SEC Company Response from Avidity Biosciences, Inc. (RNA) (CIK 0001599901) (RNA) — May 26, 2020
Avidity Biosciences, Inc. (RNA) (CIK 0001599901)
Date: May 26, 2020 · CIK: 0001599901 · Accession: 0001193125-20-150629
AI Filing Summary & Sentiment
File numbers found in text: 333-238612
Letter
VIA EDGAR and HAND DELIVERY Office of Life Sciences Division of Corporation Finance 100 F Street N.E. Washington, D.C. 20549 Re: Avidity Biosciences, Inc. | Anticipated Price Range Registration Statement on Form S-1 (File No. 333-238612)
Dear Ms. Sarmento:
Rule 83 Confidential Treatment Requested by Avidity Biosciences, Inc.
This letter is furnished supplementally on behalf of Avidity Biosciences, Inc. (the “Company”) in connection with the review by the Securities and Exchange Commission (the “Commission”) of the above-mentioned Registration Statement on Form S-1 (the “Registration Statement”). To assist the staff (the “Staff”) of the Commission in its review, the Company advises the Staff that it presently estimates, based in part on information received by the lead underwriters, that the public offering price per share for the offering pursuant to the Registration Statement will be between $[***] and $[***] (without giving effect to any reverse stock split that the Company will effect prior to the offering, the “Preliminary Price Range”), considering information currently available and current market conditions. For clarity, the Company advises the Staff that, given the volatility of the public trading markets and the uncertainty of the timing
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested by Avidity Biosciences, Inc. with respect to this letter.
Securities and Exchange Commission
FOIA CONFIDENTIAL TREATMENT REQUEST
Page
of the offering, the Company and the lead underwriters have not yet finally agreed to a price range for the offering. The Company advises the Staff that the final range to be included in a pre-effective amendment to the Registration Statement, after giving effect to an appropriate reverse stock split, will include a price range of no more than $2.00 or 20% of the low end of the range, unless otherwise approved by the Staff.
Recent Stock Option Grants
The Company’s grants of stock options during the prior 12 months, including those made since the latest balance sheet presented in the Registration Statement, are set forth below.
Grant Date
Number of Shares Underlying Options Granted
Per Share Exercise Price of Options
Estimated Fair Market Value of Shares
Reassessed Fair Market Value of Shares
August 28, 2019
40,228
$0.20
$0.20
$1.201
October 3, 2019
286,000
$0.20
$0.20
$1.201
December 18, 2019
2,775,105
$0.59
$0.59
$1.971
February 11, 2020
700,000
$0.59
$0.59
$1.971
February 19, 2020
1,177,313
$0.59
$0.59
$1.971
May 15, 2020
715,000
$4.18
$4.18
N/A
(1) The Reassessed Fair Market Value Price represents a retrospective revaluation as further discussed below.
Common Stock Valuation Methodologies
The Company has historically determined the fair value of its common stock using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (the “AICPA Practice Guide”). In addition, the Board of Directors considered numerous objective and subjective factors, along with input from management and third-party valuations, to determine the fair value of the Company’s common stock as further disclosed on pages 94-95 of the Registration Statement.
For the options granted in August 2019 through February 2020, the Company utilized the option-pricing method (“OPM”) with a guideline public company method and the backsolve method, as applicable, which are accepted valuation methods under the AICPA Practice Guide, for determining the fair value of its common units/stock. The OPM treats a Company’s security classes as call options on total equity value, with exercise prices based on the relative seniority of payments among such security classes. The value of junior equity interests under the OPM is based on the value of optionality over-and-above the value of securities that are senior to them in the capital structure. The guideline public company method is a market approach that derives an implied total equity value by analyzing and comparing the market value and valuation multiples of comparable publicly traded life sciences companies. The backsolve method is a market approach that derives an implied total equity value from the sale price of the Company’s equity securities in a recent arm’s length transaction. The Board of Directors and an independent third-party valuation firm determined that the OPM and public company guideline method was the appropriate method for the Company’s valuations in August and October 2019 because the early stage of the Company’s development programs made it difficult to forecast specific future liquidity
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested by Avidity Biosciences, Inc. with respect to this letter.
Securities and Exchange Commission
FOIA CONFIDENTIAL TREATMENT REQUEST
Page
events. The Board of Directors and an independent third-party valuation firm determined that the OPM backsolve method was the appropriate method for the Company’s valuations in December 2019 and February 2020 given the proximity to the arm’s length Series C convertible preferred stock financing (the “Series C Financing”), which had closings in November 2019 and January 2020. The Series C Financing was led by new third-party investors in which the Company sold Series C convertible preferred stock at a price of $4.2812 per share raising gross proceeds of $102.8 million, which purchase price was determined in negotiations with such new investors. After estimating the Company’s total equity value under these market approaches, that value was allocated to the various classes of the Company’s equity using the OPM. In each of these valuations, given the very early nature of the Company and its technology and the high rate of failure for successfully commercializing drugs without additional technological validation, the Company incorporated the probability that the Company would not succeed and would go bankrupt, resulting in liquidation (Bankruptcy scenario), versus the probability that the Company would successfully achieve such objectives (Successful scenario).
Beginning in April 2020, the Company utilized a hybrid of the probability-weighted expected return method (“PWERM”) and OPM for determining the fair value of its common stock as estimates regarding potential future liquidity outcomes were considered reasonable following the Company’s submission on April 3, 2020 of a draft registration statement on Form S-1 related to the Company’s initial public offering (the “IPO”). The PWERM is a scenario-based analysis that estimates the value per share based on the probability-weighted present value of expected future investment returns, considering all of the possible outcomes available to the Company, as well as the economic and control rights of each share class. The Company considered three future event scenarios in the PWERM model: an IPO, a non-IPO (an immediate stay private scenario with an ultimate exit) or bankruptcy. The hybrid method is a hybrid between the PWERM and OPM that uses the PWERM to estimate the probability-weighted value across multiple scenarios and the OPM to estimate the allocation of value within one or more of those scenarios. The Company used the OPM to allocate value in the non-IPO scenario and used the fully-diluted shares outstanding to allocate value in the IPO scenario.
The Company’s Board of Directors and management developed estimates based on the application of these approaches and the assumptions underlying these valuations, giving careful consideration to independent third-party valuation reports. At each grant date, the Board of Directors considered whether any events occurred that would trigger any material changes to the business or would require adjustment to the estimated fair value from the previous valuation date.
In addition, in March 2020 in connection with the audit of the Company’s financial statements for the year ended December 31, 2019, the Company evaluated whether or not, in retrospect, the assumptions utilized for purposes of the August 2019, October 2019, December 2019 and February 2020 option grants were appropriate, as discussed below under the heading “—Retrospective Fair Value Determinations.”
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested by Avidity Biosciences, Inc. with respect to this letter.
Securities and Exchange Commission
FOIA CONFIDENTIAL TREATMENT REQUEST
Page
Grant Date Fair Value Determinations
August and October 2019 Option Grants.
The Company’s Board of Directors, with input from management, determined the fair value of its common stock to be $0.20 per share as of August 28, 2019 and October 3, 2019, after considering a valuation report from an independent third-party valuation firm as of April 30, 2019. In reaching this determination, the Board of Directors determined that no material changes had occurred in the business since the date of the third-party valuation report.
As discussed above, the April 30, 2019 valuation used the OPM guideline public company method to value the common stock because the early stage of the Company’s development programs made it difficult to forecast specific future liquidity events. Given the very early nature of the Company and its technology and the expected liquidity event time period, as well as the relatively short time frame of its existing cash runway without another capital raise, the Company incorporated the probability that it would go bankrupt, resulting in liquidation. The April 30, 2019 valuation established the following scenarios and probabilities:
Scenario
Indicated Value
Assigned Weight
DLOM*
Weighted Value Per Unit/Share
Successful
$1.01
20%
30%
$0.20
Bankruptcy
$0
80%
0%
$0.00
Concluded Fair Value
$0.20
* The DLOM was based on the Finnerty Put Option Analysis and consideration of various restricted stock studies.
The Company estimated the average time to a potential liquidity event was five years based on management’s best estimates and it estimated that the liquidation value of its common units in the bankruptcy scenario (i.e. the net amount received by the Company if its assets were sold and liabilities were retired) was $0. After applying a 30% discount for lack of marketability (“DLOM”), the resulting fair value of common stock was $0.20 per share on a non-controlling, non-marketable basis. The Company subsequently reexamined the deemed fair value of its common stock associated with stock options granted in August and October 2019 as discussed below under the heading “—Retrospective Fair Value Determinations.”
December 2019 and February 2020 Option Grants.
The Company’s Board of Directors, with input from management, determined the fair value of its common stock to be $0.59 per share as of December 18, 2019, February 11, 2020 and February 19, 2020, after considering a valuation report from an independent third-party valuation firm as of November 30, 2019. In reaching this determination, the Board of Directors determined that no material changes had occurred in the business since the date of the third-party valuation report.
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested by Avidity Biosciences, Inc. with respect to this letter.
Securities and Exchange Commission
FOIA CONFIDENTIAL TREATMENT REQUEST
Page
As discussed above, the November 30, 2019 valuation used the OPM backsolve method to value the common stock because of the proximity to the Series C Financing, which had an initial closing and a subsequent closing in November 2019 and January 2020, respectively. Similar to the prior valuations, given the very early nature of the Company and its technology and the high failure rate of early-stage pharmaceutical companies, after taking into account the cash runway provided by the Series C Financing and the need for additional capital raises, the Company established the following scenarios and probabilities:
Scenario
Indicated Value
Assigned Weight
DLOM*
Weighted Value Per Unit/Share
Successful
$1.97
30%
30%
$0.59
Bankruptcy
$0
70%
0%
$0.00
Concluded Fair Value
$0.59
* The DLOM was based on the Finnerty Put Option Analysis and consideration of various restricted stock studies.
Under the backsolve method, the Company estimated the average time to a potential liquidity event was 1.5 years based on management’s best estimates. The Company estimated that the liquidation value of its common shares in the bankruptcy scenario was $0. After applying a 30% DLOM, the resulting fair value of common stock was $0.59 per share on a non-controlling, non-marketable basis. The Company subsequently reexamined the deemed fair value of its common stock associated with stock options granted in December 2019 and February 2020 as discussed below under the heading “—Retrospective Fair Value Determinations.”
Retrospective Fair Value Determinations
In March 2020, in connection with the audit of the Company’s financial statements for the year ended December 31, 2019, the Company evaluated whether or not, in retrospect, the assumptions utilized for purposes of the August 2019, October 2019, December 2019 and February 2020 option grants were appropriate. In retrospect, the Company worked with its independent third-party valuation firm to revise the April 30, 2019 and November 30, 2019 valuations to increase the absolute weighting of the Successful scenario by 80% and 70%, respectively, which resulted in a concluded fair value of the common units/shares of $1.20 for the August 28 and October 3, 2019 option grants and $1.97 for the December 18, 2019, and February 11 and February 19, 2020 option grants. As a result, the Company recorded an immaterial amount of additional stock based compensation expense for the fiscal year ended December 31, 2019 and the increase in stock based compensation for the fiscal quarter ended March 31, 2020 was immaterial.
May 2020 Option Grants.
The Company’s Board of Directors, with input from management, determined the fair value of its common stock to be $4.18 per share as of May 15, 2020, after considering a valuation report from an independent third-party valuation firm as of April 30, 2020. In reaching this determination, the Board of Directors determined that no material changes had occurred in the business since the date of the third-party valuation report.
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested by Avidity Biosciences, Inc. wit
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CORRESP 1 filename1.htm CORRESP 12670 High Bluff Drive San Diego, California 92130 Tel: +1.858.523.5400 Fax: +1.858.523.5450 www.lw.com FIRM / AFFILIATE OFFICES Beijing Moscow Boston Munich Brussels New York Century City Orange County Chicago Paris Dubai Riyadh FOIA CONFIDENTIAL TREATMENT REQUEST Düsseldorf Rome Frankfurt San Diego Hamburg San Francisco Hong Kong Seoul Houston Shanghai London Silicon Valley Los Angeles Singapore Madrid Tokyo Milan Washington, D.C. The entity requesting confidential treatment is: Avidity Biosciences, Inc. 10975 N. Torrey Pines Road, Suite 150 La Jolla, CA 92037 Attn: Sarah Boyce, President and Chief Executive Officer May 26, 2020 VIA EDGAR and HAND DELIVERY Ms. Ada D. Sarmento Office of Life Sciences Division of Corporation Finance U.S. Securities and Exchange Commission 100 F Street N.E. Washington, D.C. 20549 Re: Avidity Biosciences, Inc. | Anticipated Price Range Registration Statement on Form S-1 (File No. 333-238612) Dear Ms. Sarmento: Rule 83 Confidential Treatment Requested by Avidity Biosciences, Inc. This letter is furnished supplementally on behalf of Avidity Biosciences, Inc. (the “Company”) in connection with the review by the Securities and Exchange Commission (the “Commission”) of the above-mentioned Registration Statement on Form S-1 (the “Registration Statement”). To assist the staff (the “Staff”) of the Commission in its review, the Company advises the Staff that it presently estimates, based in part on information received by the lead underwriters, that the public offering price per share for the offering pursuant to the Registration Statement will be between $[***] and $[***] (without giving effect to any reverse stock split that the Company will effect prior to the offering, the “Preliminary Price Range”), considering information currently available and current market conditions. For clarity, the Company advises the Staff that, given the volatility of the public trading markets and the uncertainty of the timing [***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested by Avidity Biosciences, Inc. with respect to this letter. Securities and Exchange Commission FOIA CONFIDENTIAL TREATMENT REQUEST Page 2 of the offering, the Company and the lead underwriters have not yet finally agreed to a price range for the offering. The Company advises the Staff that the final range to be included in a pre-effective amendment to the Registration Statement, after giving effect to an appropriate reverse stock split, will include a price range of no more than $2.00 or 20% of the low end of the range, unless otherwise approved by the Staff. Recent Stock Option Grants The Company’s grants of stock options during the prior 12 months, including those made since the latest balance sheet presented in the Registration Statement, are set forth below. Grant Date Number of Shares Underlying Options Granted Per Share Exercise Price of Options Estimated Fair Market Value of Shares Reassessed Fair Market Value of Shares August 28, 2019 40,228 $0.20 $0.20 $1.201 October 3, 2019 286,000 $0.20 $0.20 $1.201 December 18, 2019 2,775,105 $0.59 $0.59 $1.971 February 11, 2020 700,000 $0.59 $0.59 $1.971 February 19, 2020 1,177,313 $0.59 $0.59 $1.971 May 15, 2020 715,000 $4.18 $4.18 N/A (1) The Reassessed Fair Market Value Price represents a retrospective revaluation as further discussed below. Common Stock Valuation Methodologies The Company has historically determined the fair value of its common stock using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (the “AICPA Practice Guide”). In addition, the Board of Directors considered numerous objective and subjective factors, along with input from management and third-party valuations, to determine the fair value of the Company’s common stock as further disclosed on pages 94-95 of the Registration Statement. For the options granted in August 2019 through February 2020, the Company utilized the option-pricing method (“OPM”) with a guideline public company method and the backsolve method, as applicable, which are accepted valuation methods under the AICPA Practice Guide, for determining the fair value of its common units/stock. The OPM treats a Company’s security classes as call options on total equity value, with exercise prices based on the relative seniority of payments among such security classes. The value of junior equity interests under the OPM is based on the value of optionality over-and-above the value of securities that are senior to them in the capital structure. The guideline public company method is a market approach that derives an implied total equity value by analyzing and comparing the market value and valuation multiples of comparable publicly traded life sciences companies. The backsolve method is a market approach that derives an implied total equity value from the sale price of the Company’s equity securities in a recent arm’s length transaction. The Board of Directors and an independent third-party valuation firm determined that the OPM and public company guideline method was the appropriate method for the Company’s valuations in August and October 2019 because the early stage of the Company’s development programs made it difficult to forecast specific future liquidity [***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested by Avidity Biosciences, Inc. with respect to this letter. Securities and Exchange Commission FOIA CONFIDENTIAL TREATMENT REQUEST Page 3 events. The Board of Directors and an independent third-party valuation firm determined that the OPM backsolve method was the appropriate method for the Company’s valuations in December 2019 and February 2020 given the proximity to the arm’s length Series C convertible preferred stock financing (the “Series C Financing”), which had closings in November 2019 and January 2020. The Series C Financing was led by new third-party investors in which the Company sold Series C convertible preferred stock at a price of $4.2812 per share raising gross proceeds of $102.8 million, which purchase price was determined in negotiations with such new investors. After estimating the Company’s total equity value under these market approaches, that value was allocated to the various classes of the Company’s equity using the OPM. In each of these valuations, given the very early nature of the Company and its technology and the high rate of failure for successfully commercializing drugs without additional technological validation, the Company incorporated the probability that the Company would not succeed and would go bankrupt, resulting in liquidation (Bankruptcy scenario), versus the probability that the Company would successfully achieve such objectives (Successful scenario). Beginning in April 2020, the Company utilized a hybrid of the probability-weighted expected return method (“PWERM”) and OPM for determining the fair value of its common stock as estimates regarding potential future liquidity outcomes were considered reasonable following the Company’s submission on April 3, 2020 of a draft registration statement on Form S-1 related to the Company’s initial public offering (the “IPO”). The PWERM is a scenario-based analysis that estimates the value per share based on the probability-weighted present value of expected future investment returns, considering all of the possible outcomes available to the Company, as well as the economic and control rights of each share class. The Company considered three future event scenarios in the PWERM model: an IPO, a non-IPO (an immediate stay private scenario with an ultimate exit) or bankruptcy. The hybrid method is a hybrid between the PWERM and OPM that uses the PWERM to estimate the probability-weighted value across multiple scenarios and the OPM to estimate the allocation of value within one or more of those scenarios. The Company used the OPM to allocate value in the non-IPO scenario and used the fully-diluted shares outstanding to allocate value in the IPO scenario. The Company’s Board of Directors and management developed estimates based on the application of these approaches and the assumptions underlying these valuations, giving careful consideration to independent third-party valuation reports. At each grant date, the Board of Directors considered whether any events occurred that would trigger any material changes to the business or would require adjustment to the estimated fair value from the previous valuation date. In addition, in March 2020 in connection with the audit of the Company’s financial statements for the year ended December 31, 2019, the Company evaluated whether or not, in retrospect, the assumptions utilized for purposes of the August 2019, October 2019, December 2019 and February 2020 option grants were appropriate, as discussed below under the heading “—Retrospective Fair Value Determinations.” [***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested by Avidity Biosciences, Inc. with respect to this letter. Securities and Exchange Commission FOIA CONFIDENTIAL TREATMENT REQUEST Page 4 Grant Date Fair Value Determinations August and October 2019 Option Grants. The Company’s Board of Directors, with input from management, determined the fair value of its common stock to be $0.20 per share as of August 28, 2019 and October 3, 2019, after considering a valuation report from an independent third-party valuation firm as of April 30, 2019. In reaching this determination, the Board of Directors determined that no material changes had occurred in the business since the date of the third-party valuation report. As discussed above, the April 30, 2019 valuation used the OPM guideline public company method to value the common stock because the early stage of the Company’s development programs made it difficult to forecast specific future liquidity events. Given the very early nature of the Company and its technology and the expected liquidity event time period, as well as the relatively short time frame of its existing cash runway without another capital raise, the Company incorporated the probability that it would go bankrupt, resulting in liquidation. The April 30, 2019 valuation established the following scenarios and probabilities: Scenario Indicated Value Assigned Weight DLOM* Weighted Value Per Unit/Share Successful $1.01 20% 30% $0.20 Bankruptcy $0 80% 0% $0.00 Concluded Fair Value $0.20 * The DLOM was based on the Finnerty Put Option Analysis and consideration of various restricted stock studies. The Company estimated the average time to a potential liquidity event was five years based on management’s best estimates and it estimated that the liquidation value of its common units in the bankruptcy scenario (i.e. the net amount received by the Company if its assets were sold and liabilities were retired) was $0. After applying a 30% discount for lack of marketability (“DLOM”), the resulting fair value of common stock was $0.20 per share on a non-controlling, non-marketable basis. The Company subsequently reexamined the deemed fair value of its common stock associated with stock options granted in August and October 2019 as discussed below under the heading “—Retrospective Fair Value Determinations.” December 2019 and February 2020 Option Grants. The Company’s Board of Directors, with input from management, determined the fair value of its common stock to be $0.59 per share as of December 18, 2019, February 11, 2020 and February 19, 2020, after considering a valuation report from an independent third-party valuation firm as of November 30, 2019. In reaching this determination, the Board of Directors determined that no material changes had occurred in the business since the date of the third-party valuation report. [***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested by Avidity Biosciences, Inc. with respect to this letter. Securities and Exchange Commission FOIA CONFIDENTIAL TREATMENT REQUEST Page 5 As discussed above, the November 30, 2019 valuation used the OPM backsolve method to value the common stock because of the proximity to the Series C Financing, which had an initial closing and a subsequent closing in November 2019 and January 2020, respectively. Similar to the prior valuations, given the very early nature of the Company and its technology and the high failure rate of early-stage pharmaceutical companies, after taking into account the cash runway provided by the Series C Financing and the need for additional capital raises, the Company established the following scenarios and probabilities: Scenario Indicated Value Assigned Weight DLOM* Weighted Value Per Unit/Share Successful $1.97 30% 30% $0.59 Bankruptcy $0 70% 0% $0.00 Concluded Fair Value $0.59 * The DLOM was based on the Finnerty Put Option Analysis and consideration of various restricted stock studies. Under the backsolve method, the Company estimated the average time to a potential liquidity event was 1.5 years based on management’s best estimates. The Company estimated that the liquidation value of its common shares in the bankruptcy scenario was $0. After applying a 30% DLOM, the resulting fair value of common stock was $0.59 per share on a non-controlling, non-marketable basis. The Company subsequently reexamined the deemed fair value of its common stock associated with stock options granted in December 2019 and February 2020 as discussed below under the heading “—Retrospective Fair Value Determinations.” Retrospective Fair Value Determinations In March 2020, in connection with the audit of the Company’s financial statements for the year ended December 31, 2019, the Company evaluated whether or not, in retrospect, the assumptions utilized for purposes of the August 2019, October 2019, December 2019 and February 2020 option grants were appropriate. In retrospect, the Company worked with its independent third-party valuation firm to revise the April 30, 2019 and November 30, 2019 valuations to increase the absolute weighting of the Successful scenario by 80% and 70%, respectively, which resulted in a concluded fair value of the common units/shares of $1.20 for the August 28 and October 3, 2019 option grants and $1.97 for the December 18, 2019, and February 11 and February 19, 2020 option grants. As a result, the Company recorded an immaterial amount of additional stock based compensation expense for the fiscal year ended December 31, 2019 and the increase in stock based compensation for the fiscal quarter ended March 31, 2020 was immaterial. May 2020 Option Grants. The Company’s Board of Directors, with input from management, determined the fair value of its common stock to be $4.18 per share as of May 15, 2020, after considering a valuation report from an independent third-party valuation firm as of April 30, 2020. In reaching this determination, the Board of Directors determined that no material changes had occurred in the business since the date of the third-party valuation report. [***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested by Avidity Biosciences, Inc. wit