agreement of the parties. Either party may terminate the Lhotse-Schrödinger Agreement for the other party’s uncured material breach, subject to certain notice and cure periods, or for the other party’s bankruptcy or insolvency. Lhotse’s obligation to make milestone and royalty payments (subject to the Royalty Term) to Schrödinger continues after the expiration or termination of the Lhotse-Schrödinger Agreement.
162
Table of Contents
Components of Our Results of Operations
Operating Expenses
Research and Development
Our research and development activities primarily consist of discovery, engineering and research associated with our product candidates under development, including preclinical studies and clinical studies. Research and development expenses include personnel-related costs for our management, including salaries, bonuses, benefits and share-based compensation expenses, consulting services, clinical trial expenses, regulatory expenses, publications, and allocated overhead expenses, including rent, equipment, depreciation, information technology costs and utilities.
We are focusing substantially all of our resources on the development of our product candidates and the discovery of new product candidates through our structure-based drug discovery platform. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of our product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:
● the phases of development of our product candidates;
● the number of trials required for approval;
● the number of sites included in our trials;
● the countries in which our trials are conducted;
● per subject trial costs;
● significant and changing government regulation;
● the timing and receipt of any regulatory approvals;
● the FDA’s, or other regulatory authority’s influence on clinical trial design;
● making arrangements with third-party contract research organizations (“CROs”);
● the cost and timing of manufacturing our product candidates;
● retention of key research and development personnel.
A change in the outcome of any of these variables with respect to the development of a product candidate could significantly change the costs, timing and viability associated with the development of that product candidate. For example, if the FDA, or an applicable foreign authority, were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of our product candidates, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. Furthermore, we are unable to predict when or if our product candidates will receive regulatory approval with any certainty.
163
Table of Contents
We expect our research and development expenses to continue to account for a significant portion of our operating expenses, and to increase substantially during the next several years as we seek to complete preclinical studies, initiate and/or complete clinical trials, identify new product candidates and potentially pursue regulatory approval of our product candidates.
General and Administrative
Our general and administrative expenses consist primarily of personnel-related costs for personnel in executive, legal, finance and other administrative functions, including salaries, bonuses, benefits and share-based compensation expenses, professional fees for legal, consulting, accounting and tax services, allocated overhead expenses, including rent, equipment, depreciation, information technology costs and utilities, and other general operating expenses not otherwise classified as research and development expenses.
We expect our general and administrative expenses will increase during the next several years as we increase our headcount and expand our infrastructure to support our operations, particularly as a public company. Additionally, in connection with being a public company, we anticipate significant increased expenses related to legal, audit, accounting, regulatory, consulting, and tax-related services, compliance with SEC rules and regulations and Nasdaq listing requirements, director and officer insurance premiums and investor relations costs. Our general and administrative expenses may fluctuate from period to period as we continue to grow.
Interest and Other Income (Expense), Net
Interest and other income (expense), net primarily consists of interest income earned on our cash, cash equivalents and short-term investments, including accretion and amortization of discounts and premiums on short-term investments, foreign currency exchange gains and losses and interest expense for the amortization of debt issuance costs.
Results of Operations
Comparison of the Years Ended December 31, 2022 and 2021
The following table summarizes our consolidated results of operations for the periods indicated (in thousands):
YEAR ENDED
DECEMBER 31,
Operating expenses:
Interest and other income (expense), net 1,257 (122)
Loss before provision for income taxes (51,304) (37,818)
Provision for income taxes 17 231
Research and Development Expenses
Research and development expenses increased by $7.1 million, or 24%, to $36.2 million during the year ended December 31, 2022, compared to $29.1 million during the year ended December 31, 2021. The
164
Table of Contents
increase in research and development expenses was primarily due to increases in employee related expenses, consulting and laboratory expenses, as we increased our staffing and development efforts.
The following table summarizes our research and development expenses for the periods indicated (in thousands):
YEAR ENDED
DECEMBER 31,
Product candidate:
Total research and development expenses $ 36,193 $ 29,111
General and Administrative Expenses
General and administrative expenses increased by $7.8 million, or 91%, to $16.4 million during the year ended December 31, 2022, compared to $8.6 million during the year ended December 31, 2021. The increase in general and administrative expenses was primarily due to increases in employee related expenses and professional services as we expanded our infrastructure to drive and support the growth in our operations to prepare to become a publicly-traded company.
Interest and Other Income (Expense), Net
Interest and other income (expense), net, increased by $1.4 million to an income of $1.3 million during the year ended December 31, 2022, compared to an expense of $0.1 million during the year ended December 31, 2021. The increase in interest and other income, net, was primarily due to an increase in interest income from higher interest rates.
Liquidity and Capital Resources
Since we were reorganized as a Cayman Islands exempted company in February 2019 through December 31, 2022, we have funded our operations primarily with an aggregate of $198.0 million in gross cash proceeds from the sale of redeemable convertible preferred shares. As of December 31, 2022, we had cash, cash equivalents and short-term investments of $90.8 million and an accumulated deficit of $117.0 million.
Redeemable Convertible Preferred Shares
Series A Redeemable Convertible Preferred Shares
In April 2019, we entered into a Series A redeemable convertible preferred shares purchase agreement (the “Series A Purchase Agreement”), with certain investors to issue and sell 9,600,000 shares of Series A redeemable convertible preferred shares at $1.6667 per share (the “Series A Purchase Price”), for total gross proceeds of $16.0 million.
The Series A Purchase Agreement also provided for the issuance and sale to the investors of an additional 9,600,000 shares of Series A redeemable convertible preferred shares at the Series A Purchase Price upon achieving certain milestone conditions (the “Series A Milestone Closing”).
The issuance of Series A redeemable convertible preferred shares was recorded at the amount of proceeds received less issuance costs and the amounts allocated to the Series A Milestone Closing liability.
165
Table of Contents
The Series A Milestone Closing occurred on December 9, 2019, and we issued 9,600,000 shares of Series A redeemable convertible preferred shares at the Series A Purchase Price for gross proceeds of $16.0 million.
Series A+ Redeemable Convertible Preferred Shares
In March 2020, we entered into a Series A+ redeemable convertible preferred shares purchase agreement with certain investors to issue and sell 12,799,681 shares of Series A+ redeemable convertible preferred shares at $2.0313 per share, for total gross proceeds of $26.0 million.
Series B Redeemable Convertible Preferred Shares
In July 2021, we entered into a Series B redeemable convertible preferred shares purchase agreement with certain investors to issue and sell 24,701,732 shares of Series B redeemable convertible preferred shares at $4.0483 per share, for total gross proceeds of $100.0 million.
In April 2022, we issued an additional 8,155,272 shares of our Series B redeemable convertible preferred shares for total gross proceeds of $33.0 million, also at $4.0483 per share.
Series B-1 Redeemable Convertible Preferred Shares
In March 2021, Basecamp Bio, Inc. (“Basecamp Bio”), our wholly owned subsidiary incorporated in February 2021, entered into a purchase agreement with certain investors to issue and sell 9,000,000 shares of its Series Seed redeemable convertible preferred shares at a price of $1.00 per share for total gross proceeds of $9.0 million. Of the 9,000,000 shares of Series Seed redeemable convertible preferred shares issued, 2,000,000 shares were issued to us and the remaining 7,000,000 shares were issued to other existing investors in Structure Therapeutics.
In December 2021, we acquired the 7,000,000 Series Seed redeemable convertible preferred shares of Basecamp Bio held by the other investors in exchange for 2,161,402 shares of our Series B-1 redeemable convertible preferred stock, with Basecamp Bio becoming a wholly owned subsidiary again.
Upon the closing of our IPO, all outstanding shares of redeemable convertible preferred stock automatically converted into 67,018,087 ordinary shares.
Funding Requirements
As of December 31, 2022, we financed our operations primarily through the private placement of equity securities and have received aggregate gross proceeds of approximately $198.0 million as of December 31, 2022. Since our inception, we have incurred net operating losses and negative cash flows from operations. We had net losses of $51.3 million and $38.0 million in the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of $117.0 million. In February 2023, we completed our IPO for net proceeds of $166.7 million. Our primary activities to date have included organizing and staffing our company, business and scientific planning, raising capital, conducting research and development activities, entering into strategic and corporate structuring transactions, enabling manufacturing activities in support of our product candidate development efforts, establishing our intellectual property portfolio, and providing general and administrative support for these activities.
As of December 31, 2022, we had cash, cash equivalents and short-term investments of $90.8 million. Based on our current business plan, we believe that our existing cash, cash equivalents and short-term investments, together with the net proceeds from our IPO, will be sufficient to fund our projected operations for the next 12 months from the date of the issuance of our consolidated financial statements. We have based this estimate on assumptions that may prove to be wrong, and we may exhaust our available capital resources sooner than we expect.
166
Table of Contents
To date, we have not generated any revenue from our products. We do not expect to generate any significant product revenue until we successfully develop and obtain regulatory approval for and commercialize our product candidates, and we do not know when, or if, either will occur. We expect to continue to incur significant and increasing expenses and operating losses for the foreseeable future, particularly if and as we continue to invest in our research and development activities and initiate additional clinical trials, expand our product pipeline, hire additional personnel and invest in and grow our business, maintain, expand and protect our intellectual property portfolio, and seek regulatory approvals for and commercialize any approved product candidates. In addition, following the closing of our IPO, we expect to incur additional costs associated with operating as a public company, including significant legal, audit, accounting, regulatory, tax-related, director and officer insurance, investor relations and other expenses that we did not incur as a private company. Moreover, we may in the future seek to acquire or invest in additional businesses, products, or technologies that we believe could complement or enhance our product, enhance our technical capabilities or otherwise offer growth opportunities, although we currently have no agreements or understandings with respect to any such acquisitions or investments. We are subject to the risks typically related to the development of new product candidates, and it may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business.
We will need substantial additional capital to develop our product candidates and fund operations for the foreseeable future. Our future capital requirements will depend on many factors, including:
● the number and scope of clinical programs we decide to pursue;
● the cost and timing of manufacturing our product candidates;
● our implementation of operational, financial and management systems; and
A change in the outcome of any of these or other variables with respect to the development of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our business plans may change in the future, and we will continue to require additional capital to meet operational needs and capital requirements associated with such plans.
Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the public or private sale of equity, government or private party grants, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your
167
Table of Contents
ownership interest may be diluted, and the terms of these securities may include liquidation or other preferences and anti-dilution protections that could adversely affect your rights as a holder of our ADSs. Additional debt or preferred equity financing, if available, may involve agreements that include restrictive covenants that may limit our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends, which could adversely impact our ability to conduct our business, and may require the issuance of warrants, which could potentially dilute your ownership interest. If we raise funds through strategic collaborations or other similar arrangements with third-parties, we may have to relinquish valuable rights to our platform technology, future revenue streams, research programs or product candidates or may have to grant licenses on terms that may not be favorable to us and/or may reduce the value of our ordinary shares.
Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic or other events such as actual or anticipated changes in interest rates and economic inflation and the impact of the Russian/Ukraine conflict. If we are unable to obtain additional funding, or funding on acceptable terms, we could be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or any commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations. Because of the numerous risks and uncertainties associated with product development, we cannot predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability.
Summary Statements of Cash Flows
The following table sets forth the primary sources and uses of cash for the periods presented below (in thousands):
YEAR ENDED
DECEMBER 31,
Net cash (used in) provided by:
Net (decrease) increase in cash and cash equivalents $ (79,214) $ 88,953
Cash Flows Used in Operating Activities
During the year ended December 31, 2022, net cash used in operating activities was $46.1 million, consisting primarily of a net loss of $51.3 million, partially offset by non-cash charges of $2.2 million and a decrease in net operating assets of $3.0 million. The cash used in operations was primarily due to the increase in net loss from the increase in operating expenses as we invest in our research and development efforts and prepared to become a publicly-traded company. Non-cash charges consisted primarily of share-based compensation. The decrease in net operating assets was primarily due to increases in accounts payable and accrued expenses and other current liabilities.
During the year ended December 31, 2021, net cash used in operating activities was $32.2 million, consisting primarily of a net loss of $38.0 million, partially offset by non-cash charges of $1.8 million and a decrease in net operating assets of $4.0 million. The cash used in operations was primarily due to the increase in net loss from the increase in operating expenses as we invest in our research and development efforts. Non-cash charges consisted primarily of share-based compensation. The decrease in net operating assets is primarily due to increases in accrued expenses and other current liabilities and accounts payable, partially offset by an increase in prepaid expenses and other current assets.
168
Table of Contents
Cash Flows (Used in) Provided by Investing Activities
During the year ended December 31, 2022, net cash used in investing activities was $62.1 million, consisting primarily of net purchases of short-term investments.
During the year ended December 31, 2021, net cash provided by investing activities was $17.9 million, consisting primarily of net maturities of short-term investments of $19.1 million, partially offset by purchases of property and equipment of $1.2 million.
Cash Flows Provided by Financing Activities
During the year ended December 31, 2022, net cash provided by financing activities was $29.0 million, consisting primarily of net proceeds from the issuance of our Series B redeemable convertible preferred shares, partially offset by payments of deferred offering costs.
During the year ended December 31, 2021, net cash provided by financing activities was $103.3 million, consisting primarily of net proceeds from the issuance of our Series B redeemable convertible preferred shares and Series Seed redeemable convertible preferred shares of Basecamp Bio.
Contractual Obligations
As of December 31, 2022, our contractual obligations consist of facilities lease payments totaling $0.3 million through October 31, 2023.
Critical Accounting Policies and Significant Judgments and Estimates
Our financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported expenses incurred during the reporting periods. Our estimates are based on our knowledge of current events and actions we may undertake in the future and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. For more detail on our significant accounting policies, refer to Note 2 to our consolidated financial statements included in Part II. Item 8 “Financial Statements and Supplementary Data” of this Annual Report.
Share-Based Compensation
We use a fair value-based method to account for all share-based compensation arrangements with employees and non-employees, including share options and share awards. Our determination of the fair value of share options on the date of grant utilizes the Black-Scholes option pricing model.
We recognize the fair value of the options granted on a straight-line basis over the period during which an optionee is required to provide services in exchange for the option award, known as the requisite service period, which usually is the vesting period. We account for forfeitures as they occur.
Estimates of the fair value of equity awards as of the grant date using valuation models such as the Black-Scholes option pricing model are affected by assumptions with a number of complex variables. Changes in certain assumptions can materially affect the fair value and ultimately the amount of share-based
169
Table of Contents
compensation expense recognized. These inputs are subjective and generally require significant analysis and judgment to develop. The assumptions are as follows:
See Note 11 to our audited consolidated financial statements included in Part II. Item 8 “Financial Statements and Supplementary Data” of this Annual Report for information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted in the years ended December 31, 2022 and 2021.
Ordinary Shares Valuation
Prior to the completion of our IPO, the estimated fair value of the ordinary shares underlying our share options and share awards was determined at each grant date by our board of directors, with input from management and an independent third-party valuation firm. All options to purchase shares of our ordinary shares are intended to be exercisable at a price per share not less than the per-share fair value of our ordinary shares underlying those options on the date of grant.
In the absence of a public trading market for our ordinary shares, on each grant date, we develop an estimate of the fair value of our ordinary shares based on the information known to us on the date of grant, upon a review of any recent events and their potential impact on the estimated fair value per share of the ordinary shares, and in part on contemporaneous input from an independent third-party valuation firm. Our estimate of fair value is reviewed and approved by our board of directors.
We determined our valuations of our ordinary shares in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (the “Practice Aid”). We based the assumptions used to determine the estimated fair value of our ordinary shares on numerous objective and subjective factors, combined with management judgment, including:
170
Table of Contents
● lack of marketability of our common shares as a private company;
● the progress of our research and development efforts;
● the hiring of key personnel and the experience of management;
● the valuation of comparable public companies.
For all options granted through December 31, 2022, our board determined the enterprise value based on the Market Approach, Option Pricing Method (“OPM”) and Probability Weighted Expected Return Method (“PWERM”) or a weighted combination of the OPM and PWERM methods. Under the Market Approach, we estimate the value based upon our prior sales of preferred stock to unrelated third parties. We then apply these derived multiples or values to our financial metrics to estimate our market value. The allocation of these enterprise values to each part of our capital structure, including our ordinary shares, was done based on the OPM. The OPM treats the rights of the holders of preferred and ordinary shares as equivalent to call options on any value of the enterprise above certain break points of value based upon the liquidation preferences of the holders of preferred shares, as well as their rights to participation and conversion. Thus, the estimated value of the ordinary share can be determined by estimating the value of its portion of each of these call option rights. The OPM derives the implied equity value of a company from a recent transaction involving our own securities issued on an arms-length basis. Under the PWERM, the value is estimated based upon analysis of future values for the enterprise under varying scenarios, and probabilities are ascribed to these scenarios based on expected future outcomes.
Subsequent to our IPO, the fair value of our ordinary shares is determined based on our closing market price of the Company’s ADS, which each represents three ordinary shares.
Accrued Research and Development Expenses
We have entered into various agreements with contract manufacturing organizations (“CMOs”) and CROs. Our research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs. The estimated costs of research and development provided, but not yet invoiced, are included in other current liabilities on the balance sheets. If the actual timing of the performance of services or the level of effort varies from the original estimates, we will adjust the accrual accordingly. Payments made to CMOs and CROs under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other current assets on the balance sheets until the services are rendered. To date, our estimated accruals have not differed materially from the actual costs.
Redeemable Convertible Preferred Shares
We record all shares of our redeemable convertible preferred shares at their respective fair values on the dates of issuance, net of issuance costs. The fair value of Series B-1 redeemable convertible preferred shares issued in the Basecamp Bio share exchange agreement was estimated using various fair value measures of classes of preferred stock calculated as part of the valuation of our ordinary shares. In the event of the voluntary or involuntary liquidation, dissolution or winding up of our company, or a liquidation event
171
Table of Contents
such as a merger, acquisition and sale of all or substantially all of our assets, each of which we refer to as a deemed liquidation event, proceeds will be distributed in accordance with the liquidation preferences set forth in our amended and restated memorandum and articles of association unless the holders of redeemable convertible preferred shares have converted their redeemable convertible preferred shares into ordinary shares. Therefore, the redeemable convertible preferred shares are recorded in mezzanine equity on our balance sheets as events triggering the liquidation preferences are not solely within our control. We made an accounting policy election to recognize changes in the redemption value of redeemable convertible preferred shares immediately as they occur and adjust the carrying value of redeemable convertible preferred shares to equal its redemption value at the end of each reporting period.
JOBS Act Accounting Election and Smaller Reporting Company Status
We are an “emerging growth company,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our ordinary shares held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our ordinary shares held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.
Recent Accounting Pronouncements
See “Recent Accounting Pronouncements” in Note 2 to our consolidated financial statements included in Part II. Item 8 “Financial Statements and Supplementary Data” of this Annual Report for additional information.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Sensitivity
The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates. As of December 31, 2022, we had cash, cash equivalents and short-term investments of $90.8 million, consisting of interest-bearing money market funds, U.S. government bonds, U.S. government agency bonds and corporate debt securities, for which the fair value would be affected by changes in the general level of U.S. interest rates. However, due to the short-term maturities and the low-risk profile of our cash equivalents, we do not believe that a hypothetical 10% increase or decrease in the relative value of interest rates would have a material effect on our consolidated financial statements included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report.
Foreign Currency Risk
Our business is primarily conducted in U.S. dollars. Transactions conducted in foreign currencies have not had, and are not expected to have, a material effect on our results of operations, financial position or cash flows. Our operating expenses in countries outside the United States, are payable in foreign currencies and
172
Table of Contents
therefore expose us to currency risk. We do not believe that a hypothetical 10% increase or decrease in the relative value of the U.S. dollar to other currencies would have had a material effect on our consolidated financial statements included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report. We do not currently maintain a program to hedge exposures to non-U.S. dollar currencies.
Credit Risk
We maintain our cash, cash equivalents and short-term investments with several financial institutions, primarily in the United States, and our current deposits are in excess of insured limits. We believe these institutions have sufficient assets and liquidity to conduct their operations in the ordinary course of business with little or no credit risk to us. We have not experienced any losses on our deposits of cash, cash equivalents and short-term investments to date.
Effects of Inflation
Inflation generally affects us by increasing our cost of labor and in the future our clinical trial costs. We do not believe that inflation has had a material effect on our consolidated financial statements included elsewhere in this Annual Report.
173
Table of Contents
Item 8. Financial Statements and Supplementary Data
STRUCTURE THERAPEUTICS INC.
INDEX TO FINANCIAL STATEMENTS
Years Ended December 31, 2022 and 2021
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID 238) 175
Consolidated Financial Statements
Consolidated Balance Sheets 176
Consolidated Statements of Operations and Comprehensive Loss 177
Consolidated Statements of Cash Flows 179
Notes to Consolidated Financial Statements 180
174
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Structure Therapeutics Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Structure Therapeutics Inc. and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, of redeemable convertible preferred shares, redeemable noncontrolling interest and shareholders’ deficit and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 30, 2023
We have served as the Company’s auditor since 2020.
175
Table of Contents
STRUCTURE THERAPEUTICS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31,
Assets
Current assets:
Prepaid expenses and other current assets 2,248 1,943
Property and equipment, net 1,031 1,185
Operating right-of-use assets 262 609
Other non-current assets 3,463 111
Current liabilities:
Accrued expenses and other current liabilities 6,741 4,825
Operating lease liabilities, current portion 260 349
Operating lease liabilities, net of current portion — 272
Commitments and contingencies (Note 6)
Shareholders’ deficit:
Additional paid-in capital 1,921 —
Accumulated other comprehensive loss (110) —
The accompanying notes are an integral part of these consolidated financial statements.
176
Table of Contents
STRUCTURE THERAPEUTICS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
Operating expenses:
Interest and other income (expense), net 1,257 (122)
Loss before provision for income taxes (51,304) (37,818)
Provision for income taxes 17 231
Net loss attributable to ordinary shareholders $ (52,836) $ (43,765)
Other comprehensive loss:
Unrealized (loss) gain on investments, net (110) 1
Total other comprehensive (loss) gain (110) 1
The accompanying notes are an integral part of these consolidated financial statements.
177
Table of Contents
STRUCTURE THERAPEUTICS INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED SHARES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ DEFICIT
(IN THOUSANDS)
ACCUMULATED
Net loss — — — — — — — — — — — — — (38,049) (38,049)
Net loss — — — — — — — — — — — — — (51,321) (51,321)
The accompanying notes are an integral part of these consolidated financial statements.
178
Table of Contents
STRUCTURE THERAPEUTICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
Cash flows from operating activities
Share-based compensation expense 2,514 1,487
Non-cash lease expense 347 194
Amortization (accretion) of net investment premium (discount) (905) 27
Amortization of debt discount and issuance costs — 47
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (305) (1,008)
Other non-current assets (60) —
Other non-current assets — (36)
Accrued expenses and other current liabilities 1,541 3,413
Operating lease liabilities (361) (204)
Net cash used in operating activities (46,120) (32,160)
Cash flows from investing activities
Purchases of short-term investments (123,453) (4,212)
Maturities of short-term investments 61,500 23,277
Purchases of property and equipment (155) (1,206)
Net cash (used in) provided by investing activities (62,108) 17,859
Cash flows from financing activities
Payments of deferred offering costs (2,513) —
Repurchases of unvested restricted share awards (6) —
Proceeds from exercise of share options 33 11
Net cash provided by financing activities 29,014 103,254
Net change in cash and cash equivalents (79,214) 88,953
Cash and cash equivalents
Supplemental disclosures of noncash investing and financing activities
The accompanying notes are an integral part of these consolidated financial statements.
179
Table of Contents
STRUCTURE THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Nature of the Business
Structure Therapeutics Inc. (the “Company”) is a clinical stage global biopharmaceutical company aiming to develop and deliver novel oral therapeutics to treat a wide range of chronic diseases with unmet medical needs. The Company was incorporated in February 2019 in the Cayman Islands, with operating subsidiaries in the United States and China. In June 2022, the Company changed its name from ShouTi Inc. to Structure Therapeutics Inc.
Prior to the formation of the Company, the operating activities were carried out by the subsidiaries of the Company. Structure Therapeutics USA Inc., a Delaware corporation (“StructureTx US”), was incorporated on June 6, 2016. On January 20, 2017, StructureTx US was reorganized as a limited liability company. Annapurna Bio, Inc. (“Annapurna”), a Delaware corporation, was incorporated on January 26, 2017, and Gasherbrum Bio, Inc. (“Gasherbrum”), a Delaware corporation, was incorporated on April 19, 2017.
On April 18, 2019, Annapurna, Gasherbrum, StructureTx US and the Company entered into a share exchange agreement (the “Share Exchange Agreement”). As a result of the Share Exchange Agreement, StructureTx US, Annapurna and Gasherbrum became wholly-owned subsidiaries of the Company. At the closing of the Share Exchange Agreement on April 18, 2019, the Company issued to the shareholders of Annapurna, Gasherbrum, and StructureTx US an aggregate of 10,766,250 ordinary shares (the “Share Exchange”). On April 19, 2019, ShouTi LLC was converted into ShouTi Inc., a Delaware corporation, which subsequently changed its name to Structure Therapeutics USA Inc. The Share Exchange was accounted for as a capital transaction.
On June 28, 2019, ShouTi Hong Kong Ltd (“ShouTi Hong Kong”) was incorporated as a wholly-owned subsidiary of the Company. On July 26, 2019, Shanghai ShouTi Biotechnology Co., Ltd (“ShouTi Shanghai”) was incorporated as a wholly-owned subsidiary of ShouTi Hong Kong. On April 1, 2020, Lhotse Bio, Inc. (“Lhotse”) was incorporated as a wholly-owned subsidiary of the Company.
On February 10, 2021, the Company incorporated Basecamp Bio Inc. (“Basecamp”) in the Cayman Islands with a wholly owned subsidiary, Basecamp Bio Hong Kong Limited (“Basecamp HK”) in Hong Kong. Shanghai Basecamp Biotechnology Co., Ltd., a wholly owned subsidiary of Basecamp HK, was established on March 26, 2021 in Shanghai, China. The purpose of Basecamp is to develop certain of the Company’s technologies in Mainland China. In March 2021, Basecamp issued 7,000,000 Series Seed shares to other investors that are also investors of the Company, which was accounted for as redeemable noncontrolling interest in the consolidated financial statements (see Note 8). In December 2021, the Company acquired the 7,000,000 Series Seed redeemable convertible preferred shares of Basecamp held by the other investors in exchange for 2,161,402 shares of its Series B-1 redeemable convertible preferred shares with Basecamp becoming a wholly owned subsidiary (see Note 8). The Company has consolidated Basecamp since its incorporation.
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.
Initial Public Offering
On February 7, 2023, the Company closed its initial public offering (“IPO”) of American Depositary Shares (“ADS”). Each ADS represents three ordinary shares. The net proceeds from the IPO were approximately $166.7 million after deducting underwriting discounts and commissions and estimated offering costs.
Upon the closing of the IPO, all outstanding shares of the Company’s redeemable convertible preferred shares converted into 67,018,087 ordinary shares. In connection with the completion of its IPO, the
180
Table of Contents
STRUCTURE THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Company’s memorandum of association was amended and restated to provide for 500,000,000 authorized ordinary shares with a par value of $0.0001 per share and 100,000,000 authorized shares with a par value of $0.0001 per share, of such class or classes as may be designated by the Company’s board of directors in accordance with the Company’s articles of association. The consolidated financial statements as of December 31, 2022, including share and per share amounts, do not give effect to the IPO, as it closed subsequent to December 31, 2022.
Liquidity and Capital Resources
The Company has incurred significant net operating losses and negative cash flows from operations since inception and had an accumulated deficit of $117.0 million as of December 31, 2022. Through December 31, 2022, the Company has financed its operations primarily through the private placement of equity securities. On February 7, 2023, the Company completed its IPO for net proceeds of approximately $166.7 million, after deducting underwriting discounts and estimated offering costs.
To date, the Company has no product candidates approved for sale and therefore the Company has not generated any revenue from its products. The Company has not generated any revenue from collaboration or other agreements. Management expects operating losses and negative cash flows to continue for the foreseeable future, until such time, if ever, that it can generate significant sales from its product candidates currently in development or through collaboration or other agreements. The Company’s prospects are subject to risks and uncertainties frequently encountered by companies in the biotechnology industry as discussed in
Note 2.
As of December 31, 2022, the Company had cash, cash equivalents and short-term investments of $90.8 million. Based on its current business plan, the Company believes that its current cash, cash equivalents and short-term investments, together with the net proceeds from its IPO, will be sufficient to fund its projected operations for at least 12 months from the date of the issuance of these consolidated financial statements.
Impact of the COVID-19 Pandemic and Other Macroeconomic Factors
The COVID-19 (coronavirus) pandemic, which has impacted worldwide economic activity, poses risks that the Company or its employees, contractors, suppliers and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. Although the impact of COVID-19 has not been material to the Company and its operations, the extent to which the COVID-19 pandemic will impact the Company’s business will depend on future developments that are highly uncertain and cannot be predicted at this time. While the pandemic appears to have waned, there may be significant uncertainty resulting from any changes with regards to COVID-19 infections, along with the impact of other macroeconomic factors such as inflation, supply chain issues, rising interest rates, future bank failures and the impact of the Russian/Ukraine conflict. .
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements and related disclosures have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The functional and reporting currency of the Company and its subsidiaries is the U.S. dollar. The aggregate foreign currency transaction loss included in determining net loss was not material for the periods presented.
181
Table of Contents
STRUCTURE THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of expenses during the reporting periods. Such estimates include lease liability, accruals for research and development activities, Series B-1 redeemable convertible preferred shares valuation, ordinary share valuation and related share-based compensation and certain other accrued liabilities. Actual results could differ from those estimates.
Segments
The Company operates and manages its business as one reportable and operating segment, which is the business of research and development of medicines that target chronic diseases with unmet medical needs. The Company’s Chief Executive Officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance. The Company’s long-lived assets are primarily in China.
Concentration of Credit Risk
The Company is exposed to credit risk from its deposits of cash, cash equivalents and short-term investments in excess of the amount of insurance provided on such deposits. The Company invests its cash, cash equivalents and short-term investments in money market funds, corporate debt securities, U.S. government bonds and U.S. government agency bonds. The Company limits its credit risk associated with cash, cash equivalents and short-term investments by placing them with banks and institutions it believes are highly creditworthy and in highly rated investments. The Company has not experienced any losses on its deposits of cash, cash equivalents and short-term investments to date. The Company has no off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements.
Risks and Uncertainties
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical studies, clinical trials and regulatory approval prior to commercialization. These efforts require significant amounts of additional resources, adequate personnel, infrastructure and extensive compliance and reporting.
The Company’s product candidates are still in development and, to date, none of the Company’s product candidates have been approved for sale and, therefore, the Company has not generated any revenue from any of its products.
There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained or maintained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate any revenue from any of its products. The Company operates in an
182
Table of Contents
STRUCTURE THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
environment of rapid change in technology and substantial competition from other pharmaceutical and biotechnology companies.
The Company relies and expects to continue to rely on a small number of vendors to manufacture supplies and materials for its use in the clinical trial programs. These programs could be adversely affected by a significant interruption in these manufacturing services.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with maturities of 90 days or less from the original date of purchase to be cash equivalents. As of December 31, 2022 and 2021, the Company’s cash and cash equivalents consist of cash deposited with banks and investments in money market funds.
Short-Term Investments
The Company classifies its investments as available-for-sale and records them at fair value based upon market prices at period end. Unrealized gains and losses that are deemed temporary in nature are recorded in accumulated other comprehensive income as a separate component of shareholders’ deficit. Dividend and interest income are recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of investments sold. The Company may sell these securities at any time for use in current operations.
Other-Than-Temporary Impairment
The Company evaluates its investments with unrealized losses for other-than-temporary impairment. When assessing investments for other-than-temporary declines in value, the Company considers factors such as, among other things, the extent and length of time the investment’s fair value has been lower than its cost basis, the financial condition and near-term prospects of the investment, the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value, and the expected cash flows from the security. If any adjustments to fair value reflects a decline in the value of the investment that the Company considers to be “other than temporary,” the Company reduces the investment to fair value through a charge to the consolidated statements of operations and comprehensive loss. No such adjustments were necessary during the periods presented.
Fair Value of Financial Instruments
The Company establishes the fair value of its assets and liabilities using the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and established a fair value hierarchy based on the inputs used to measure fair value.
The carrying value of cash and cash equivalents, accounts payable and accrued liabilities approximate fair value due to their relatively short maturities. The Company determines the fair value of financial and non-financial assets and liabilities using the fair value hierarchy which establishes three levels of inputs that may be used to measure fair value (see Note 4).
Property and Equipment, Net
Property and equipment, net is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, generally two to five years. Leasehold improvements are amortized using the straight-line method over the shorter of the assets’ estimated useful lives or the remaining term of the lease. When assets are retired or otherwise disposed of, the cost and
183
Table of Contents
STRUCTURE THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
accumulated depreciation are removed from the balance sheet, and any resulting gain or loss is reflected in operating expenses in the period realized. Maintenance and repairs are charged to operating expenses as incurred.
Impairment of Long-Lived Assets
Long-lived assets consist primarily of property and equipment, net, and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require that a long-lived asset be tested for possible impairment, the Company compares the undiscounted cash flows expected to be generated by the asset group to the carrying amount of the asset group. If the carrying amount of the long-lived asset is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. During the years ended December 31, 2022 and 2021, the Company has not recorded impairment charges on its long-lived assets.
Deferred Offering Costs
The Company capitalizes, within other non-current assets, certain legal, accounting and other third-party fees that are directly related to the Company’s in-process equity financings, including its IPO, until such financings are consummated. After consummation of the equity financing, these costs are recorded as a reduction of the proceeds received as a result of the offering. Should a planned equity financing be abandoned, terminated or significantly delayed, the deferred offering costs will be immediately written off to general and administrative expenses. As of December 31, 2022 and 2021, deferred offering costs were $3.4 million and $0.1 million, respectively.
Accrued Research and Development Expenses
The Company has entered into various agreements with contract manufacturing organizations (“CMOs”) and contract research organizations (“CROs”). The Company’s research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs. The estimated costs of research and development provided, but not yet invoiced, are included in other current liabilities on the consolidated balance sheets. If the actual timing of the performance of services or the level of effort varies from the original estimates, the Company will adjust the accrual accordingly. Payments made to CMOs and CROs under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other current assets on the consolidated balance sheets until the services are rendered.
Leases
The Company determines if an arrangement is, or contains, a lease at inception and then classifies the lease as operating or financing based on the underlying terms and conditions of the contract. Leases with terms greater than one year are initially recognized on the consolidated balance sheets as right-of-use assets and lease liabilities based on the present value of lease payments over the expected lease term. The Company has also elected to not apply the recognition requirement to any leases within its existing classes of assets with a term of 12 months or less and does not include any options to purchase the underlying asset that the Company is reasonably certain to exercise. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Variable lease payments are excluded from the right-of-use assets and operating lease liabilities and are recognized in the period in which the obligation for those payments is incurred. The Company elected the practical expedient not to separate non-lease components from lease
184
Table of Contents
STRUCTURE THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
components for the Company’s facility leases and to account for the lease and non-lease components as a single lease component.
Redeemable Convertible Preferred Shares
The Company records all shares of redeemable convertible preferred shares at the amount of proceeds received, less amounts allocated to redeemable convertible preferred shares tranche liability and issuance costs. The fair value of Series B-1 redeemable convertible preferred shares issued in connection with the Basecamp share exchange transaction was estimated at fair value based on market-based factors similar to those used in determining the fair value of ordinary shares. Though not mandatorily redeemable, the redeemable convertible preferred shares are recorded outside of permanent equity because in certain events considered not solely within the Company’s control, such as a merger, acquisition, or sale of all or substantially all of the Company’s assets (each, a “deemed liquidation event”), the redeemable convertible preferred shares may become redeemable at the option of the holders of at least a majority of the then outstanding shares on or after April 29, 2026. The Company made an accounting policy election to recognize changes in the redemption value of redeemable convertible preferred shares immediately as they occur and adjust the carrying value of redeemable convertible preferred shares to equal it to its redemption value at the end of each reporting period. All outstanding shares of the redeemable convertible preferred shares converted into ordinary shares upon effectiveness of its IPO.
Research and Development Expenses
Research and development expenses include costs directly attributable to the conduct of research and development programs, including payroll and related expenses, costs for CMOs, costs for CROs, materials, supplies, consulting costs, and the allocated portions of facility costs, such as rent, utilities, insurance, information technology costs and general support services. Research and development costs are expensed within the consolidated statements of operations and comprehensive loss as incurred.
Fair Value of Ordinary Shares
Prior to the IPO, the fair value of the Company’s ordinary shares was determined by its Board of Directors with input from management and third-party valuation specialists. The Company’s approach to estimate the fair value of the Company’s ordinary shares is consistent with the methods outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Determining the best estimated fair value of the Company’s ordinary shares requires significant judgment and management considers several factors, including the Company’s stage of development, equity market conditions affecting comparable public companies, significant milestones and progress of research and development efforts. Subsequent to the Company’s IPO, the fair value of the Company’s ordinary shares is determined based on its closing market price of the Company’s ADS, which each represents three ordinary shares.
Share-Based Compensation
The Company accounts for share-based compensation arrangements with employees and non-employees using a fair value method which requires the recognition of compensation expense for costs related to all share-based payments including share options. The fair value method requires the Company to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The Company uses the Black-Scholes option-pricing model to estimate the fair value of options granted that are expensed on a straight-line basis over the requisite service period, which is generally the vesting period. The Company accounts for forfeitures as they occur. Option valuation models, including the Black-Scholes option-pricing model, require the input of several assumptions.
185
Table of Contents
STRUCTURE THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company granted share options to employees of China. The exercise of share options granted to employees of China are conditioned to liquidity events which are outside the Company’s control. The liquidity events are not probable until consummated and employees of China cannot benefit from their share options. As such, no share-based compensation expense has been recognized for the employees of China’s share options during the years ended December 31, 2022 and 2021.
Income Taxes
Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the consolidated financial statement and tax bases of assets and liabilities at the applicable enacted tax rates. The Company will establish a valuation allowance for deferred tax assets if it is more likely than not that these items will expire before the Company is able to realize its benefits or that future deductibility is uncertain.
The Company recognizes the tax benefit from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to income tax matters in its provision for income taxes. There were no uncertain income tax positions or unrecognized income tax benefits as of December 31, 2022 and 2021.
Net Loss Per Share Attributable to Ordinary Shareholders
Basic net loss per ordinary share is calculated by dividing the net loss attributable to ordinary shareholders by the weighted-average number of ordinary shares outstanding during the period, without consideration of potentially dilutive securities. Net loss attributable to ordinary shareholders is computed as net loss less accretion of redeemable convertible preferred shares and less any excess of the fair value of the consideration paid over the carrying value of noncontrolling interest. Diluted net loss per share is computed by dividing the net loss attributable to ordinary shareholders by the weighted-average number of ordinary shares and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, the redeemable convertible preferred shares, ordinary share warrants, unvested restricted ordinary shares subject to repurchase and share options are considered to be potentially dilutive securities. Basic and diluted net loss per share attributable to ordinary shareholders is presented in conformity with the two-class method required for participating securities as the redeemable convertible preferred shares are considered a participating security because they participate in dividends with ordinary shares. The holders of redeemable convertible preferred shares do not have a contractual obligation to share in the Company’s losses. As such, the net loss was attributed entirely to ordinary shareholders. Because the Company has reported a net loss for all periods presented, diluted net loss per ordinary share is the same as basic net loss per ordinary share for those periods.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as a change in equity of a business enterprise during a period, resulting from transactions from non-owner sources. Other comprehensive loss represents unrealized gains or losses on short-term investments that are reported as a component of shareholders’ deficit on the consolidated balance sheets.
JOBS Act Accounting Election
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised
186
Table of Contents
STRUCTURE THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date the Company (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Account Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes, which simplify various aspects related to the accounting for income taxes. This ASU removes exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. For the Company, the amendments are effective for the year ended December 31, 2022. The adoption of this ASU did not have a material effect on the Company’s consolidated financial statements and related disclosures.
Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This ASU replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. The amendments in this Update are effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements and related disclosures.
3.Composition of Certain Consolidated Financial Statement Line Items
Property and equipment, net consists of the following (in thousands):
DECEMBER 31,
Furniture and fixtures 115 90
Computer equipment and software 58 42
Leasehold improvements 109 110
Less: Accumulated depreciation (349) (72)
Property and equipment, net $ 1,031 $ 1,185
187
Table of Contents
STRUCTURE THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Depreciation expense for the years ended December 31, 2022 and 2021 was $0.3 million and $0.1 million, respectively.
Accrued expenses and other current liabilities consisted of the following (in thousands):
DECEMBER 31,
Accrued research and development expenses 1,818 2,053
Accrued clinical expenses 438 368
Accrued professional services 313 159
Income tax and VAT payable 174 231
Accrued other liabilities 454 71
Total accrued expenses and other current liabilities $ 6,741 $ 4,825
4. Fair Value Measurements
The Company determines the fair value of financial and non-financial assets and liabilities using the fair value hierarchy which establishes three level of inputs that may be used to measure fair value, as follows:
Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.
188
Table of Contents
STRUCTURE THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):
DECEMBER 31,
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
U.S. government bonds 11,763 — — 11,763 — — — —
DECEMBER 31,
AMORTIZED UNREALIZED FAIR AMORTIZED UNREALIZED FAIR
COST LOSSES GAINS VALUE COST LOSSES GAINS VALUE
As of December 31, 2022 and 2021, the Company did not have any liabilities measured at fair value on a recurring basis.
There were no transfers in and out of Level 3 during the years ended December 31, 2022 and 2021.
Money market funds and U.S. government bonds are included within Level 1 of the fair value hierarchy because they are valued using quoted market prices. Corporate debt securities and U.S. government agency bonds are classified within Level 2 of the fair value hierarchy as they take into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income-based and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate the fair value. These inputs include reported trades of and broker/dealer quotes on similar securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data and other observable inputs.
5. Term Loan
On August 4, 2020, the Company entered into a Loan and Security Agreement (the “SVB Agreement”) with Silicon Valley Bank (“SVB”) to raise up to $8.0 million in debt financing (the “SVB Loan”) consisting of $5.0 million available to draw on or before July 31, 2021 (“Tranche A”), and the option to draw up to an additional $3.0 million (“Tranche B”) on or before January 31, 2022, which were conditioned to initiation of a
189
Table of Contents
STRUCTURE THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Phase 1 clinical trial on or before July 31, 2021, and nomination of a development candidate for a second asset on or prior to January 31, 2022, both of which the Company accomplished in May 2021. The Tranche B draw period was extended to July 31, 2022, upon the receipt of net cash proceeds in an amount of at least $50.0 million from the issuance and sale by the Company of its equity securities to investors and/or subordinated debt on or prior to January 31, 2022, which the Company accomplished in July 2021. The Company elected to allow the Tranche A and Tranche B financings to expire unused on July 31, 2021 and July 31, 2022, respectively.
In connection with the entering into the SVB Agreement, the Company issued SVB a warrant to purchase shares of its ordinary shares at an exercise price of $0.48 per share (“SVB Warrant”). The SVB Warrant is immediately exercisable for 112,279 ordinary shares of the Company and could have been exercisable for an additional number of ordinary shares equal to 44,567 ordinary shares upon draw of Tranche A and 22,283 ordinary shares upon draw of Tranche B. The warrant for Tranche A shares and Tranche B shares expired on July 31, 2021 and July 31, 2022, respectively, as the Company elected to allow the Tranche A and Tranche B financings to expire unused on July 31, 2021 and July 31, 2022, respectively. In February 2023, SVB fully exercised the SVB Warrant for 106,060 ordinary shares through a cashless exercise.
6. Commitments and Contingencies
Operating Leases
In January 2020, ShouTi Shanghai entered into a lease agreement to lease approximately 6,000 square feet of office space in Chamtime Plaza in Shanghai, China. The lease commenced on November 1, 2020, and was scheduled to expire on December 31, 2022. ShouTi Shanghai had an option to extend the lease term, however the renewal term and conditions were to be agreed to between ShouTi Shanghai and the landlord. For accounting purposes, the lease term did not include the option to extend the lease term as it was not reasonably certain that the lease term would be extended. In connection with entering into new lease agreement in Chamtime Plaza in June 2021, the lease agreement was terminated early on October 31, 2021.
In June 2021, ShouTi Shanghai entered into a lease agreement to lease approximately 5,900 square feet of office space in Chamtime Plaza in Shanghai, China. The lease commenced on September 16, 2021 and expires on September 15, 2023. ShouTi Shanghai has an option to extend the lease term, however the renewal term and conditions should be agreed between ShouTi Shanghai and the landlord. For accounting purposes, the lease term did not include the option to extend the lease term as it is not reasonably certain that the lease term will be extended.
In November 2021, StructureTx US entered into a lease agreement to lease approximately 4,050 square feet of office spaces in South San Francisco, California. The lease commenced on November 11, 2021, and expires on October 31, 2023.
190
Table of Contents
STRUCTURE THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The maturities of operating lease liabilities as of December 31, 2022, were as follows (in thousands):
DECEMBER 31,
Total undiscounted lease payments 267
Less: imputed interest 7
Total operating lease liability 260
Less: current portion 260
Operating lease liability, net of current portion $ —
Operating lease cost was $1.1 million and $0.5 million for the years ended December 31, 2022 and 2021, respectively, including $0.7 million and $0.2 million short-term lease costs for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, the weighted average remaining lease term was 0.8 years, and the weighted average discount rate used to measure the lease liabilities for such operating leases upon recognition was 7.8%. During the years ended December 31, 2022 and 2021, cash paid for amounts included in operating lease liabilities of $0.4 million and $0.2 million, respectively, was included in cash flows from operating activities on the consolidated statements of cash flows.
Indemnification Agreements
In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend an indemnified party for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential number of future payments the Company could be required to make under these provisions is not determinable. The Company has never incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company has also entered into indemnification agreements with its directors and officers that require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by the applicable law and the amended and restated memorandum and articles of association of the Company. The Company currently has directors’ and officers’ liability insurance. As of December 31, 2022 and 2021, the Company did not have any material indemnification claims that were probable or reasonably possible and consequently had not recorded related liabilities.
Legal Proceedings
The Company is subject to claims and assessments from time to time in the ordinary course of business but is not aware of any such matters, individually or in the aggregate, that will have a material adverse effect on the Company’s financial position, results of operations or cash flows.
7. Redeemable Convertible Preferred Shares
Under the Company’s Memorandum and Articles of Association, as amended, the Company’s redeemable convertible preferred shares are issuable in series. The Company’s board of directors is authorized to determine the rights, preferences, privileges and terms of each series.
191
Table of Contents
STRUCTURE THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Redeemable convertible preferred shares consisted of the following (in thousands, except share and per share amounts):
SHARES ISSUED
SHARES ORIGINAL AND CARRYING LIQUIDATION
SERIES AUTHORIZED ISSUE PRICE OUTSTANDING VALUE VALUE
SHARES ISSUED
SHARES ORIGINAL AND CARRYING LIQUIDATION
SERIES AUTHORIZED ISSUE PRICE OUTSTANDING VALUE VALUE
The original issuance price in the table above reflects the stated issuance price per the respective purchase agreements.
Series A Redeemable Convertible Preferred Shares
In April 2019, the Company entered into a Series A redeemable convertible preferred shares purchase agreement with certain investors to issue and sell 9,600,000 shares of its Series A redeemable convertible preferred shares at a price of $1.6667 per share (the “Series A Purchase Price”) for total gross proceeds of $16.0 million. The issuance costs were $0.3 million.
The purchase agreement also provided for the issuance and sale to investors of an additional 9,600,000 Series A redeemable convertible preferred shares at the Series A Purchase Price upon achieving certain operational milestones (the “Milestone Closing”) around the selection of targeted programs and progress of certain candidate programs.
The issuance of Series A redeemable convertible preferred shares was recorded at the amount of proceeds received less issuance costs and the amounts allocated to the Milestone Closing liability (“redeemable convertible preferred shares tranche liability”). During the year ended December 31, 2019, the carrying value of the redeemable convertible preferred shares was adjusted to equal to its redemption value.
The Milestone Closing occurred on December 9, 2019, and the Company issued 9,600,000 Series A redeemable convertible preferred shares at $1.6667 per share for gross proceeds of $16.0 million. The redeemable convertible preferred shares tranche liability was settled upon the Milestone Closing.
192
Table of Contents
STRUCTURE THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Series A+ Redeemable Convertible Preferred Shares
In March 2020, the Company entered into a Series A+ redeemable convertible preferred shares purchase agreement with certain investors to issue and sell 12,799,681 shares of its Series A+ redeemable convertible preferred shares at a price of $2.0313 per share (the “Series A+ Purchase Price”) for total gross proceeds of $26.0 million. The issuance costs were $0.2 million.
The issuance of Series A+ redeemable convertible preferred shares was recorded at the amount of proceeds received less issuance costs. During the year ended December 31, 2020, the carrying value of the redeemable convertible preferred shares was adjusted to equal to its redemption value.
Series B Redeemable Convertible Preferred Shares
In July 2021, the Company entered into a Series B redeemable convertible preferred shares purchase agreement with certain investors to issue and sell 24,701,732 shares of its Series B redeemable convertible preferred shares at a price of $4.0483 per share (the “Series B Purchase Price”) for total gross proceeds of $100.0 million. The issuance costs were $3.6 million.
The issuance of Series B redeemable convertible preferred shares was recorded at the amount of proceeds received less issuance costs. During the year ended December 31, 2022, the carrying value of the redeemable convertible preferred shares was adjusted to equal to its redemption value.
In July 2021, the Company executed letter agreements with one of the investors and its affiliates granting them the right to purchase a certain number of the Company’s ordinary shares equal to the product of (i) the total number of ordinary shares of the Company being sold in the Company’s first firm committed underwritten public offering of the capital stock of the Company (the “IPO”), and (ii) aggregate percentage ownership of the capital stock of the Company of the investor and its affiliates (the “IPO Participation Right”). The ordinary shares offered to the investor and its affiliates shall be offered on the same terms and price at which such ordinary shares are being offered to the public pursuant to the Company’s IPO. The purchase price of ordinary shares will be the fair value at the time of purchase as it will represent the fair value of the Company’s ordinary shares at the time of the IPO. IPO Participation Right has no fair value as it represents a right, not obligation, to purchase additional securities at fair value.
In April 2022, the Company issued and sold an additional 8,155,272 shares of its Series B redeemable convertible preferred shares for gross proceeds of $33.0 million, pari-passu with the other Series B shareholders. The issuance of the additional Series B redeemable convertible preferred shares was recorded at the amount of gross proceeds received less issuance costs of $1.5 million. During the year ended December 31, 2022, the carrying value of the redeemable convertible preferred shares was adjusted to equal to its redemption value.
Series B-1 Redeemable Convertible Preferred Shares
In December 2021, the Company entered into a share exchange agreement with other investors of Series Seed redeemable convertible preferred shares of Basecamp. The Company issued 2,161,402 Series B-1 redeemable convertible preferred shares to the other investors of Series Seed redeemable convertible preferred shares of Basecamp to acquire the 7,000,000 Series Seed redeemable convertible preferred shares of Basecamp held by the other investors. The issuance costs were $0.1 million.
The issuance of Series B-1 redeemable convertible preferred shares was recorded at the fair value of the amount of Series B -1 redeemable convertible preferred shares. The fair value of Series B-1 redeemable convertible shares was determined by management with input from third-party valuation specialists. During
193
Table of Contents
STRUCTURE THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the year ended December 31, 2022, the carrying value of the redeemable convertible preferred shares was adjusted to equal to its redemption value.
Rights, Preferences and Privileges
On February 7, 2023, upon the closing of the Company’s IPO, all outstanding redeemable convertible preferred shares automatically converted into 67,018,087 ordinary shares. Prior to the closing of the Company’s IPO, the holders of redeemable convertible preferred shares had the following various rights and preferences:
Voting Rights
Each share of redeemable convertible preferred share has the same voting rights as the number of shares of ordinary shares into which it is convertible and votes together with the holders of ordinary shares as a single class.
The holders of shares of Series B redeemable convertible preferred shares shall be entitled, voting separately as a single class, to elect two directors of the Company (the “Series B Directors”). The holders of shares of Series A+ redeemable convertible preferred shares shall be entitled, voting separately as a single class, to elect two directors of the Company (the “Series A+ Directors”). The holders of shares of Series A redeemable convertible preferred shares shall be entitled, voting separately as a single class, to elect two directors of the Company (the “Series A Directors”). The holders of ordinary shares shall be entitled, voting separately as a single class, to elect two directors of the Company. The holders of ordinary shares and redeemable convertible preferred shares shall be entitled, voting together, to elect the remaining directors of the Company.
Dividends
Holders of outstanding shares of redeemable convertible preferred shares are entitled on a pari passu basis, to participate ratably (on an as if converted to ordinary shares basis) in the payment of any dividends when, as and if declared by the board of directors on the ordinary shares. Dividends are noncumulative, and none were declared as of December 31, 2022 and 2021.
Liquidation