On February 28, 2023 Sesen Bio (Nasdaq: SESN) reported operating results for the fourth quarter and full year ended December 31, 2022, and provided a business update (Press release, Sesen Bio, FEB 28, 2023, View Source [SID1234627901]).
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Business Update
On February 13, 2023, following extensive engagement with Sesen Bio stockholders, Sesen Bio and Carisma Therapeutics, Inc. ("Carisma") further amended the previously amended merger agreement announced on December 29, 2022. The terms of the amended merger agreement include:
An increase of the one-time special cash dividend expected to be paid to Sesen Bio stockholders to $75.0 million, or approximately $0.36 per share1. This represents an increase from the expected special cash dividend of approximately $70.0 million, or approximately $0.34 per share1, under the first amendment to the merger agreement, and an increase from the up to $25.0 million special cash dividend under the terms of the original merger agreement dated September 20, 2022.
An extension of the period of time for payments under the Contingent Value Rights related to any potential proceeds from the sale of Vicineum and Sesen Bio’s other legacy assets to March 31, 2027, from December 31, 2023 under the previous terms. This is in addition to any potential proceeds from the milestone payment under the Roche Asset Purchase Agreement.
Michael Torok, one of Sesen Bio’s largest stockholders, will join the Carisma Board of Directors upon closing of the merger as the sole Sesen Bio representative.
The go-forward company will focus on the development of Carisma’s chimeric antigen receptor macrophage (CAR-M) therapies, which are believed to be the only therapies of their kind with demonstrated proof of mechanism and safety data in clinical trials. The combined company is expected to operate under the name "Carisma Therapeutics, Inc." and trade on Nasdaq under the ticker symbol "CARM".
On February 16, 2023 and February 17, 2023, leading independent proxy advisors Institutional Shareholder Services ("ISS") and Glass, Lewis & Co. ("Glass Lewis"), respectively, recommended Sesen Bio stockholders vote "FOR" all proposals at the March 2, 2023 Special Meeting of Stockholders. The positive recommendations from ISS and Glass Lewis build on the support received from several of Sesen Bio’s largest stockholders for the merger with Carisma, including Bradley L. Radoff, Michael Torok and their affiliates, as well as BML Investment Partners, L.P., who together beneficially own approximately 12.8% of Sesen Bio’s outstanding common stock.
On January 31, 2023, the United States District Court for the Southern District of New York issued an order granting final approval of the settlement of the consolidated shareholder class action captioned In re Sesen Bio, Inc. Securities Litigation, Master File No. 1:21-cv-07025-AKH (the "Securities Litigation"). This follows the November 8, 2022 grant of final approval by the United States District Court for the District of Massachusetts of the settlement of the previously disclosed consolidated derivative lawsuits captioned In re Sesen Bio, Inc. Derivative Litigation, Lead Case No. 1:21-cv-11538, the derivative lawsuit captioned Tang v. Sesen Bio, Inc., et al., Case No. 2281-cv-00135 and other potential related derivative claims (collectively, the "Derivative Litigation").
On February 24, 2023, Sesen Bio received a determination from Nasdaq’s Office of General Counsel that the Nasdaq Hearings Panel (the "Panel") had granted the Company an exception from the Company’s non-compliance with the $1.00 bid price requirement to complete the proposed merger with Carisma by March 10, 2023. Pursuant to Nasdaq Listing Rule 5110(a), the Company must demonstrate compliance with all initial listing requirements of Nasdaq upon closing of the proposed merger with Carisma. Sesen Bio was scheduled for a hearing with the Panel on March 16, 2023, following receipt of notice from Nasdaq’s Listing Qualifications Department on January 25, 2023 that the Company’s common stock is subject to delisting based upon non-compliance with the $1.00 bid price requirement. In the event the Company fails to establish compliance with the initial listing standards by March 10, 2023, its common stock will be delisted from Nasdaq, unless granted an additional exception by the Panel.
1: Based on basic outstanding shares including unvested restricted stock units
Fourth Quarter 2022 Financial Results
Cash Position: Cash, cash equivalents and marketable securities were $166.9 million as of December 31, 2022, compared to cash and cash equivalents of $162.6 million as of December 31, 2021.
R&D Expenses: Research and development expenses were $1.0 million for the three months ended December 31, 2022, compared to $7.0 million for the three months ended December 31, 2021. Research and development expenses were $38.6 million for the year ended December 31, 2022, compared to $25.3 million for the year ended December 31, 2021. The increase of $13.3 million was primarily driven by the expense of prepaid balances related to consumables and manufacturing reservations, as the balances were deemed to have no future value due to the strategic decision to voluntarily pause further development of Vicineum in the United States ($25.2 million). Additionally, employee-related compensation increased, primarily due to the retention programs implemented in the fourth quarter of 2021 and third quarter of 2022 ($1.0 million). The increase was partially offset by decreased costs associated with manufacturing ($8.9 million), clinical and manufacturing related consulting fees ($2.3 million) and other individually immaterial research and development costs ($0.2 million), driven by the strategic decision to voluntarily pause further development of Vicineum in the United States in the third quarter of 2022. Additionally, one-time regulatory milestone payments ($1.5 million) related to the filing of the biologics license application (BLA) to the United States Food and Drug Administration (the "FDA") for Vicineum and a marketing authorization application (MAA) to the European Medicines Agency (EMA) for Vysyneum were made in 2021.
G&A Expenses: General and administrative expenses were $7.1 million for the three months ended December 31, 2022, compared to $8.6 million for the three months ended December 31, 2021. General and administrative expenses were $39.8 million for the year ended December 31, 2022, compared to $29.4 million for the year ended December 31, 2021. The increase of $10.4 million was primarily due to an increase in legal expense ($13.1 million) driven by the settlements of the Securities Litigation and Derivative Litigation net of expected insurance recovery ($8.2 million) and the Company’s assessment of strategic alternatives ($3.8 million). Additionally, there were increases in legal fees for the Securities Litigation and Derivative Litigation counseling ($0.6 million), general business counseling ($0.3 million), and other legal expenses ($0.2 million). The Company also incurred $1.2 million in connection with the fairness opinions related to the proposed merger with Carisma and increases in other individually immaterial expenses ($0.2 million). This was partially offset by decreases in marketing and commercial expenses ($4.1 million), driven by preparation for the commercial launch of Vicineum prior to the receipt of the complete response letter (the "CRL") from the FDA in August 2021.
Restructuring Charges: Restructuring charges were $0.8 million for the three months ended December 31, 2022, compared to a de minimis amount for the three months ended December 31, 2021. Restructuring expenses were $11.8 million for the year ended December 31, 2022, compared to $5.5 million for the year ended December 31, 2021. The expenses for the year ended December 31, 2022 consisted of severance and other employee-related costs ($7.0 million) and termination of certain contracts and other associated costs ($4.8 million) following the decision to pause further development of Vicineum in the United States. The expenses for the year ended December 31, 2021, consisted of severance and other employee-related costs ($2.8 million) and termination of certain contracts ($2.7 million) following the receipt of the CRL in August 2021.
Non-Cash Related Expenses:
The intangibles impairment charge for the year ended December 31, 2022 was $27.8 million. Due to the strategic decision to voluntarily pause further development of Vicineum in the United States during the second quarter of 2022, the Company completed its impairment testing and concluded that the carrying value of its intangible asset of Vicineum European Union rights of $14.7 million and Goodwill of $13.1 million were fully impaired and written off during the second quarter of 2022. The intangible impairment charge for the year ended December 31, 2021 was $31.7 million. In light of the CRL, the Company performed an interim impairment test, which concluded that the carrying value of its intangible asset of Vicineum United States rights of $31.7 million was fully impaired during the third quarter of 2021.
The non-cash change in fair value of contingent consideration of $52.0 million for the year ended December 31, 2022 was driven by the Company’s strategic decision to voluntarily pause further development of Vicineum in the United States and the Company’s conclusion that it no longer expects to owe any related future earnout and milestone payments. The decision was based on a thorough reassessment of Vicineum following discussions with the FDA, which had implications for the size, timeline and costs for an additional Phase 3 clinical trial of Vicineum for the treatment of non-muscle invasive bladder cancer. The change in fair value of contingent consideration was $56.8 million for the year ended December 31, 2021. This was primarily due to management’s assessment of a lower probability of regulatory approval following the receipt of a CRL in August 2021, in which the FDA determined that it could not approve the BLA for Vicineum in its present form.
Income Tax Benefit: For the year ended December 31, 2022, the Company recorded a benefit from income taxes of $3.9 million. In the second quarter of 2022, the Company determined that the fair value of the Vicineum European Union in-process research and development asset was zero, which resulted in an impairment charge of $14.7 million. In connection with this impairment charge, in the second quarter of 2022, the Company wrote-down the associated deferred tax liability by $3.9 million as a benefit. For the year ended December 31, 2021, the Company recorded a benefit from income taxes of $8.3 million. In the third quarter of 2021, the Company determined that the fair value of the Vicineum United States in-process research and development asset was zero, which resulted in an impairment charge of $31.7 million. In connection with this impairment charge, in the third quarter of 2021, the Company wrote-down the associated deferred tax liability by $8.6 million as a benefit. This was partially offset by $0.3 million in taxes paid related to the Qilu License Agreement.
Net (Loss) Income: Net loss was $7.6 million, or $0.04 per basic and diluted share, for the fourth quarter of 2022, compared to net income of $8.9 million, or $0.04 per basic and diluted share, for the same period in 2021. Net loss was $19.9 million, or $0.10 per basic and diluted share, for the year ended December 31, 2022, compared to $0.3 million, or $0.00 per basic and per diluted share, for the year ended December 31, 2021. The increase in net loss was primarily due to an increase in operating expense ($30.8 million) and a decrease in income tax benefit ($4.4 million), which were offset by an increase in license and related revenue ($13.5 million). The revenue increase was primarily driven by the execution of the asset purchase agreement with F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc. (collectively, "Roche") for EBI-031 and all other IL-6 antagonist monoclonal antibody technology in 2022 ($40.0 million), partially offset by the milestones achieved by Roche ($20.0 million), Qilu Pharmaceutical Co., Ltd., the Company’s former partner in the Greater China region ($5.0 million), and Hikma Pharmaceuticals LLC, the Company’s former partner in the Middle East and North Africa region ($1.5 million) in 2021. Additionally, interest income increased ($1.8 million) primarily due to higher yield earned on the Company’s investment account during 2022.