[10-Q] Turnstone Biologics Corp. Quarterly Earnings Report
Turnstone Biologics has agreed to be acquired by XOMA Royalty Corporation in a transaction that will convert each outstanding share into a cash tender offer of $0.34 per share plus one contingent value right (CVR). Options will be cancelled and outstanding RSUs will be accelerated and settled for the same cash amount plus one CVR. The CVR entitles holders to a portion of specified contingent payments and certain Net Cash proceeds, with an aggregate contingency pool including up to $1.1 million tied to tax receivables and a lease security deposit; CVR payments received more than one year after closing will not be paid.
At June 30, 2025 the company held $16.7 million of cash and cash equivalents, reported a $17.3 million net loss for the six months, and an accumulated deficit of $264.9 million. Management believes cash on hand is sufficient to meet obligations for the next twelve months. Turnstone has substantially reduced headcount (reported as 3 employees at June 30, 2025 and subsequently 2 employees) and recorded restructuring charges and asset dispositions, including property and equipment held for sale and a recognized loss on disposal of $2.6 million for the six months.
Corporate actions include an Asset Purchase Agreement with Moffitt for approximately $3.0 million (about $1.8 million in escrow at signing), termination of its Banc of California loan facility without draws, and a transfer to the Nasdaq Capital Market with an additional 180-day cure period to regain a minimum $1.00 bid price. The Myst contingent milestone liability was revalued to $0, reflecting management’s updated probability assessment.
- Definitive Merger Agreement with XOMA provides a clear exit via a cash tender offer of $0.34 per share plus CVR
- $16.7 million of cash and management view that cash is sufficient to fund planned expenditures for the next 12 months
- Asset Purchase Agreement with Moffitt will provide approximately $3.0 million, with ~$1.8 million placed in escrow at signing
- Loan and Security Agreement with Banc of California was terminated undrawn, avoiding indebtedness and immediate repayment risk
- Contingent consideration from the Myst acquisition revalued to $0, removing that future liability from the balance sheet
- Operating losses remain significant: $17.3 million net loss for the six months ended June 30, 2025 and no product revenue
- Large accumulated deficit of $264.9 million, reflecting sustained historical losses
- Substantial workforce reductions and continuing headcount shrinkage (reported 3 employees at June 30, 2025 and later 2 employees) indicating limited internal capacity
- Nasdaq minimum bid-price noncompliance risk persists; company was granted a cure period but faces potential delisting if $1.00 bid not restored
- Completion of the Merger is not guaranteed and the Offer requires >50% tender to proceed; failure could lead to dissolution and liquidation per management disclosure
Insights
TL;DR The XOMA deal provides a definitive exit at $0.34/sh plus a limited CVR, while Turnstone remains loss-making with limited runway but manageable near-term liquidity.
Turnstone's transaction with XOMA crystallizes an exit price of $0.34 per share plus a non-tradable CVR tied to modest contingent proceeds. The balance sheet shows $16.7M of cash and an expectation from management that it will fund operations for 12 months; however, operating losses of $17.3M in the first half compress runway absent transaction proceeds or additional funding. The loan facility with Banc of California terminated undrawn, avoiding leverage but removing a liquidity backstop. Nasdaq minimum bid noncompliance remains a short-term listing risk unless share-price remediation occurs. Overall impact: neutral-to-moderate given the certainty of a buyer but limited per-share economics and ongoing operating cash burn.
TL;DR The merger represents a clear liquidity event and de-risking path for shareholders, with structured CVR mechanics and escrowed consideration to address legacy obligations.
From an M&A perspective, the agreement delivers a definitive buyer and a structured settlement of legacy obligations (including the Moffitt asset sale and escrow). The combination of an immediate cash component and CVR ties remaining upside to specific, limited contingent items (including up to $1.1M of certain contingent receipts and Net Cash mechanics). Cancellation of options and acceleration/cash settlement of RSUs simplifies the capital structure at closing. The transaction also transfers responsibility for certain asset-sale obligations to the acquirer at closing, reducing execution risk on legacy arrangements. Impact is positive for achieving an orderly exit and resolving outstanding contract obligations.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
|
|
|
|
☒ |
Smaller reporting company |
||
|
|
|
|
|
|
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No
The number of shares of Registrant’s common stock issued and outstanding as of August 5, 2025, was
Turnstone Biologics Corp.
FORM 10-Q
TABLE OF CONTENTS
|
|
Page |
PART I |
FINANCIAL INFORMATION |
|
|
|
|
Item 1 |
Financial Statements |
1 |
|
|
|
|
Condensed Consolidated Balance Sheets as of June 30, 2025 (unaudited) and December 31, 2024 |
1 |
|
|
|
|
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2025 and 2024 (unaudited) |
2 |
|
|
|
|
Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2025 and 2024 (unaudited) |
3 |
|
|
|
|
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2025 and 2024 (unaudited) |
4 |
|
|
|
|
Notes to Condensed Consolidated Financial Statements (unaudited) |
5 |
|
|
|
Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
|
|
|
Item 3 |
Quantitative and Qualitative Disclosures About Market Risk |
31 |
|
|
|
Item 4 |
Controls and Procedures |
31 |
|
|
|
PART II |
OTHER INFORMATION |
|
|
|
|
Item 1 |
Legal Proceedings |
32 |
|
|
|
Item 1A |
Risk Factors |
32 |
|
|
|
Item 2 |
Unregistered Sales of Equity Securities and Use of Proceeds |
34 |
|
|
|
Item 3 |
Defaults Upon Senior Securities |
34 |
|
|
|
Item 4 |
Mine Safety Disclosures |
34 |
|
|
|
Item 5 |
Other Information |
34 |
|
|
|
Item 6 |
Exhibits |
35 |
|
|
|
|
Signature |
36 |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties, many of which are beyond our control. Although our forward-looking statements reflect the good faith judgment of our management, these statements can only be based on facts and factors currently known by us. Consequently, these forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements as a result of various factors, including those set forth below under the caption “Risk Factors.”
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, results of operations and financial condition. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described under the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024, or Annual Report, and in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. You should, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission, or SEC, after the date of this Quarterly Report on Form 10-Q.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely on these statements.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Turnstone Biologics Corp.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
|
|
June 30, 2025 |
|
|
December 31, 2024 |
|
||
|
|
(unaudited) |
|
|
|
|
||
Assets |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
|
||
Property and equipment held for sale |
|
|
|
|
|
|
||
Prepaid expenses |
|
|
|
|
|
|
||
Operating lease right of use assets, current |
|
|
|
|
|
|
||
Other current assets |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Other assets, noncurrent |
|
|
|
|
|
|
||
Operating lease right of use assets |
|
|
|
|
|
|
||
Property and equipment, net |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities and stockholders’ equity |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Accrued expenses and other current liabilities |
|
|
|
|
|
|
||
Operating lease liability, current |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Operating lease liability, noncurrent |
|
|
|
|
|
|
||
Other liabilities, noncurrent |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
Stockholders' equity |
|
|
|
|
|
|
||
Preferred stock, $ |
|
|
|
|
|
|
||
Common stock, $ |
|
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
|
||
Accumulated other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Total stockholders’ equity |
|
|
|
|
|
|
||
Total liabilities and stockholders’ equity |
|
$ |
|
|
$ |
|
||
The accompanying notes area an integral part of these unaudited condensed consolidated financial statements.
1
Turnstone Biologics Corp.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
(in thousands, except share and per share data)
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss from operations |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other income (expense), net |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Net loss before income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Provision for income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unrealized gain (loss) on available-for-sale debt securities |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Total comprehensive loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted-average number of shares of common stock outstanding, basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share attributable to common stockholders, basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
Turnstone Biologics Corp.
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
(in thousands, except share amounts)
|
Common Stock |
|
|
Additional |
|
Accumulated |
|
Accumulated |
|
Total |
|
||||||||
|
Shares |
|
Amount |
|
|
Capital |
|
Loss |
|
Deficit |
|
Equity |
|
||||||
Balance at December 31, 2024 |
|
|
$ |
|
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
||||
Vesting of restricted stock units |
|
|
|
|
|
$ |
— |
|
|
|
|
|
$ |
|
|||||
Stock-based compensation expense |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
Net loss |
|
|
|
|
|
|
|
|
|
$ |
( |
) |
$ |
( |
) |
||||
Balance at March 31, 2025 |
|
|
$ |
|
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
||||
Vesting of restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
||||||
Stock-based compensation expense |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
Net loss |
|
|
|
|
|
|
|
|
|
$ |
( |
) |
$ |
( |
) |
||||
Balance at June 30, 2025 |
|
|
$ |
|
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
||||
|
Common Stock |
|
Additional |
|
Accumulated |
|
Accumulated |
|
Total |
|
||||||||
|
Shares |
|
Amount |
|
Capital |
|
Loss |
|
Deficit |
|
Equity |
|
||||||
Balance at December 31, 2023 |
|
|
$ |
|
$ |
|
$ |
( |
) |
|
( |
) |
$ |
|
||||
Exercise of stock options |
|
|
$ |
— |
|
$ |
|
|
|
|
|
$ |
|
|||||
Stock-based compensation expense |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
Unrealized loss on available-for-sale debt securities |
|
|
|
|
|
|
$ |
( |
) |
|
|
$ |
( |
) |
||||
Net loss |
|
|
|
|
|
|
|
|
$ |
( |
) |
$ |
( |
) |
||||
Balance at March 31, 2024 |
|
|
$ |
|
|
|
$ |
( |
) |
|
( |
) |
$ |
|
||||
Stock-based compensation expense |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
Unrealized gain on available-for-sale debt securities |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
||||||
Net loss |
|
|
|
|
|
|
|
|
$ |
( |
) |
$ |
( |
) |
||||
Balance at June 30, 2024 |
|
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
|
||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Turnstone Biologics Corp.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
|
|
Six Months Ended June 30, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Operating Activities |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Stock-based compensation expense |
|
|
|
|
|
|
||
Loss on disposal of property and equipment |
|
|
|
|
|
— |
|
|
Depreciation and amortization |
|
|
|
|
|
|
||
Accretion of premium on short term investments |
|
|
— |
|
|
|
( |
) |
Change in fair value of contingent consideration liability |
|
|
( |
) |
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable - collaboration agreement |
|
|
— |
|
|
|
|
|
Prepaid expenses |
|
|
|
|
|
|
||
Other current assets |
|
|
|
|
|
|
||
Operating lease liabilities |
|
|
( |
) |
|
|
( |
) |
Accounts payable |
|
|
|
|
|
|
||
Accrued compensation and other accrued liabilities |
|
|
( |
) |
|
|
|
|
Other non-current assets |
|
|
— |
|
|
|
|
|
Net cash flows used in operating activities |
|
|
( |
) |
|
|
( |
) |
Investing Activities |
|
|
|
|
|
|
||
Proceeds from maturities of short-term investments |
|
|
— |
|
|
|
|
|
Purchase of short-term investments |
|
|
— |
|
|
|
( |
) |
Proceeds from sale of property and equipment |
|
|
|
|
|
|
||
Purchases of property and equipment |
|
|
— |
|
|
|
( |
) |
Net cash flows provided by investing activities |
|
|
|
|
|
|
||
Financing Activities |
|
|
|
|
|
|
||
Payments of financing costs |
|
|
— |
|
|
|
( |
) |
Proceeds from exercise of stock options |
|
|
— |
|
|
|
|
|
Net cash flows used in financing activities |
|
|
— |
|
|
|
( |
) |
Net decrease in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
Cash, cash equivalents and restricted cash at beginning of the period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at end of the period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental Disclosure of Cash Flow Information: |
|
|
|
|
|
|
||
Cash paid for income taxes |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Supplemental Disclosure of Non-Cash Investing and Financing Activities: |
|
|
|
|
|
|
||
Financing costs included in accounts payable |
|
|
— |
|
|
|
|
|
Equipment sales included in other current assets |
|
|
|
|
|
— |
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Turnstone Biologics Corp.
Notes to the Condensed Consolidated Financial Statements
1. Nature of the Business and Basis of Presentation
Organization
Turnstone Biologics Corp. (the “Company” or “Turnstone”) is a biotechnology company that was focused on developing new medicines to treat and cure patients with solid tumors. Until recently, Turnstone was pioneering a differentiated approach to tumor infiltrating lymphocytes (“TILs”), a clinically validated technology for treating solid tumors. The Company was developing next generation TIL therapies by selecting and expanding the most potent and tumor reactive T cells (“Selected TILs”). The Company's headquarters are located in Los Angeles, California.
Merger Agreement
On June 26, 2025, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with XOMA Royalty Corporation, a Nevada corporation (“XOMA”), and XRA 3 Corp., a Delaware corporation and a wholly-owned subsidiary of XOMA (“Merger Sub”). The Merger Agreement provides for, among other things: (i) the acquisition of all of the Company’s outstanding shares of common stock, par value $
Pursuant to the terms of the Merger Agreement, as of immediately prior to the effective time of the Merger (the “Effective Time”), by virtue of the Merger and without any action on the part of the holders of common stock, each outstanding share of common stock, will be converted into the right to receive the Offer Price. Each option to purchase shares of common stock from the Company will be cancelled and terminated for no consideration. The vesting for each restricted stock unit ("RSU") of the Company shall be accelerated and each RSU that is then outstanding will be cancelled and, in exchange therefor, the holder of such cancelled RSU will be entitled to receive in consideration of the cancellation of such RSU (A) an amount in cash without interest, less any applicable tax withholding, equal to the Cash Amount and (B) one CVR.
XOMA’s obligation to accept shares of common stock tendered in the Offer is subject to conditions, set forth in the Merger Agreement. Following the completion of the Offer, upon the terms and subject to the conditions of the Merger Agreement, including that the number of shares of common stock validly tendered (and not properly withdrawn) prior to the expiration of the Offer equals at least one share more than
Merger Sub will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of XOMA without any additional Company stockholder approvals. The Merger will be effected as soon as practicable following the time of purchase by XOMA of shares of common stock validly tendered and not withdrawn by XOMA in the Offer.
At or prior to the time at which XOMA first irrevocably accepts for purchase the shares of common stock tendered in the Offer, XOMA and Merger Sub expect to enter into a CVR Agreement with a rights agent and a representative, agent and attorney-in-fact of the holders of CVRs. Each CVR holder will be entitled to the right to receive, its portion of the amount equal to (i) up to an aggregate amount for all CVR holders of $
The right to the contingent payments contemplated by the CVR Agreement is a contractual right only and will not be transferable, except in the limited circumstances specified in the CVR Agreement. The CVRs will not be evidenced by a certificate or any other instrument and will not be registered with the United States Securities and Exchange Commission (the “SEC”). The CVRs will not have any voting or dividend rights and will not represent any equity or ownership interest in XOMA, any constituent corporation party to the Merger or any of their respective affiliates. No interest will accrue on any amounts payable on the CVRs to any holders.
5
Reduction in Force
Turnstone is reducing its workforce while also implementing further cost-containment and cash conservation measures. The Company intends to retain all employees essential for supporting value realization as part of the Merger Agreement. As of June 30, 2025, the Company has
Nasdaq Compliance
On September 27, 2024, the Company received a deficiency notice (the “Notice”) from the Listing Qualifications Staff of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, for the last
On March 27, 2025, the Company received approval from the Listing Qualifications Department of Nasdaq to transfer the listing of the Company’s common stock from the Nasdaq Global Market to the Nasdaq Capital Market (the “Approval”). The Company’s securities were transferred to the Nasdaq Capital Market at the opening of business on March 31, 2025. The Company’s common stock continues to trade under the symbol “TSBX.” The Nasdaq Capital Market operates in substantially the same manner as the Nasdaq Global Market, but with less stringent listing requirements, although listed companies must meet certain financial requirements and comply with Nasdaq’s corporate governance requirements.
In connection with the Approval, the Company has been granted an additional
Liquidity and Capital Resources
Going Concern
On June 26, 2025, the Company entered into the Merger Agreement. The Company has devoted, and expects to continue to devote, substantial time and resources to complete the Merger. The Company expects that the Merger will close in the third quarter of 2025. There can be no assurances that this transaction will be successfully consummated or lead to increased stockholder value, or that the Company will make any cash distributions to our stockholders. If the Merger is not consummated, the Board intends to pursue a dissolution and liquidation.
As of June 30, 2025, the Company had $
Sources of Liquidity
Since its inception, the Company has devoted substantially all of its efforts and financial resources to organizing and staffing the Company, business planning, raising capital, discovering product candidates and securing related intellectual property rights, and conducting research and development activities for its Selected TIL programs and product candidates. The Company does not have any products approved for sale, has not generated any revenue from product sales and has incurred overall net losses since commencement of the Company’s operations, including a net loss of $
6
underwriters option to purchase additional shares on August 15, 2023. As of June 30, 2025, the Company had an accumulated deficit of $
On April 26, 2024 (the “Loan Closing Date”), the Company entered into a Loan and Security Agreement ("LSA") with Banc of California ("BOC") for a revolving credit facility in an aggregate principal amount of up to $
2. Summary of Significant Accounting Policies
Basis of Presentation of Unaudited Condensed Consolidated Financial Information
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. However, such interim financial statements reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the Company’s financial position and results of operations. Results shown for interim periods are not necessarily indicative of the results that may be expected for the year ended December 31, 2025 or for any other period. The condensed consolidated balance sheet as of December 31, 2024 was derived from the audited consolidated financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2025. Certain prior period amounts reported in the Company’s unaudited condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current period presentation. Any reference in these notes to applicable guidance is meant to refer to the authoritative accounting principles generally accepted in the United States as found in the Accounting Standard Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Significant Accounting Policies
The significant accounting policies used in preparation of these unaudited condensed consolidated financial statements are consistent with those discussed in Note 2 to the audited consolidated financial statements included in the Company’s Annual Report filed on Form 10-K filed with the SEC on March 31, 2025.
Use of Estimates
Segment Reporting
Operating segments are defined as components of an entity about which separate discrete information is available for evaluation by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The CODM is the Company's chief executive officer, Dr. Sammy Farah. The Company views its operations as and manages its business in
7
Restricted Cash and Investments
Restricted cash consists of certificate of deposit accounts that are pledged as collateral for the Company’s San Diego facility lease as well as the escrow deposit for H. Lee Moffitt Cancer Center ("Moffitt") (see Note 6 - Agreements for additional information). Restricted cash was approximately $
The Company invests its excess cash in investment grade, short-term, fixed income securities and recognizes purchased securities on the settlement date. All investments have been classified as “available-for-sale” in the unaudited condensed consolidated balance sheets and are carried at estimated fair value based upon quoted market prices or pricing models for similar securities. Management determines the appropriate classification of its investments at the time of purchase and re-evaluates such designation as of each balance sheet date.
The Company assesses its available-for-sale securities under the available-for-sale security impairment model in ASC Topic 326, Financial Instruments - Credit Losses ("ASC 326") as of each reporting date in order to determine if a portion of any decline in fair value below carrying value is the result of a credit loss. The Company records credit losses in the unaudited condensed consolidated statements of operations and comprehensive loss as credit loss expense, which is limited to the difference between the fair value and the amortized cost of the security. To date, the Company has not recorded any credit losses on its available-for-sale securities. Declines in fair value below carrying value attributable to non-credit related factors are recorded as accumulated other comprehensive loss, which is a separate component of stockholders’ equity.
Realized gains and losses are reported in other income (expense), net. Interest on short-term investments is included in other income (expense), net. The Company’s investments are classified as current assets which reflects management’s intention to use the proceeds from sales of these securities to fund its operations, as necessary.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, investments and restricted cash. The Company’s investment policy restricts cash investments to high credit quality, investment grade investments. The Company’s investment policy provides guidelines and limits regarding investment type, concentration, credit quality, and maturity aimed at maintaining sufficient liquidity to satisfy operating and working capital requirements along with strategic initiatives, preserving capital, and minimizing risk of capital loss while generating returns on its investments. The Company is exposed to credit risk in the event of default by the issuer or the institutions holding the cash and cash equivalents to the extent of the amounts recorded on the balance sheets.
The Company has no off-balance sheet risk, such as foreign exchange contracts, option contracts or other foreign-hedging arrangements.
Fair Value Measurements
The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the unaudited condensed consolidated financial statements on a recurring basis. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy requires that an entity maximize the use of observable inputs when estimating fair value. The fair value hierarchy includes the following three-level classification which is based on the market observability of the inputs used for estimating the fair value of the assets or liabilities being measured:
Level 1 – Quoted market prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, 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 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that a market participant would use in pricing the asset or liability.
Fair value accounting is applied for all financial assets and liabilities and non-financial assets and liabilities that are recognized at fair value in the unaudited condensed consolidated financial statements on a recurring basis (at least annually). To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair values requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments
8
categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Stock-Based Compensation
The Company accounts for stock-based compensation expense related to stock options and RSUs, by estimating the fair value on the date of grant. The fair value of RSUs granted to employees is the closing price of the Company’s common stock on the date of grant. The Company estimates the fair value of stock options granted to employees and non-employees using the Black-Scholes option pricing model. The Company recognizes stock-based compensation expense, over the requisite service period, based on the vesting provisions of the individual grants. Generally, the Company issues stock-based awards with only service-based vesting conditions and records the expense for these awards using the straight-line method. The Company accounts for forfeitures when they occur.
The Black-Scholes option pricing model requires inputs based on certain subjective assumptions, including (a) the expected stock price volatility, (b) the expected term of the award, (c) the risk-free interest rate and (d) expected dividend yields. Due to the lack of a public market for the Company’s common stock until July 21, 2023, and lack of company- specific historical and implied volatility data, the Company has based its computation of expected volatility on the average historical volatility of a representative group of public companies with similar characteristics to the Company, including stage of product development and life science industry focus. The historical volatility is calculated based on a period of time commensurate with the expected term. The Company uses the simplified method as prescribed by the U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate the expected term for options granted to employees as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The expected term is applied to the stock option grant group as a whole, as the Company does not expect substantially different exercise or post-vesting termination behavior among its employee population. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock.
Contingent Consideration
Consideration paid related to the Myst Merger Agreement (see Note 7 - Asset Acquisition for additional information) may include potential future payments that are contingent upon the Company achieving certain milestones in the future. Contingent consideration liabilities are measured at their estimated fair value as of the date of the unaudited condensed consolidated balance sheets using a probability-based income approach based on the monetary value of the milestone payment discounted for the likelihood of achieving the milestone and a present value factor based on the timing of when the milestone is expected to be achieved. Contingent consideration liabilities expected to be settled within 12 months after the balance sheet date are presented in current liabilities, with the non-current portion recorded under other liabilities, non-current in the unaudited condensed consolidated balance sheets. Changes in the fair value of the contingent consideration are recorded as research and development expenses in the unaudited condensed consolidated statement of operations and comprehensive loss.
Recently Issued Accounting Pronouncements
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires the disaggregation of certain expense captions into specified categories in disclosures within the notes to the financial statements to provide enhanced transparency into the expense captions presented on the face of the income statement. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the potential impact that this standard may have on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold. Further, ASU 2023-09 requires certain disclosures of state versus federal income tax expense and taxes paid. The amendments in ASU 2023-09 are required to be adopted for fiscal years beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued. The amendments should be applied on a prospective basis although retrospective application is permitted. The Company is currently evaluating the potential impact that this standard may have on its consolidated financial statements and related disclosures.
9
3. Fair Value of Financial Assets and Liabilities
As of June 30, 2025 and December 31, 2024, the Company’s restricted cash consists of a certificate of deposit which is maintained as collateral in connection with its San Diego facility lease and the escrow deposit for the Asset Purchase Agreement entered into with Moffitt, (see Note 6 – Agreement for additional information) which are valued using Level 1 inputs. The Company’s highly liquid money market funds included within cash equivalents and restricted cash are valued using Level 1 inputs.
The Company had $
The following tables represent a summary of the financial assets and liabilities that are measured on a recurring basis at fair value (in thousands):
|
|
June 30, 2025 |
|
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Fair Value |
|
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
||
Restricted cash(1) |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent consideration(2) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Total financial assets |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
||
|
|
December 31, 2024 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Fair Value |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Restricted cash(1) |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total financial assets |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent consideration(2) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Total financial liabilities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
10
The following significant unobservable inputs were used in the valuation of the contingent consideration payable to the sole common stockholder of Myst Therapeutics, Inc. ("Myst") pursuant to the Myst Merger Agreement:
|
Fair Value as of |
|
|
|
|
|
|
Contingent Consideration Liability |
June 30, 2025 |
|
Valuation Technique |
Unobservable Input |
|
Amount |
|
|
(in thousands) |
|
|
|
|
|
|
'Milestone payment for first registrational study (see Note 7 - Asset Acquisition for additional information) |
$ |
— |
|
Discounted cash flow |
Likelihood of occurrence |
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of |
|
|
|
|
|
|
Contingent Consideration Liability |
December 31, 2024 |
|
Valuation Technique |
Unobservable Input |
|
Amount |
|
|
(in thousands) |
|
|
|
|
|
|
'Milestone payment for first registrational study (see Note 7 - Asset Acquisition for additional information) |
$ |
|
Discounted cash flow |
Likelihood of occurrence |
|
||
|
|
|
|
Discount rate |
|
||
|
|
|
|
Expected term (in years) |
|
||
The following table reflects the activity for the Company’s contingent consideration, measured at fair value using Level 3 inputs (in thousands):
Contingent consideration at December 31, 2024 |
|
$ |
|
|
Changes in the fair value of contingent consideration |
|
|
( |
) |
Contingent consideration at June 30, 2025 |
|
$ |
|
The following tables show the Company’s cash and cash equivalents by significant investment category (in thousands):
|
|
June 30, 2025 |
|
|||||||||||||
|
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
||||
Level 1: Money market funds |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total financial assets |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Classified as: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Restricted cash |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
|
|
December 31, 2024 |
|
|||||||||||||
|
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
||||
Level 1: Money market funds |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total financial assets |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Classified as: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Restricted cash |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
11
4. Property and Equipment, Net
Property and equipment, net consist of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2025 |
|
|
2024 |
|
||
Laboratory equipment |
|
$ |
|
|
$ |
|
||
Furniture |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Total property and equipment, net |
|
|
|
|
|
|
||
Reclassified to held for sale |
|
|
( |
) |
|
|
|
|
Total property and equipment, net |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Reclassified to held for sale |
|
$ |
|
|
|
|
||
Less: Sales |
|
$ |
( |
) |
|
|
|
|
Held for sale |
|
$ |
|
|
$ |
|
||
Property and equipment depreciation and amortization expense for the six months ended June 30, 2025 and twelve months ended December 31, 2024 was $
As of June 30, 2025, the Company had $
5. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2025 |
|
|
2024 |
|
||
Research and development expense |
|
$ |
|
|
$ |
|
||
Professional and consulting expense |
|
|
|
|
|
|
||
Taxes payable |
|
|
|
|
|
|
||
Compensation |
|
|
|
|
|
|
||
Total accrued expenses and other current liabilities |
|
$ |
|
|
$ |
|
||
6. Agreements
H. Lee Moffitt Cancer Center
Master Collaboration Agreement
In January 2021, the Company entered into an amended and restated master collaboration agreement (the “Moffitt Agreement”), with Moffitt, to amend a then-existing master collaboration agreement from November 2019, as amended March 2020, between Moffitt and the Company’s now wholly-owned subsidiary, Myst, with the intent to continue to work collaboratively in the research of cancer immunotherapies.
Each party granted the other party a right to use its research materials for performance of the research plans agreed to by the parties (the “Research Plans”). Each party granted the other party a non-exclusive, worldwide, sublicensable, perpetual, irrevocable, royalty-free license under all inventions invented in performance of a Research Plan and invented jointly by the Company and Moffitt
12
(the “Joint Inventions”) (with certain exclusions) to make, use, sell, offer for sale, import products and services and/or otherwise practice such inventions.
The Company granted Moffitt a royalty free, non-sublicensable, non-transferable, perpetual, non-exclusive license to use and practice certain inventions invented solely by the Company in the performance of a Research Plan for its internal non-commercial research purposes.
Moffitt granted the Company (i) a royalty-free, sublicensable, non-transferable, perpetual, non-exclusive license to use and practice certain inventions invented solely by Moffitt in the performance of a Research Plan (“Moffitt Inventions”), (a) for internal, non-commercial research purposes outside the field of ACT and/or (b) to research, develop, make, use, sell, offer to sell, or import products and/or services in the field of ACT and (ii) a royalty free, sublicensable, non-transferable, perpetual, non-exclusive license to use and practice certain inventions invented in performance of a Research Plan or through the use of specified Moffitt research materials.
Moffitt granted the Company an option to obtain, with terms to be negotiated in good faith under commercially reasonable terms, a royalty-bearing, sublicensable exclusive license in the Moffitt Inventions, the TCR Inventions, and/or Moffitt’s interest in Joint Inventions. The Company could have exercised this option at any time within six months after Moffitt informed the Company of any new invention, and upon the Company’s exercise, the parties would have a period of six months to negotiate the terms of such exclusive license.
The Moffitt Agreement expired in January 2025, which was four years from the effective date of the Moffitt Agreement. All activity being performed under the Moffitt Agreement has been transferred to the Alliance Agreement (as defined below).
Moffitt Alliance Agreement
In June 2022, the Company entered into a life science alliance agreement with Moffitt (the “Alliance Agreement”), in order to further expand the Company’s relationship and support the Company’s existing agreements with Moffitt (the “Underlying Agreements”). Pursuant to the Alliance Agreement, the Company will have priority access to Moffitt’s scientific research, manufacturing, and clinical capabilities for the development of novel TIL therapies, including expedited clinical trial activation, enhanced patient screening and data sharing, access to Moffitt’s cellular therapies research and development infrastructure, expanded molecular data sets and biospecimens for research, and allocated cGMP manufacturing capacity for the Company’s product candidates.
Under the Alliance Agreement, the Company is obligated to use commercially reasonable efforts to further develop TIL Products, to manufacture TIL Products, to obtain regulatory approval for at least one TIL Product in the United States and to commercialize TIL Products in all countries in which regulatory approval for a TIL Product has been obtained. For purposes of the Alliance Agreement, TIL Product means any pharmaceutical, biopharmaceutical, or biotechnology TIL product that has been developed by us or Moffitt and is advanced into clinical development under an IND sponsored by Moffitt.
Pursuant to the Alliance Agreement, the Company agreed to pay to Moffitt a total amount of at least $
In connection with the execution of the Alliance Agreement, the Company issued Moffitt
13
pharmaceutical, biopharmaceutical or biotechnology TIL Product that is developed by the Company or Moffitt and is advanced into clinical development under an IND sponsored by Moffitt.
Unless earlier terminated, the Alliance Agreement will remain in effect for a term of five years and may be extended for additional periods upon the mutual written consent of both parties. Either party may terminate the Alliance Agreement in the event of (i) the other party’s material breach of the Alliance Agreement that remains uncured after ninety days of receiving written notice of such breach (or in the case of breach of payment obligations, within ten days), (ii) the other party’s insolvency and (iii) a pandemic event resulting in government lockdowns or orders that legally compel such party to cease operations or that result in material disruptions in the available workforce and prevents such party from performing its contractual obligations for a period of more than six months. At any time after June 1, 2025, either party may terminate the Alliance Agreement without cause upon sixty days prior written notice to the other party (a “Termination for Convenience”). Upon a Termination for Convenience, the terminating party shall pay to the other party a termination fee in an amount equal to a low double digit percentage of the then remaining Alliance Funding Amount. Termination or expiry of one or more Underlying Agreements does not affect the term of the Alliance Agreement, which will continue to apply to the remaining ongoing Underlying Agreements.
On June 26, 2025, the Company (i) entered into an Asset Purchase Agreement (the “Purchase Agreement”) by and among the Company and Moffitt, pursuant to which the Company will sell certain assets related to its TIDAL-01 program in consideration for the termination of the Alliance Agreement (as defined in the Purchase Agreement) (“Asset Sale”), subject to the terms and conditions of the Purchase Agreement, and (ii) entered into an Escrow Agreement (the “Escrow Agreement”), by and among the Company, Moffitt, and Citibank, N.A., as escrow agent.
Pursuant to the terms of the Purchase Agreement, Moffitt will assume certain obligations of the Company under the Myst Merger Agreement. The Company will receive a total consideration of approximately $
Moffitt’s obligation to closing the Asset Sale is subject to certain conditions set forth in the Purchase Agreement. Pursuant to the Merger Agreement, effective as of the Offer Closing Time (as defined in the Merger Agreement), Merger Sub shall assume all of the Company's obligations, duties, and covenants under the Purchase Agreement. Immediately following the consummation of the Merger, Merger Sub, as the sole stockholder of the Company shall duly execute a written consent pursuant to the requirements of the Company's governing documents and applicable law, for the adoption of the transactions, contemplate by the the Purchase Agreement. Following the consummation of the Merger, anticipated to occur in the third quarter of 2025, the Escrow Amount will be released to the Company.
It is a condition to the closing of the Merger that certain conditions to the Asset Sale shall have been satisfied or, if permitted by applicable law, waived.
If the transactions contemplated by the Merger Agreement are not consummated and the Company fails to obtain the requisite stockholder approval for the Asset Sale, the Purchase Agreement will terminate in accordance with its terms. If the foregoing should occur or if the Purchase Agreement is otherwise terminated, including as a result of the Asset Sale not being consummated by December 26, 2025, the Escrow Amount will be released to Moffitt.
7. Asset Acquisition
In December 2020, the Company entered into the Agreement and Plan of Merger and Reorganization (the “Myst Merger Agreement”), by and among the Company, Flatiron Merger Sub I, Inc. (“Merger Sub”), Flatiron Merger Sub II, LLC (“Merger LLC”), a direct, wholly-owned subsidiary of the Company, Myst, and Timothy Langer, the sole common stockholder of Myst (“Langer”). Pursuant to the Myst Merger Agreement, the business combination (the “Merger”) was effected in two steps. The first step was the merger of Merger Sub with and into Myst. The second step was the merger of Myst with and into Merger LLC. The Merger closed on December 14, 2020, and the effective date of the Merger was January 20, 2021. As a result of the Merger, the separate existences of Merger Sub and Myst ceased, and Merger LLC became the Company’s wholly-owned subsidiary.
Pursuant to the Myst Merger Agreement, on December 15, 2020, the Company paid the former equity holders of Myst, (the “Myst Holders”), a one-time up-front payment of $
14
common stock had vested and were released from escrow. This restricted equity grant was accounted for as a compensatory arrangement under ASC Topic 718, Compensation — Stock Compensation (“ASC 718”) as continued service is required under the agreement.
In addition, under the Myst Merger Agreement, each Myst Holder is entitled to receive certain payments as consideration based on the achievement by the Company of three predefined milestones. The initial milestone is the closing of an initial public offering, which occurred on July 25, 2023, the second milestone is the first acceptance by the FDA of an IND filed by, on behalf of or for the benefit of the Company, or the Company’s sublicensees for a product being developed by or on behalf of the Company or its sublicensees that is claimed as a product or method of making or using the product by a pending or issued Myst patent claim existing at the time of such acceptance, and the third milestone is the occurrence of the earlier of (i) the commencement of the first registration study for a product being developed by, on behalf of or for the benefit of the Company that is claimed as a product or a method of making or using the product by an issued Myst patent claim existing as of the time of such commencement or (ii) the issuance of a Myst patent claim that claims a product or method of making or using the product then being developed by, on behalf of or for the benefit of the Company, or its sublicensees, that is or was the subject of a registration study that has or had commenced. The milestones are not contingent on one another, and the milestones do not need to be achieved in any specific order.
Within 45 days of the achievement of the initial milestone, which occurred on July 25, 2023, the Company is obligated to pay the Myst Holders an aggregate amount equal to $
Within 45 days of the achievement of the second milestone, the Company is obligated to pay the Myst Holders an aggregate amount equal to $
Within 45 days of the achievement of the third milestone, the Company is obligated to pay the Myst Holders an aggregate amount equal to $
The Company accounted for the merger with Myst pursuant to the Myst Merger Agreement as an asset acquisition as substantially all of the value received was concentrated in the acquired in-process research and development of Myst and did not have an alternate future use. The Company recognized a $
15
8. Term Loan
On April 26, 2024 (the "Closing Date"), the Company entered into the LSA, by and among the Company, as borrower, the Company’s wholly owned subsidiary, Myst Therapeutics, LLC (together with the Company, the “Loan Parties”) and BOC, as lender. The LSA provides for a revolving credit facility in an aggregate principal amount of up to $
The LSA contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions. The Company is also required to comply with certain covenants requiring the Company to (i) receive positive interim Phase 1 data for TIDAL-01 (as determined by the Company’s Board), which was satisfied in August 2024 and (ii) receive at least $
The LSA also includes customary events of default, including failure to pay principal, interest or certain other amounts when due, material inaccuracy of representations and warranties, violation of covenants, specified cross-default and cross-acceleration to other material indebtedness, certain bankruptcy and insolvency events, certain undischarged judgments, material invalidity of guarantees or grant of security interest, material adverse effect and change of control, in certain cases subject to certain thresholds and grace periods. If one or more events of default occurs and continues beyond any applicable cure period, the Lender may terminate the commitments to make further loans and declare all of the obligations of the Company under the LSA to be immediately due and payable. Additionally, upon the occurrence of an event of default, the Company is obligated to pay a fee equal to
On May 14, 2025, the LSA was terminated with no amounts having been drawn and no significant termination fees were incurred.
The Company incurred $
9. Stockholders’ Equity
Common Stock
The Company's Amended and Restated Certificate of Incorporation which provides that the authorized common stock of the Company is
16
Shares of common stock reserved for future issuance consisted of the following:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2025 |
|
|
2024 |
|
||
Common stock options outstanding |
|
|
|
|
|
|
||
Unvested RSUs |
|
|
|
|
|
|
||
Shares available for issuance under the ESPP |
|
|
|
|
|
|
||
Shares available for issuance under the Plans |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
10. Equity Based Compensation
2018 Equity Incentive Plan
In December 2018, the Company adopted the 2018 Equity Incentive Plan (the “2018 Plan”) which provided for the Company to grant incentive stock options or nonqualified stock options for the purchase of common stock, or restricted shares, to employees, members of the Board and consultants of the Company. The Company assumed all of the outstanding options under the amended and restated Equity Incentive Plan of Turnstone Biologics Inc. dated October 1, 2016 (the “2016 Plan”) in connection with the corporate reorganization in December 2018. However, there were no changes to the terms of the options requiring modification accounting.
All options granted under the 2018 Plan have an exercise price, a vesting period determined by the Company’s Board and
The majority of grants outstanding were approved with a
2023 Equity Incentive Plan
In July 2023, the Company's Board and stockholders adopted the 2023 Equity Incentive Plan (the “2023 Plan” and together with the 2018 and 2016 Plans the "Plans") which became effective upon the date of the IPO. Under the 2023 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, RSUs, performance stock awards, performance cash awards and other forms of stock awards to employees, directors and consultants. The maximum term of the stock option grants under the 2023 Plan is
17
A summary of the stock option activity under the Plans is as follows:
|
|
Number of |
|
|
Weighted- |
|
|
Weighted- |
|
|
Aggregate |
|
||||
Outstanding — December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options granted |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Options exercised |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Options canceled/forfeited |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Outstanding — June 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable — June 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Vested and expected to vest — June 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Outstanding — December 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Options granted |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Options exercised |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Options canceled/forfeited |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Outstanding — June 30, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Exercisable — June 30, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Vested and expected to vest — June 30, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
The fair value of each stock option granted to employees and directors was estimated on the date of grant using the Black-Scholes option-pricing model, with the following range of assumptions:
|
|
Six Months Ended June 30, |
|
|
|
2024 |
|
Risk-free interest rate |
|
|
|
Expected term (in years) |
|
|
|
Dividend yield |
|
|
|
Volatility |
|
|
|
Exercise price of stock options |
|
$ |
|
18
The RSU activity under the 2023 Plan is summarized as follows:
|
|
Number of |
|
|
Weighted- |
|
||
Outstanding, non-vested as of December 31, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Cancelled/Forfeited |
|
|
( |
) |
|
$ |
|
|
Vested/Released |
|
|
— |
|
|
$ |
— |
|
Outstanding, non-vested as of June 30, 2024 |
|
|
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Outstanding, non-vested as of December 31, 2024 |
|
|
|
|
$ |
|
||
Granted |
|
|
— |
|
|
$ |
— |
|
Cancelled/Forfeited |
|
|
( |
) |
|
$ |
|
|
Vested/Released |
|
|
( |
) |
|
$ |
|
|
Outstanding, non-vested as of June 30, 2025 |
|
|
|
|
$ |
|
||
The allocation of stock-based compensation expense for all stock awards, including options, restricted stock and RSUs, included in the Company’s statements of operations is as follows (in thousands):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
Research and development |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
General and administrative |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
||||
Total stock-based compensation |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The weighted-average grant date fair market value of stock options granted to employees, directors and consultants during the six months ended June 30, 2024 was $
As of June 30, 2025, the Company had unrecognized stock-based compensation expense of $
2023 Employee Stock Purchase Plan
In July 2023, the Company adopted the Employee Stock Purchase Plan (the “ESPP”), which became effective with the IPO on July 25, 2023. The ESPP was adopted by the Company’s board of directors and stockholders in June 2023. The ESPP initially provides participating employees with the opportunity to purchase up to an aggregate of
11. Income Taxes
The Company did
19
12. Leases
Operating Leases
The Company leased laboratory and office space for its former corporate headquarters located in San Diego, California and office space in New York, New York. Operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. In calculating the present value of the lease payments, the Company has elected to utilize its incremental borrowing rate based on the original lease term and not the remaining lease term. The Company determines if an arrangement is a lease by considering whether there is an identified asset, and the contract conveys the right to control its use. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company’s lease terms may include options to extend or terminate a lease. If the lease includes non-lease components (i.e., common area maintenance) that are paid separately from rent based on actual costs incurred and therefore are not included in the right-of-use asset and lease liability but are reflected as an expense in the period incurred.
In July 2018, the Company entered into a lease agreement for approximately
In June 2021, the Company entered into a lease agreement for approximately
The Company recorded rent expense of $
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
Operating lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Sublease income |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
The present value assumptions used in calculating the present value of the lease payments were as follows:
|
|
Six Months Ended |
|
|
|
|
June 30, 2025 |
|
|
Weighted-average remaining lease term in years |
|
|
|
|
Weighted-average discount rate |
|
|
% |
|
The minimum aggregate future operating lease commitments at June 30, 2025 are as follows (in thousands):
|
|
Minimum Lease |
|
|
Remainder of 2025 |
|
$ |
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
Total undiscounted lease payments |
|
$ |
|
|
Less: imputed interest |
|
|
( |
) |
Total operating lease liability |
|
|
|
|
Less: current portion of operating lease liability |
|
|
( |
) |
Operating lease liability, noncurrent |
|
$ |
|
|
20
13. Segments
The Company operates and manages its business as
The measure of segment assets is reported on the consolidated balance sheets as total consolidated assets. All material long-lived assets are located in the United States. Long-lived assets consist of property and equipment, net, and operating lease right-of-use assets.
The CODM uses consolidated net loss to evaluate the Company's spend and monitor budget versus actual results. The monitoring of budgeted versus actual results is used in assessing performance of the segment and in establishing resource allocation across the organization.
Factors used in determining the reportable segment include the nature of the Company's operating activities, the organizational and reporting structure and the type of information reviewed by the CODM to allocate resources and evaluate financial performance.
The following table presents reportable segment profit and loss, including significant expense categories, attributable to the Company's reportable segment for the periods presented (in thousands):
|
|
For The Three Months Ended June 30, |
|
|
For The Six Months Ended June 30, |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development - TIDAL-01 |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Research and development - compensation |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
General and administrative |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other segment expense(1) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Depreciation expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other income, net |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Provision for income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Consolidated net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(1) includes research and development costs related to TIDAL-02 and other projects.
14. Net Loss per Share
Basic and diluted net loss per share attributed to common stockholders is calculated by dividing net loss attributed to common stockholders by the weighted average number of common shares outstanding during the period, without consideration for common stock equivalents. The Company’s potentially dilutive shares, which include restricted stock, unvested RSUs and options to purchase common stock, are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive. Potentially dilutive common shares have been excluded from the diluted net loss per common share computations in all periods presented because such securities have an anti-dilutive effect on net loss per common share due to the Company’s net loss. There are no reconciling items used to calculate the weighted-average number of total common shares outstanding for basic and diluted net loss per common share.
21
The following outstanding potentially dilutive shares were excluded from the computation of diluted net loss per share attributable to common stockholders:
|
|
Six Months Ended June 30, |
|
|
|||||
|
|
2025 |
|
|
2024 |
|
|
||
Restricted stock |
|
|
|
|
|
|
|
||
Unvested RSUs |
|
|
|
|
|
|
|
||
Options to purchase common stock |
|
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
|
||
15. Restructuring Activities
In January 2025, the Company announced the discontinuation of all clinical studies and the pursuit of strategic alternatives which included additional reductions to its workforce. For the six months ended June 30, 2025, the Company incurred $
The following table represents the expected costs associated with this restructuring (in thousands):
|
|
Employee severance and other benefits |
|
|
Restructuring expenses |
|
|
|
|
Cash payments |
|
|
( |
) |
Liability included in other current liabilities at June 30, 2025 |
|
$ |
|
|
In October 2024, the Company announced a strategic prioritization of its pipeline, as well as a workforce reduction of approximately
16. Legal Proceedings
The Company is
22
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2024 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission, or the SEC, on March 31, 2025. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the “Risk Factors” section of this Quarterly Report on Form 10-Q to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to Turnstone Biologics Corp.
Overview
We are a biotechnology company that was previously focused on developing new medicines to treat and cure patients with solid tumors through a differentiated approach to tumor infiltrating lymphocytes (TIL) therapy by selecting and expanding the most potent tumor-reactive T cells, which we refer to as Selected TILs for potential treatment across the majority of solid tumors. Our previous lead Selected TIL candidate, TIDAL-01, was being developed for the treatment of colorectal cancer, head and neck cancer, and uveal melanoma and two investigator sponsored trials with H. Lee Moffitt Cancer Center and Research Institute, Inc., or Moffitt, across colorectal cancer, head and neck cancer, and uveal melanoma.
Merger Agreement
On June 26, 2025, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with XOMA Royalty Corporation, a Nevada corporation, or XOMA, and XRA 3 Corp., a Delaware corporation and a wholly-owned subsidiary of XOMA, or the Merger Sub. The Merger Agreement provides for, among other things: (i) the acquisition of all of our outstanding shares of common stock, par value $0.001 per share common stock, by XOMA through a cash tender offer, or the Offer, by Merger Sub, for a price per share of common stock of (A) $0.34, or the Cash Amount, payable subject to any applicable tax withholding and without interest, plus (B) one contingent value right, or CVR, which shall represent the right to receive potential payments, in cash, payable subject to any applicable tax withholding and without interest (such amount being the “CVR Amount", and the Cash Amount plus the CVR Amount, collectively being the “Offer Price”); and (ii) the merger of Merger Sub with and into us, or the Merger, with us surviving the Merger.
Pursuant to the terms of the Merger Agreement, as of immediately prior to the effective time of the Merger, or the Effective Time, by virtue of the Merger and without any action on the part of the holders of common stock, each outstanding share of common stock will be converted into the right to receive the Offer Price. Each option to purchase shares of common stock will be cancelled and terminated for no consideration. The vesting for each restricted stock unit, or RSU, shall be accelerated and each RSU that is then outstanding will be cancelled and, in exchange therefor, the holder of such cancelled RSU will be entitled to receive in consideration of the cancellation of such RSU (A) an amount in cash without interest, less any applicable tax withholding, equal to the Cash Amount and (B) one CVR.
At or prior to the time at which XOMA first irrevocably accepts for purchase the shares of common stock tendered in the Offer, XOMA and Merger Sub expect to enter into a CVR Agreement with a rights agent and a representative, agent and attorney-in-fact of the holders of CVRs. Each CVR holder will be entitled to the right to receive, its portion of the amount equal to (i) up to an aggregate amount for all CVR holders of $1.1 million to the extent received by us as a result of contingent payments relating to tax receivables and a lease security deposit, plus (ii) Net Cash Excess (as defined in the CVR Agreement), and minus (iii) Net Cash Shortfall (as defined in the CVR Agreement), or the CVR Proceeds. In the event that any such CVR Proceeds are received after one year following the date of the closing of the Merger, holders of the CVRs will not receive any payment pursuant to the CVR Agreement.
The right to the contingent payments contemplated by the CVR Agreement is a contractual right only and will not be transferable, except in the limited circumstances specified in the CVR Agreement. The CVRs will not be evidenced by a certificate or any other instrument and will not be registered with the SEC. The CVRs will not have any voting or dividend rights and will not represent any equity or ownership interest in XOMA, any constituent corporation party to the Merger or any of their respective affiliates. No interest will accrue on any amounts payable on the CVRs to any holders.
If the Merger is consummated, our common stock will be delisted and will no longer be quoted on Nasdaq, our obligation to file periodic reports under the Securities Exchange Act of 1934, as amended, will be suspended and we will be privately held.
23
Reduction in Force and No Standalone Business Plan
We are reducing our workforce while also implementing cost-containment and cash conservation measures. We intend to retain all employees essential for supporting value-realization as part of our pursuit of the Merger. As of the date hereof, we have 2 employees.
After a thorough assessment of our assets, liabilities and financial condition, particularly considering our market capitalization and our workforce reductions executed in October 2024 through July 2025, our Board has concluded that we do not have a standalone business plan and our only plan in the absence of a sale or merger is to pursue a dissolution and liquidation.
Nasdaq Compliance
On September 27, 2024, we received a deficiency letter from the Nasdaq Listing Qualifications Department notifying us that we are not in compliance with Nasdaq Listing Rule 5450(a)(1), which requires us to maintain a minimum bid price of at least $1.00 per share for continued listing on The Nasdaq Global Select Market, or the Minimum Bid Requirement. Our failure to comply with the Minimum Bid Requirement was based on our common stock per share price being below the $1.00 threshold for a period of 30 consecutive business days. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided an initial period of 180 calendar days, to regain compliance with the Minimum Bid Requirement.
On March 27, 2025, we received approval from the Listing Qualifications Department of Nasdaq to transfer the listing of the Company’s common stock from the Nasdaq Global Market to the Nasdaq Capital Market, or the Approval. Our securities were transferred to the Nasdaq Capital Market at the opening of business on March 31, 2025. Our common stock will continue to trade under the symbol “TSBX.” The Nasdaq Capital Market operates in substantially the same manner as the Nasdaq Global Market, but with less stringent listing requirements, although listed companies must meet certain financial requirements and comply with Nasdaq’s corporate governance requirements.
In connection with the Approval, we were granted an additional 180-day grace period, or until September 22, 2025, to regain compliance with the Minimum Bid Price Requirement. To regain compliance with the Minimum Bid Price Requirement and qualify for continued listing on the Nasdaq Capital Market, the minimum bid price per share of our common stock must be at least $1.00 for at least ten consecutive business days during the additional 180-day grace period. If we do not regain compliance during this additional grace period, its common stock would be subject to delisting by Nasdaq. As part of its transfer application, we notified Nasdaq that in order to regain compliance with the Minimum Bid Price Requirement during the additional grace period, we will implement a reverse stock split, and have filed a proxy statement soliciting a stockholder vote on such reverse stock split. If our stock becomes subject to delisting as a result of our failure to regain compliance with the Minimum Bid Price Requirement by September 22, 2025, we may appeal the decision to a Nasdaq Hearings Panel. In the event of an appeal, our common stock would remain listed on the Nasdaq Capital Market pending a written decision by the Nasdaq Hearings Panel following a hearing. In the event that the Nasdaq Hearings Panel determines not to continue our listing and our common stock is delisted from The Nasdaq Capital Market, our common stock may trade on the OTC Bulletin Board or other small trading markets, such as the pink sheets.
Collaboration Agreements
Below is a summary of the key terms for certain of our collaboration agreements. For a more detailed description of our collaboration agreements, see Note 6 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Moffitt Collaboration Agreements
Master Collaboration Agreement
In January 2021, we entered into an amended and restated master collaboration agreement, or the Moffitt Agreement, with Moffitt, to amend a then-existing master collaboration agreement from November 2019, as amended March 2020, between Moffitt and our now wholly-owned subsidiary, Myst Therapeutics LLC, with the intent to continue to work collaboratively in the research of cancer immunotherapies.
Moffitt granted us (1) a royalty-free, sublicensable, non-transferable, perpetual, non-exclusive license to use and practice certain inventions invented solely by Moffitt in the performance of a research plan or through use of any data generated thereunder, or Moffitt Inventions, (a) for internal, non-commercial research purposes outside the field of adoptive cell therapy and/or (b) to research, develop, make, use, sell, offer to sell, or import products and/or services in the field of adoptive cell therapy and (2) a royalty free, sublicensable, non-transferable, perpetual, non-exclusive license to use and practice certain inventions invented in performance of a
24
research plan or through the use of Moffitt research materials, which are (i) specifically directed to the identity of melanoma-specific T cell receptors, (ii) invented during the collaboration term or within one year after the end of the collaboration term within the field of adoptive cell therapy, and (iii) invented solely by either parties’ employees or by both parties’ employees jointly, to research, develop, make, use, sell, offer to sell, or import products and/or services for cancer immunotherapy involving identifying relevant tumor reactive T cells from TILs.
The Moffitt Agreement expired in January 2025, which was four years from the effective date of the Moffitt Agreement. All activity being performed under the Moffitt Agreement has been transferred to the Alliance Agreement (as defined below).
Moffitt Alliance Agreement
In June 2022, we entered into a life science alliance agreement with Moffitt, or the Alliance Agreement, in order to further expand our relationship and support our existing agreements with Moffitt, or the Underlying Agreements. Pursuant to the Alliance Agreement, we will have priority access to Moffitt’s scientific research, manufacturing, and clinical capabilities for the development of novel TIL therapies, including expedited clinical trial activation, enhanced patient screening and data sharing, access to Moffitt’s cellular therapies research and development infrastructure, expanded molecular data sets and biospecimens for research, and allocated cGMP manufacturing capacity for our product candidates.
Under the Alliance Agreement, we are obligated to use commercially reasonable efforts to further develop TIL Products (as defined below), to manufacture TIL Products, to obtain regulatory approval for at least one TIL Product in the United States and to commercialize TIL Products in all countries in which regulatory approval for a TIL Product has been obtained. For purposes of the Alliance Agreement, TIL Product means any pharmaceutical, biopharmaceutical, or biotechnology TIL product that has been developed by us or Moffitt and is advanced into clinical development under an IND sponsored by Moffitt.
Pursuant to the Alliance Agreement, we agreed to pay to Moffitt a total amount of at least $17.5 million, or Alliance Funding Amount, for research, development and manufacturing related services that will be paid equally over five years on June 1st of each year starting on June 1, 2023. The Alliance Funding Amount will be calculated annually at the conclusion of each payment period, and, to the extent our annual aggregate payments to Moffitt of $3.5 million exceeds the applicable annual installment amount, we will receive a reduction in the amount due for future installment payments based on a predetermined formula agreed to by the parties. To the extent the aggregate annual payments are less than $3.5 million, we will prepay the remaining amount due. On June 28, 2024, the Alliance Agreement was amended to remove the true up of the applicable annual installment amount of $3.5 million. The Alliance Funding Amount remains $17.5 million over the five-year term.
In connection with the execution of the Alliance Agreement, we issued Moffitt 91,721 shares of our common stock. As partial consideration under the Alliance Agreement, we also agreed to issue Moffitt an additional 366,884 shares of our common stock in the aggregate upon the satisfaction of certain clinical and regulatory milestones with respect to TIL Products. During the twelve months ended December 31, 2023, an additional 91,721 shares of our common stock were issued to Moffitt as a result of the achievement of the milestone related to the start of the Phase 1 clinical trial for a TIL Product. In addition, upon achievement of certain thresholds for aggregate net sales of all TIL Products, we are required to make tiered sales-based milestones payments to Moffitt of up to an aggregate of $50.0 million. With respect to each of the equity and sales milestones described above, TIL Products include any pharmaceutical, biopharmaceutical or biotechnology TIL product that is developed by us or Moffitt and is advanced into clinical development under an IND sponsored by Moffitt.
At any time after June 1, 2025, either party may terminate the Alliance Agreement without cause upon sixty days prior written notice to the other party (a “Termination for Convenience”). Upon a Termination for Convenience, the terminating party shall pay to the other party a termination fee in an amount equal to a low double digit percentage of the then remaining Alliance Funding Amount.
On June 26, 2025, we (i) entered into an Asset Purchase Agreement, or the Purchase Agreement, by and among us and Moffitt, pursuant to which we will sell certain assets related to its TIDAL-01 program in consideration for the termination of the Alliance Agreement (as defined in the Purchase Agreement), or the Asset Sale, subject to the terms and conditions of the Purchase Agreement, and (ii) entered into an Escrow Agreement, or the Escrow Agreement, by and among us, Moffitt, and Citibank, N.A., as escrow agent.
Pursuant to the terms of the Purchase Agreement, Moffitt will assume certain obligations of ours under the Myst Merger Agreement. We will receive a total consideration of approximately $3.0 million to offset our obligations to Moffitt under the Alliance Agreement, of which, approximately $1.8 million was placed into an escrow account as of the date of the Purchase Agreement (the "Escrow Account"), subject to the terms and conditions of the Escrow Agreement.
25
Moffitt’s obligation to closing the Asset Sale is subject to certain conditions set forth in the Purchase Agreement. Pursuant to the Merger Agreement, effective as of the Offer Closing Time (as defined in the Merger Agreement), Merger Sub shall assume all of our obligations, duties, and covenants under the Purchase Agreement. Immediately following the consummation of the Merger, Merger Sub, as the sole stockholder of ours shall duly execute a written consent pursuant to the requirements of the our governing documents and applicable law, for the adoption of the transactions, contemplate by the the Purchase Agreement. Following the consummation of the Merger, anticipated to occur in the third quarter of 2025, the Escrow Amount will be released to the us.
It is a condition to the closing of the Merger that certain conditions to the Asset Sale shall have been satisfied or, if permitted by applicable law, waived.
If the transactions contemplated by the Merger Agreement are not consummated and we fail to obtain the requisite stockholder approval for the Asset Sale, the Purchase Agreement will terminate in accordance with its terms. If the foregoing should occur or if the Purchase Agreement is otherwise terminated, including as a result of the Asset Sale not being consummated by December 26, 2025, the Escrow Amount will be released to Moffitt.
Components of Our Results of Operations
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of external and internal costs incurred for our research and development activities, including adjusted development of our platform, our product discovery efforts and the development of our future product candidates. We expense research and development costs as incurred.
External costs include:
Internal costs include:
Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinical investigative sites. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our unaudited condensed consolidated financial statements as prepaid or accrued research and development expenses. Non-refundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses and expensed as the related goods are delivered or the services are performed.
In connection with the execution of the Merger Agreement, we discontinued all clinical studies evaluating TIDAL-01 and all nonclinical research and manufacturing activities.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs, allocated expenses and other expenses for outside professional services, including legal, intellectual property, human resources, audit and accounting services. Personnel costs consist of salaries, bonuses, benefits and stock-based compensation.
26
Other Income (Expense), Net
Other income (expense), net consists primarily of interest income earned on our short-term investments and foreign currency remeasurement gains and losses.
Results of Operations
Comparison of the Three Months Ended June 30, 2025 and 2024
The following tables set forth our results of operations (in thousands):
|
|
Three Months Ended June 30, |
|
|
|
|
||||||
|
|
2025 |
|
|
2024 |
|
|
Change ($) |
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|||
Research and development |
|
|
171 |
|
|
|
17,730 |
|
|
|
17,559 |
|
General and administrative |
|
|
5,388 |
|
|
|
4,327 |
|
|
|
(1,061 |
) |
Total operating expenses |
|
|
5,559 |
|
|
|
22,057 |
|
|
|
16,498 |
|
Loss from operations |
|
|
(5,559 |
) |
|
|
(22,057 |
) |
|
|
16,498 |
|
Other income, net |
|
|
81 |
|
|
|
755 |
|
|
|
(674 |
) |
Provision for income taxes |
|
|
(12 |
) |
|
|
(2 |
) |
|
|
(10 |
) |
Net loss |
|
$ |
(5,490 |
) |
|
$ |
(21,304 |
) |
|
$ |
15,814 |
|
Research and Development Expenses
The following table summarizes our research and development expenses (in thousands):
|
|
Three Months Ended June 30, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Pre-clinical research and development |
|
$ |
(121 |
) |
|
$ |
2,130 |
|
Manufacturing |
|
|
(193 |
) |
|
|
9,195 |
|
Clinical and regulatory |
|
|
79 |
|
|
|
2,017 |
|
Personnel related |
|
|
406 |
|
|
|
4,388 |
|
Total research and development |
|
$ |
171 |
|
|
$ |
17,730 |
|
Research and development expenses were $0.1 million and $17.7 million during the three months ended June 30, 2025 and 2024, respectively, a decrease of $17.6 million, or 99.4%. The decrease was due to shutting down all clinical development and pursuit of a strategic transaction.
General and Administrative Expenses
General and administrative expenses were $5.4 million and $4.3 million during the three months ended June 30, 2025 and 2024, respectively, an increase of $1.1 million, or 25.6% due to the costs to the execution of our Merger Agreement and employee restructuring.
Other Income, Net
Other income, net was $0.1 million and $0.8 million during the three months ended June 30, 2025 and 2024, respectively, a decrease of $0.7 million, or 89.3% due to the decrease in interest earned on cash and cash equivalents as well as a loss on the sale of laboratory equipment of $0.2 million.
.
27
Comparison of the Six Months Ended June 30, 2025 and 2024
The following tables set forth our results of operations (in thousands):
|
|
Six Months Ended June 30, |
|
|
|
|
||||||
|
|
2025 |
|
|
2024 |
|
|
Change ($) |
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|||
Research and development |
|
|
4,528 |
|
|
|
33,520 |
|
|
|
28,992 |
|
General and administrative |
|
|
10,195 |
|
|
|
9,228 |
|
|
|
(967 |
) |
Total operating expenses |
|
|
14,723 |
|
|
|
42,748 |
|
|
|
28,025 |
|
Loss from operations |
|
|
(14,723 |
) |
|
|
(42,748 |
) |
|
|
28,025 |
|
Other income (expense), net |
|
|
(2,559 |
) |
|
|
1,833 |
|
|
|
(4,392 |
) |
Provision for income taxes |
|
|
(14 |
) |
|
|
(18 |
) |
|
|
4 |
|
Net loss |
|
$ |
(17,296 |
) |
|
$ |
(40,933 |
) |
|
$ |
23,637 |
|
Research and Development Expenses
The following table summarizes our research and development expenses (in thousands):
|
|
Six Months Ended June 30, |
|
|
|||||
|
|
2025 |
|
|
2024 |
|
|
||
Pre-clinical research and development |
|
$ |
467 |
|
|
$ |
3,496 |
|
|
Manufacturing |
|
|
410 |
|
|
|
17,329 |
|
|
Clinical and regulatory |
|
|
1,244 |
|
|
|
3,297 |
|
|
Personnel related |
|
|
2,407 |
|
|
|
9,398 |
|
|
Total research and development |
|
$ |
4,528 |
|
|
$ |
33,520 |
|
|
Research and development expenses were $4.5 million and $33.5 million during the six months ended June 30, 2025 and 2024, respectively, a decrease of $29.0 million, or 86.6%. The decrease was due to shutting down clinical development and pursuit of a strategic transaction.
General and Administrative Expenses
General and administrative expenses were $10.2 million and $9.2 million during the six months ended June 30, 2025 and 2024, respectively, an increase of $1.0 million, or 10.9% due to expenses related to the pursuit of a strategic transaction.
Other Income (Expense), Net
Other income (expense), net was ($2.6) million and $1.8 million during the six months ended June 30, 2025 and 2024, respectively, a decrease of $4.4 million, or 244.4% due to the decrease in cash and cash equivalents as well as a loss on the sale of laboratory equipment. We anticipate that this will continue to decrease as we earn less interest income due to the continued decrease in the balance of cash and cash equivalents.
Liquidity and Capital Resources
Our headquarters are located in Los Angeles, California and we operate as one segment. Since our inception, we have devoted substantially all of our efforts and financial resources to organizing and staffing our company, business planning, raising capital, discovering product candidates and securing related intellectual property rights and conducting research and development activities for our Selected TIL programs and product candidates. We do not have any products approved for sale, we have not generated any revenue from product sales, and we have incurred overall net losses since our inception through June 30, 2025.
On June 26, 2025 we entered into the Merger Agreement. We have devoted, and expect to continue to devote, substantial time and resources to complete the Merger. We expect that the Merger will close in the third quarter of 2025. There can be no assurance that the Merger will be consummated or lead to increase stockholder value, or that we will make any cash distributions to our stockholders. If the Merger is not consummated, our Board intends to pursue a dissolution and liquidation.
On April 26, 2024, or the Loan Closing Date, we entered into a Loan and Security Agreement, or LSA, with Banc of California, or BOC, for a revolving credit facility in an aggregate principal amount of up to $20 million with interest at the greater of the Prime
28
Rate or 4.25%. This LSA includes a covenant requiring us to (i) receive positive interim Phase 1 data for TIDAL-01 (as determined by our Board) and (ii) receive at least $40.0 million in new funding from the sale of equity, partnerships, and/or business development payments, which was not achieved, in each case, by March 31, 2025. If we fail to comply with any of the foregoing covenants, BOC may terminate the commitments to make further loans and declare all of our obligations under the LSA to be immediately due and payable. On May 14, 2025, the LSA was terminated with no amounts having been drawn and no significant termination fees incurred.
Funding Requirements
Because of the numerous risks and uncertainties associated with the status of our company and the Merger, we are unable to estimate the exact amount of our operating capital requirements. The amount and timing of our future funding requirements will depend on many factors, including, but not limited to:
As of June 30, 2025 and December 31, 2024, we had cash and cash equivalents of $16.7 million and $28.9 million, respectively. We believe that our existing cash and cash equivalents will enable us to fund our planned operating expenses and capital expenditures through our anticipated closing of the Merger in the third quarter of 2025. If the Merger is not consummated, our Board intends to pursue a dissolution and liquidation.
Cash Flows
The following table summarizes our cash flows (in thousands):
|
|
Six Months Ended June 30, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Cash used in operating activities |
|
$ |
(11,395 |
) |
|
$ |
(33,385 |
) |
Cash provided by investing activities |
|
|
947 |
|
|
|
33,036 |
|
Cash used in financing activities |
|
|
— |
|
|
|
(48 |
) |
Net decrease in cash and cash equivalents |
|
$ |
(10,448 |
) |
|
$ |
(397 |
) |
Cash Flows from Operating Activities
Cash used in operating activities for the six months ended June 30, 2025 was $11.4 million, primarily due to our net loss of $17.3 million which was partially offset by the decrease in our net operating assets and liabilities of $2.5 million, changes in stock-based compensation of $0.6 million, loss on the disposal of property and equipment of $2.6 million and depreciation and amortization expense of $0.3 million.
Cash used in operating activities for the six months ended June 30, 2024 was $33.4 million, primarily due to our net loss of $40.9 million and accretion of the premium on short-term investments of $1.4 million which was partially offset by the decrease in our net operating assets and liabilities of $5.8 million, changes in stock-based compensation of $2.1 million, and depreciation and amortization expense of $1.0 million.
Cash Flows from Investing Activities
Cash provided by investing activities for the six months ended June 30, 2025 was $1.0 million, resulting from the sale of property and equipment.
Cash provided by investing activities for the six months ended June 30, 2024 was $33.0 million, due primarily to $40.0 million in maturities of short-term investments offset by the purchases of $6.7 million of short-term investments and $0.3 million in purchases of property and equipment.
Contractual Obligations and Commitments
We enter into contracts in the normal course of business with CROs and CMOs for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes. These contracts provide for termination at the
29
request of either party with less than one year notice, and therefore we believe that our non-cancellable obligations under these agreements are not material. We additionally have contractual obligations for our operating lease related to our office space. These obligations are further described in Note 12 to our unaudited condensed consolidated financial statements. We are also party to certain collaboration and license agreements, which contain a number of contractual obligations. Those contractual obligations may entitle us to receive, or may obligate us to make, certain payments. The amount and timing of those payments are unknown or uncertain as the Company is unable to estimate the timing or likelihood of the events that will obligate those payments.
We have milestones, royalties, and/or other payments due to third parties under our existing license and collaboration agreements. See Note 6 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. We can’t estimate when such payments will be due and none of these events were probable to occur as of June 30, 2025 and December 31, 2024, respectively.
Critical Accounting Polices and Estimates
The preparation of our financial statements and related disclosures in conformity with generally accepted accounting principles in the United States and our discussion and analysis of our financial condition and operating results require us to make judgments, assumptions and estimates that affect the amounts reported in our unaudited condensed consolidated financial statements and accompanying notes. Our significant accounting policies and methods used in preparation of our unaudited condensed consolidated financial statements are described in Note 2 to our unaudited condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material.
There have been no material changes to our critical accounting policies from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” included in our 10-K filed with the SEC on March 31, 2025.
Accounting Pronouncements Recently Adopted
We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our unaudited condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q, such standards will not have a material impact on our unaudited condensed consolidated financial statements or do not otherwise apply to our current operations.
Emerging Growth and Smaller Reporting Company Status
The JOBS Act permits an “emerging growth company” such as us to take advantage of reduced reporting requirements that are otherwise applicable to public companies and also an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to not “opt out” of this provision and, as a result, we will adopt new or revised accounting standards at the time private companies adopt the new or revised accounting standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company.
We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the IPO, (ii) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more, (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the previous rolling three-year period or (iv) the date on which we are deemed to be a large accelerated filer under the Exchange Act.
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.
30
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company, as defined in Rule 12b-2 under the Exchange Act, for this reporting period and are not required to provide the information required under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of June 30, 2025, management, with the participation and supervision of our Principal Executive Officer and our Principal Financial and Accounting Officer, have evaluated our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, our Principal Executive Officer and our Principal Financial and Accounting Officer have concluded that, as of June 30, 2025, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and our Principal Financial and Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
31
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we have been or may become involved in material legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not party to any legal proceedings material to our operations or of which any of our property is the subject, nor are we aware of any such proceedings that are contemplated by a government authority. Regardless of outcome, such proceedings or claims can have an adverse impact on us because of defense and settlement costs, diversion of resources, and other factors, and there can be no assurances that favorable outcomes will be obtained.
ITEM 1A. RISK FACTORS
Our business involves significant risks, some of which are described below. You should carefully consider the risks described below, as well as the other information in this Quarterly Report on Form 10-Q, including our unaudited condensed consolidated financial statements and the related notes, and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The occurrence of any of the events or developments described below could adversely affect our business, results of operations and financial condition. In any such event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may impair our business, results of operations and financial condition. Except for the additional risk factors set forth below, there have been no material changes to the risk factors disclosed in Item1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 31, 2025,and Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 filed with the SEC on May9, 2025.
Risks Related to the Offer and the Merger
The Offer and the Merger are subject to a number of conditions beyond our control. Failure to complete the Offer and the Merger within the expected time frame, or at all, could have a material adverse effect on our business, operating results, financial condition and our share price.
On June 26, 2025, we entered into the Merger Agreement with XOMA and Merger Sub, pursuant to which, and upon the terms and subject to the conditions of, Merger Sub commenced a cash tender offer to purchase our common stock. After the completion of the Offer, the satisfaction or waiver of certain conditions set forth in the Merger Agreement and in accordance with the DGCL, Merger Sub will be merged with and into Turnstone, with Turnstone continuing as the surviving corporation and as a wholly owned subsidiary of XOMA, and pursuant to the Merger, each share of common stock that is not validly tendered and irrevocably accepted for purchase pursuant to the Offer, except as provided in the Merger Agreement, will be converted in the Merger into the right to receive an amount equal to the Merger Consideration (as defined in the Merger Agreement). Merger Sub’s obligation to accept shares of common stock tendered in the Offer is subject to conditions, including: (i) that the number of shares of common stock validly tendered (and not properly withdrawn) prior to the expiration of the Offer equals at least one share more than 50% of all shares of common stock then issued and outstanding as of the expiration of the Offer; (ii) the absence of any legal restraint preventing or prohibiting the consummation of the Offer, the Merger or any of the other transactions contemplated by the Merger Agreement; (iii) accuracy of the representations and warranties made by the Company in the Merger Agreement, subject to specified materiality qualifications; (iv) compliance by the Company with its covenants under the Merger Agreement in all material respects; and (v) the Closing Net Cash (as defined in the Merger Agreement) shall be no less than the amount specific in the Merger Agreement. The obligations of XOMA and Merger Sub to consummate the Offer and the Merger under the Merger Agreement are not subject to a financing condition.
We cannot predict whether or when the conditions to the Offer will be satisfied. If one or more of these conditions are not satisfied, and as a result, we do not complete the Offer and the Merger, we would remain liable for significant transaction costs, and the focus of our management would have been diverted from seeking other potential strategic opportunities, in each case without realizing any benefits of the Offer and the Merger. Certain costs associated with the Offer and the Merger have already been incurred or may be payable even if the Offer and the Merger are not consummated. Finally, any disruptions to our business resulting from the announcement and pendency of the Offer and the Merger, including any adverse changes in our relationships with our partners, suppliers and employees, could continue or accelerate in the event that we fail to consummate the Offer and the Merger.
Our share price may also fluctuate significantly based on announcements by XOMA, other third parties, or us regarding the Offer and the Merger or based on market perceptions of the likelihood of the satisfaction of the conditions to the consummation of the Offer and the Merger. Such announcements may lead to perceptions in the market that the Offer and the Merger may not be completed, which could cause our share price to fluctuate or decline. Other factors outside of our control, such as a governmental entity enacting a legal restraint or prohibition that prevents or prohibits the Offer or the Merger, could cause us not to satisfy the
32
closing condition relating to the absence of Legal Restraints (as defined in the Merger Agreement) (the Legal Restraint Condition) and thus the Offer and the Merger would not be consummated. Further, unforeseen and unexpected expenses could cause our net cash to be below the applicable threshold thus causing us to fail to satisfy the Closing Net Cash Condition.
If we do not consummate the Offer and the Merger, the price of our common stock may decline significantly from the current market price, which may reflect a market assumption that the Offer and the Merger will be consummated. Further, if we do not consummate the Offer and Merger, we will be required to seek stockholder approval to consummate the transactions contemplated by the Purchase Agreement and if such approval is not obtained in a timely manner, the $1.8 million held in escrow would be released entirely to Moffit and such amount would not be available to our stockholders in a dissolution. Any of these events could have a material adverse effect on our business, operating results and financial condition and could cause a decline in the price of our common stock.
Our stockholders may not receive any payment on the CVR and the CVR may expire valueless.
If the Offer and the Merger are completed, the holders of our common stock and RSUs will be entitled to receive one CVR per share of common stock, share of common stock underlying a RSU representing the right to receive, subject to the terms and conditions of the CVR Agreement. Each CVR will represent a contractual right to receive contingent cash payments equal to (i) up to an aggregate amount for all CVR holders of $1,110,000 to the extent received by the Company as a result of contingent payments relating to tax receivables and a lease security deposit, plus (ii) Net Cash Excess (as defined in the CVR Agreement), and minus (iii) Net Cash Shortfall (as defined in the CVR Agreement) (“CVR Proceeds”). In the event that any such CVR Proceeds are received after one year following the date of the closing of the Merger, holders of the CVRs will not receive any payment pursuant to the CVR Agreement. The CVRs will not be transferable, except in the limited circumstances specified in the CVR Agreement, will not have any voting or dividend rights, and will not represent any equity or ownership interest in us or any of our affiliates, and interest will not accrue on any amounts potentially payable on the CVRs. Accordingly, the right of any of our stockholders to receive any future payment on or derive any value from the CVRs will be contingent solely upon the receipt of CVR Proceeds between the Closing Date (as defined in the CVR Agreement) and the Expiration Date (as defined in the CVR Agreement). If no CVR Proceeds are received during this time period, then and no payments will be made under the CVRs, and the CVRs will expire valueless.
Stockholder litigation could prevent or delay the consummation of the Offer and the Merger or otherwise negatively impact our business, operating results and financial condition.
We may incur additional costs in connection with the defense or settlement of any stockholder litigation in connection with the Offer and the Merger. Any such litigation may adversely affect our ability to complete the Offer and the Merger and may impact our ability to meet the Closing Net Cash Condition. We could incur significant costs in connection with any such litigation, including costs associated with the indemnification of our directors and officers. Furthermore, one of the conditions to the consummation of the Offer and the Merger is the Legal Restraint Condition. Consequently, if a plaintiff were to secure injunctive or other relief prohibiting, delaying or otherwise adversely affecting our ability to complete the consummation of the Offer and the Merger, then such injunctive or other relief may prevent the consummation of the Offer or the Merger within the expected time frames or at all.
If the Merger is not consummated, our Board intends to pursue a dissolution and liquidation. In such an event, the amount of cash available for distribution to our stockholders will depend significantly on the timing of such liquidation as well as the amount of cash that may need to be reserved for commitments and contingent liabilities.
There can be no assurance that the Merger will be completed. If the Merger is not completed, our Board intends to pursue a dissolution and liquidation. In such an event, the amount of cash available for distribution to our stockholders will depend heavily on the timing of such decision and, with the passage of time, the amount of cash available for distribution will be reduced as we continue to fund our operations. In addition, if our Board were to approve and recommend, and our stockholders were to approve, a dissolution and liquidation, we would be required under Delaware corporate law to pay our outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to our stockholders. As a result of this requirement, a portion of our assets may need to be reserved pending the resolution of such obligations and the timing of any such resolution is uncertain. In addition, we may be subject to litigation or other claims related to a dissolution and liquidation. If a dissolution and liquidation were pursued, our Board, in consultation with our advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of our common stock could lose all or a significant portion of their investment in the event of a liquidation, dissolution or winding up.
33
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
34
ITEM 6. EXHIBITS
|
|
|
Incorporated by Reference |
|||
Exhibit No. |
|
Description |
Form |
File No. |
Exhibit |
Filing |
|
|
|
|
|
|
|
2.1 |
|
Agreement and Plan of Merger and Reorganization, dated December 11, 2020, between Turnstone Biologics Corp., Flatiron Merger Sub I, Inc., Flatiron Merger Sub II, LLC, Myst Therapeutics, Inc. and Timothy Langer. |
S-1/A |
333-272600 |
2.1 |
July 17, 2023 |
2.2 |
|
Agreement and Plan of Merger, dated June 26, 2025, by and among XOMA Corporation, XRA 3 Corp. and Turnstone Biologics Corp. |
8-K/A
|
001-41747
|
2.1 |
July 1, 2025 |
2.3 |
|
Asset Purchase Agreement, dated June 26, 2025, by and among Turnstone Biologics Corp. and Lee Moffitt Cancer Center and Research Institute, Inc |
8-K
|
001-41747
|
2.2 |
June 27, 2025 |
|
|
|
|
|
|
|
3.1 |
|
Amended and Restated Certificate of Incorporation of the Company. |
8-K |
001-41747 |
3.1 |
July 25, 2023 |
|
|
|
|
|
|
|
3.2 |
|
Amended and Restated Bylaws of the Company. |
8-K |
001-41747 |
3.2 |
July 25, 2023 |
10.1 |
|
Escrow Agreement, dated June 26, 2025, by and among Turnstone Biologics Corp., H. Lee Moffitt Cancer Center and Research Institute, Inc. and Citibank, N.A. |
8-K |
001-41747
|
10.1 |
June 27, 2025 |
|
|
|
|
|
|
|
31.1* |
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
|
|
|
|
31.2* |
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
|
|
|
|
32.1*+ |
|
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
|
|
|
|
101.INS* |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
|
|
|
|
|
|
|
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
|
|
|
|
|
|
|
|
|
|
|
104* |
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
|
|
|
|
* Filed herewith.
+ Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
35
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of The Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Los Angeles, State of California, on the 8th day of August 2025.
Turnstone Biologics Corp. |
|
/s/ Wendy Worcester |
Wendy Worcester |
Principal Financial and Accounting Officer |
36
FAQ
What is the acquisition price in the XOMA merger for Turnstone (TSBX)?
How much cash did Turnstone report and is it sufficient to operate?
What were Turnstone's recent operating results?
What is the CVR and how much could it pay?
Is Turnstone at risk of Nasdaq delisting?
What happens to employee equity awards if the Merger closes?
