Business Context and Reporting Period
Company: Daré Bioscience, Inc. (DARE)
Filing Type: Form 8-K (Current Report)
Date of Report: November 10, 2019
Event: Entry into a Material Definitive Agreement (Merger Agreement) to acquire Microchips Biotech, Inc. ("Microchips"). The transaction involves a merger of a wholly-owned subsidiary of Daré with Microchips, with Microchips surviving as a wholly-owned subsidiary of Daré. The closing is expected on or before November 22, 2019.
Key Financial Metrics and Transaction Terms
This filing details a strategic acquisition rather than standard periodic financial results. Key financial terms include:
- Immediate Consideration: Daré will issue 3,000,000 shares of its common stock ("Closing Shares") to Microchips shareholders.
- Cash Consideration: The Closing Shares are in consideration of Microchips' cash and cash equivalents, less liabilities. Anticipated cash at closing is approximately $6.9 million, or approximately $5.7 million after transaction-related expenses.
- Contingent Consideration (Total Potential):
- Up to $46.5 million in Development Milestone Payments (funding, product development, regulatory).
- Up to $55.0 million in sales-based milestones (aggregate net sales of acquired IP products).
- Tiered royalty payments (low single-digit to low double-digit percentages of annual net sales).
- Percentage of sublicense revenue.
- Short-Term Liability Expectation: Daré expects less than $1.3 million of the Contingent Consideration may become payable through 2021.
- Stock Payment Option: Daré may elect to pay up to $2.3 million of the Development Milestone Payments in common stock, subject to stockholder approval and Nasdaq rules.
Material Changes and Conditions
The filing does not report changes to historical financial metrics (revenue, profit, etc.) as it is a transaction announcement. Material conditions for the closing include:
- Stockholder Approval: Execution of Joinder Agreements by Microchips stockholders holding at least 93% of outstanding capital stock on a fully diluted basis.
- Regulatory/Listing: Nasdaq approval to list the shares to be issued.
- Grant Continuity: Written confirmation from the Bill & Melinda Gates Foundation that existing grant funding will continue post-merger.
- Cash Minimum: Microchips must maintain a specified minimum amount of adjusted cash.
- Termination: The agreement may be terminated if the transaction is not consummated by November 22, 2019, or upon material adverse effects, breach of representations, or mutual consent.
Outlook, Risks, and Management Commentary
Management Actions:
- Cheryl Blanchard, Ph.D. (CEO of Microchips), will be appointed to Daré's board of directors as a Class III director immediately following the closing.
- Daré agreed to use commercially reasonable efforts to achieve development and regulatory objectives for Microchips' implantable contraceptive product.
- Daré must register the Closing Shares for resale within 180 days of closing.
Risks and Contingencies:
- Failure to obtain required stockholder approval (93% threshold).
- Failure to satisfy closing conditions, including Gates Foundation funding confirmation.
- Unexpected costs, liabilities, or delays.
- Disruption of current plans and operations.
- Termination of the Merger Agreement.
Unusual Items: The issuance of shares is unregistered (private placement under Section 4(a)(2) and Rule 506) but will be covered by a future resale registration statement.
Investor Verification Checklist
- Verify the final closing date and whether the November 22, 2019 deadline was met or extended.
- Confirm receipt of the Bill & Melinda Gates Foundation's written confirmation regarding grant continuity.
- Monitor the percentage of Microchips stockholders executing Joinder Agreements to ensure the 93% threshold is met.
- Review the final cash balance of Microchips at closing to determine the exact value of the Closing Shares consideration.
- Check for subsequent filings regarding the registration statement (Form S-3 or S-1) for the resale of Closing Shares.
- Assess the impact of the 3,000,000 new shares on Daré's existing share count and potential dilution.