Orchestra BioMed Holdings, Inc. — 2022 Q3 filing summary
Filing context: This 10-Q, for the quarter ended September 30, 2022, was filed by Health Sciences Acquisitions Corporation 2 (HSAC 2), the SPAC that had agreed to combine with Orchestra BioMed, Inc. It is not a standalone operating-company report for Orchestra BioMed. HSAC 2 had no operating revenue and was searching for and pursuing the proposed business combination.
Key financial metrics
| Metric | Q3 2022 / September 30, 2022 | Comparable period / prior year-end |
|---|---|---|
| Revenue | No operating revenue | No operating revenue |
| Net loss | $685,791 for the quarter | $90,411 for Q3 2021 |
| Net loss, nine months | $1,858,401 | $290,742 for nine months 2021 |
| General and administrative expense | $783,415 for the quarter; $2,113,542 for nine months | $64,445 and $212,711, respectively, in 2021 |
| Trust-account interest income | $127,624 for the quarter; $345,141 for nine months | $4,034 and $11,969, respectively, in 2021 |
| Cash and current liquidity | $735,217 operating cash; $872,555 current assets; approximately $568,000 working-capital deficit | $1,754,460 cash and $1,801,127 current assets at December 31, 2021 |
| Trust account | $67,776,498, held as cash | $160,022,447 at December 31, 2021 |
| Debt and other obligations | No working-capital loans outstanding; $5.6 million deferred underwriting commission, payable only if a business combination closes | — |
| Operating cash flow | $(1,019,243) for nine months | $(243,527) for nine months 2021 |
Profitability margins are not meaningful because the SPAC had no operating revenue. Q3 basic and diluted loss per share was $0.05, compared with approximately $0.00 in Q3 2021; nine-month loss per share was $0.10 versus $0.01.
Material changes and transaction developments
- Q3 net loss increased to $685,791 from $90,411 a year earlier, principally as general and administrative expenses rose substantially. Higher trust-account interest partly offset expenses.
- In connection with the July 2022 extension vote, holders redeemed 9,237,883 public shares for approximately $92.6 million, or about 57.7% of public shares. The trust account fell to approximately $67.8 million; 6,762,117 redeemable shares remained outstanding at quarter-end.
- HSAC 2 had entered into a merger agreement with Orchestra BioMed in July 2022. The proposed transaction contemplated HSAC 2 domesticating as a Delaware corporation and merging its subsidiary into Orchestra, with Orchestra surviving as a wholly owned subsidiary and the combined company named Orchestra BioMed Holdings, Inc. Closing remained subject to conditions.
- Forward purchase agreements contemplated approximately $20 million in aggregate purchases by RTW-related funds and a Medtronic affiliate. A separate RTW backstop was intended to cover a shortfall in closing cash below $60 million, inclusive of the specified RTW commitment. RTW had purchased 1 million shares for approximately $10.0 million in July.
- After quarter-end, on October 21, the forward-purchase and backstop agreements were amended, including to cap purchase prices at the public-share redemption price and provide that specified RTW-acquired shares would not vote for the transaction. On October 31, directors extended the business-combination deadline to December 6, 2022; the filing also describes extension authority potentially reaching February 6, 2023.
Outlook, risks and unusual items
- Management intended to complete the Orchestra transaction before the liquidation deadline. If no business combination is completed within the permitted period, HSAC 2 must wind up and distribute trust assets to public shareholders. Management identified this mandatory liquidation as raising substantial doubt about the company’s ability to continue as a going concern, despite its view that available working capital and borrowing capacity should meet needs through a transaction or one year from filing.
- The filing warns that failure to close could lead to liquidation, and creditor claims or court proceedings could delay distributions. The Sponsor’s protections for certain trust-account claims are subject to stated limits and do not assure that all obligations can be met.
- Management cited geopolitical conflict, sanctions, trade measures, market volatility, and other economic uncertainty as potential impediments to completing a business combination; the specific financial impact was not determinable.
- The financial statements include no adjustments for a possible liquidation. The deferred underwriting commission is contingent on completion of a business combination; the underwriters agreed to waive it if the company liquidates.
- Management reported disclosure controls were effective at September 30, 2022, with no material change in internal control over financial reporting during the quarter. No legal proceedings were reported.
Important facts for investors to verify
- Whether the Orchestra BioMed transaction closed, and whether all merger conditions and required approvals were satisfied.
- Actual closing cash, public-share redemptions, and whether RTW or Medtronic funding or the RTW backstop was required and completed.
- The applicable business-combination deadline and the consequences if the transaction does not close by that date.
- How the proposed transaction’s final terms affect ownership, dilution, sponsor forfeitures and lock-ups, and the value of the remaining trust assets.
- Whether HSAC 2’s operating cash and working-capital position were sufficient to fund expenses through closing or liquidation.