Orchestra BioMed Holdings, Inc. — 2022 Q2 filing summary
Reporting-period context: The filing is for Health Sciences Acquisitions Corporation 2 (HSAC 2), a blank-check company, for the quarter and six months ended June 30, 2022. It had not begun operations or generated operating revenue. The proposed Orchestra BioMed transaction was announced after quarter-end; this filing is not a report of Orchestra BioMed’s standalone operating results.
Financial results and liquidity
| Metric | Three months ended June 30, 2022 | Six months ended June 30, 2022 |
|---|---|---|
| Revenue | None; HSAC 2 had not commenced operations. | |
| General and administrative expense | $908,173 | $1,330,127 |
| Related-party administrative fee | $30,000 | $60,000 |
| Trust investment interest income | $203,252 | $217,517 |
| Net loss | $734,921 | $1,172,610 |
| Net loss per share, basic and diluted | $0.04 | $0.06 |
Cash flow: Net cash used in operating activities was $447,758 for the six months, versus $115,517 in the comparable 2021 period. Cash at June 30 was $1.31 million, down from $1.75 million at year-end 2021.
Balance sheet and funding: Total assets were $161.58 million, including $160.24 million held in the Trust Account. Total liabilities were $6.70 million, including $5.60 million of deferred underwriting commissions payable only if a business combination closes. Current liabilities were $1.10 million; management reported working capital of approximately $245,000. There were no outstanding working-capital loans. Shareholders’ deficit was $5.25 million. The Trust Account is principally transaction/redemption capital, not ordinary operating cash. Profit margins are not meaningful because there was no revenue.
Changes versus the prior comparable period
Net loss increased from $92,329 to $734,921 for the quarter and from $200,331 to $1.17 million for the six months. General and administrative expense rose substantially year over year. Trust investment income also increased, from $3,989 to $203,252 for the quarter and from $7,935 to $217,517 for the six months, partly offsetting expenses. Operating cash use increased year over year. The filing does not attribute the increase in general and administrative expense to specific causes.
Transaction, outlook and risks
- On July 4, 2022, HSAC 2 agreed to combine with Orchestra BioMed; the agreement was amended July 21. Closing is subject to conditions. If completed, the combined company is expected to be named Orchestra BioMed Holdings, Inc.
- Forward purchase agreements contemplated approximately $20 million in total purchases, subject to adjustments for shares acquired with redemption rights. RTW Funds also agreed to backstop funding if closing cash is below $60 million, including the applicable forward-purchase commitment. The sponsor separately agreed to purchase $25 million of shares or equivalent securities in connection with the transaction; these commitments and conditions should be checked in the definitive transaction disclosures.
- At a July 26, 2022 extension vote, holders redeemed 9,237,883 public shares for approximately $92.6 million, or about 57.7% of public shares. The filing estimated approximately $67.8 million would remain in the Trust Account after redemptions. The deadline was extended to November 6, 2022, with options for monthly extensions through February 6, 2023.
- Management said available working capital and borrowing capacity were expected to meet needs through a business combination or one year from filing, but also concluded that mandatory liquidation and dissolution raise substantial doubt about the company’s ability to continue as a going concern. Management intended to complete a transaction before the deadline; the financial statements include no liquidation adjustments.
- Risks include failure to complete the transaction before the deadline, redemption-driven reduction in transaction cash, uncertainty around creditor claims or liquidation timing, and market volatility and geopolitical or other disruptions. The filing states their specific financial effects were not readily determinable.
- Disclosure controls were judged effective as of June 30, 2022. A previously identified material weakness in internal control over financial reporting was reported as remediated during the quarter.
Important facts for investors to verify
- Whether the Orchestra transaction closed, and the status of required approvals and other closing conditions.
- Actual post-redemption trust cash, additional redemptions, and net cash available at closing after transaction costs and deferred underwriting commissions.
- Whether forward-purchase and backstop commitments were funded, and how the sponsor’s $25 million purchase agreement was implemented.
- The final transaction terms, share issuance and dilution, and any changes to the extension deadline or funding arrangements.
- HSAC 2’s short-term operating liquidity and plans if the business combination is delayed or does not close.
- Orchestra BioMed’s operating results, cash runway, and business risks; this SPAC filing does not provide a clear value for those metrics.