SecProbe.io

CORRESP
1
filename1.htm

    ROPES & GRAY LLP

PRUDENTIAL TOWER

800 BOYLSTON STREET

BOSTON, MA 02199-3600

WWW.ROPESGRAY.COM

    Thomas J. Danielski

    617-235-4961

    thomas.danielski@ropesgray.com

Submitted pursuant to a

Request for Confidential Treatment

Pursuant to 17 C.F.R.
200.83

FOIA Confidential Treatment Request

The entity requesting confidential treatment
is

Zenas BioPharma, Inc.

1000 Winter Street, North Building, Suite 1200

Waltham, MA 02451

Attention: Chief Executive Officer

Phone: (857) 271-2954

August 27, 2024

VIA EDGAR AND SECURE
FILE TRANSFER

U.S. Securities and Exchange Commission

Division of Corporation Finance

100 F Street, N.E.

Mail Stop 4720

Washington, D.C. 20549

    Attention:
    Tyler Howes – Legal

    Chris Edwards – Legal

    Li Xiao – Accounting

    Angela Connell – Accounting

    RE:
    Zenas BioPharma, Inc.

    Registration Statement on Form S-1

    Filed August 22, 2024

    File No. 333-281713

    CIK No. 0001953926

Certain confidential information in this letter has been omitted
and provided separately to the Securities and Exchange Commission. Confidential treatment has been requested by Zenas BioPharma, Inc.
with respect to the omitted portions, which are identified in this letter by the mark “[***]”.

Ladies and Gentlemen:

On behalf of Zenas BioPharma, Inc. (the “Company”),
we submit this letter (this “Letter”) to the staff (the “Staff”) of the Division
of Corporation Finance of the U.S. Securities and Exchange Commission (the “Commission”). The Company confidentially
submitted a draft of the above-referenced Registration Statement (the “Registration Statement”) to the Commission
on January 25, 2024, resubmitted the Registration Statement to the Commission on May 15, 2024, June 14, 2024 and June 26,
2024, and subsequently filed the Registration Statement with the Commission on August 22, 2024. The purpose of this Letter is to
respond to an outstanding comment relating to share-based compensation that was provided to the Company in a letter from the Staff dated
February 21, 2024. Because of the commercially sensitive nature of the information contained herein, this submission is accompanied
by the Company’s request for confidential treatment of selected portions of this Letter pursuant to Rule 83 of the Commission’s
Rules on Information and Requests, 17 C.F.R. §200.83. A redacted letter has been filed on EDGAR, omitting the confidential
information contained in the Letter.

CONFIDENTIAL TREATMENT REQUESTED BY ZENAS BIOPHARMA, INC.

Securities and Exchange Commission

August 27, 2024

Page 2

The Company respectfully requests confidential treatment for the
bracketed and highlighted information in this request letter pursuant to Rule 83 promulgated by the Commission, 17 C.F.R. §
200.83, and that the Commission provide timely notice to Leon O. Moulder, Jr., Chief Executive Officer, Zenas BioPharma, Inc.,
1000 Winter Street, North Building, Suite 1200, Waltham, Massachusetts 02451, telephone (857) 271-2954, before it permits any disclosure
of such information.

For the convenience of the Staff, we have recited
the prior comment from the Staff in italicized, bold type and have followed the comment with the Company’s response.

15. Once you have an estimated
offering price range, please explain to us how you determined the fair value of the common stock underlying your equity issuances and
the reasons for any differences between the recent valuations of your common stock leading up to the planned initial public offering
and the midpoint of the estimated offering price range. This information will help facilitate our review of your accounting for equity
issuances, including stock compensation. Please discuss with the staff how to submit your response.

Estimated Preliminary Initial Public Offering Price Range

The
Company supplementally advises the Staff that, while not yet reflected in the Registration Statement, based on discussions with the Company’s
board of directors (the “Board”) and reflecting input from the lead underwriters (the “Underwriters”)
of the Company’s proposed initial public offering of shares of its common stock (“IPO”), if the Company
were to commence marketing of the transaction today, the Company presently anticipates that the estimated price range would be approximately
$[***] per share to $[***] per share (the “Preliminary IPO Price Range”), with a midpoint of approximately
$[***] per share (the “Preliminary Assumed IPO Price”), before giving effect to an anticipated reverse stock
split of the Company’s capital stock. The Company advises the Staff that the final range to be included in a pre-effective amendment
to the Registration Statement will include a price range of no more than $2.00, if the maximum price is less than $10.00 per share, or
20% of the high end of the range, if the maximum price is greater than $10.00 per share, unless otherwise approved by the Staff.

CONFIDENTIAL TREATMENT REQUESTED BY ZENAS BIOPHARMA, INC.

Securities and Exchange Commission

August 27, 2024

Page 3

The
Company’s final range to be included in a pre-effective amendment to the Registration Statement remains under discussion
between the Company and the Underwriters, and a bona fide price range for the IPO will be included in an amendment to the Registration
Statement prior to any distribution of the preliminary prospectus in connection with the Company’s road show.

Summary of Recent Option Grants and Common Share Valuation

As there has been no public market for the Company’s
common stock to date, the historical estimated fair value of the Company’s common stock has been determined by its Board, with
input from management, considering the Company’s most recently available independent third-party valuations of the common stock
as of the date of each option grant as well as the Board’s assessment of additional objective and subjective factors that it believed
were relevant and which may have changed from the date of the most recent third-party valuation through the date of the grant. These
third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants
Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (the “Guide”).

In accordance with the Guide, a third-party valuation
firm prepared valuations of the Company’s common stock using a market approach to estimate the Company’s enterprise value,
and an option pricing method (“OPM”) to allocate value to the common stock. The OPM treats common stock and
preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the
allocation among the various holders of a company’s securities changes. Under this method, the common stock has value only if the
funds available for distribution to stockholders exceed the value of the preferred stock liquidation preferences at the time of the liquidity
event, such as a strategic sale or a merger. A discount for lack of marketability of the common stock is then applied to arrive at an
indication of value for the common stock.

CONFIDENTIAL TREATMENT REQUESTED BY ZENAS BIOPHARMA, INC.

Securities and Exchange Commission

August 27, 2024

Page 4

The following table sets forth, by grant date,
the number of common shares subject to options granted from January 1, 2023 through May 23, 2024, the per share exercise price
of the options and the per share fair value of the common stock on each grant date:

    Grant Date
    Type of

Award
    Per Share

 Exercise

 Price of

Options
    Per Share

 Value of

 Common

 Stock on

 Grant Date
    Number of

 Common

Shares

 Underlying

 Grant

    February 21, 2023
    Options
    $ 1.07
    $ 1.07
      270,000

    February 27, 2023
    Options
    $ 1.07
    $ 1.07
      75,000

    March 1, 2023
    Options
    $ 1.07
    $ 1.07
      200,000

    June 22, 2023
    Options
    $ 1.07
    $ 1.07
      820,000

    July 10, 2023
    Options
    $ 1.07
    $ 1.07
      250,000

    July 18, 2023
    Options
    $ 1.07
    $ 1.07
      3,350,000

    September 26, 2023
    Options
    $ 1.21
    $ 1.21
      185,000

    October 30, 2023
    Options
    $ 1.21
    $ 1.21
      1,500,000

    December 19, 2023
    Options
    $ [***]
    $ [***]
      [***]

    February 27, 2024
    Options
    $ [***]
    $ [***]
      [***]

    May 9, 2024
    Options
    $ [***]
    $ [***]
      [***]

    May 23, 2024
    Options
    $ [***]
    $ [***]
      [***]

The Board’s determination of fair value
was based, in part, on the results of contemporaneous third-party valuations of the Company’s common stock performed as of November 2,
2022 (the “November 2022 Valuation”), July 31, 2023 (the “July 2023 Valuation”),
December 4, 2023 (the “December 2023 Valuation”), February 15, 2024 (the “February 2024
Valuation”), and April 30, 2024 (the “April 2024 Valuation”).

At each option grant date, the Board 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.

February 21,
2023, February 27, 2023, March 1, 2023, June 22, 2023, July 10, 2023, and July 18, 2023 Option Grants.
The Board determined that the fair value of the Company’s shares of common stock was $1.07 per share as of November 2, 2022,
based on input from management, the objective and subjective factors (disclosed on page 99 of the Registration Statement) that it
believed were relevant, and the results of the November 2022 Valuation. The November 2022 Valuation utilized the recent transactions
method to value the total equity of the Company under the market approach and an OPM to determine the value of the Company’s common
stock. The market approach was selected as the Company had closed its Series B Preferred Stock financing. The Company Board, with
input from management and the third-party valuation provider, determined that the issuance price of the Series B Preferred Stock
reasonably reflected fair value. This approach therefore valued the common stock by considering the economic and control rights of the
preferred stockholders versus the common stockholders. The November 2022 Valuation then applied a discount for lack of marketability
of [***]% to arrive at an indication of value of the Company’s common stock of $1.07 per share.

CONFIDENTIAL TREATMENT REQUESTED BY ZENAS BIOPHARMA, INC.

Securities and Exchange Commission

August 27, 2024

Page 5

September 26,
2023 and October 30, 2023 Option Grants. The Board determined that the fair value of the Company’s shares of
common stock was $1.21 per share as of July 31, 2023, based on input from management, the objective and subjective factors (disclosed
on page 99 of the Registration Statement) that it believed were relevant, and the results of the July 2023 Valuation. The July 2023
Valuation utilized the market-adjusted equity method under the market approach to value the Company’s total equity and an OPM to
determine the value of the Company’s common stock. This method started with the Company’s equity value as of the November 2022
Valuation, which was then updated for the Company’s progress on research and development programs, market conditions (review of
biotech indexes and public peers stock performance), and other applicable milestones to estimate the Company’s total equity value
as of July 31, 2023. The OPM valued the common stock by considering the economic and control rights of the preferred stockholders
versus the common stockholders. The July 2023 Valuation then applied a discount for lack of marketability of [***]% to arrive at
an indication of value of the Company’s common stock of $1.21 per share.

December 19,
2023 Option Grants. The Board determined that the fair value of the Company’s shares of common stock was $[***]
per share as of December 4, 2023 based on input from management, the objective and subjective factors (disclosed on page 99
of the Registration Statement) that it believed were relevant, and the results of the December 2023 Valuation. The December 2023
Valuation was prepared taking into account the Company’s progress and its prospects for a potential initial public offering, including
an organizational meeting held in November 2023 and plans to confidentially submit a draft registration statement to the SEC by
the end of 2023. The December 2023 valuation discreetly considered two scenarios: (i) a potential initial public offering and
(ii) a mergers and acquisitions transaction. The December 2023 Valuation utilized a hybrid approach using these scenarios.
The IPO scenario allocated value to the shareholders presuming a fully-diluted waterfall, and the mergers and acquisitions scenario allocated
value to the common stock using an OPM. The December 2023 Valuation considered the likelihood that the Company would successfully
seek an initial public offering based on the status of preparations for a potential initial public offering, which was determined to
be [***]%. Under the initial public offering scenario, a direct waterfall approach was used to allocate the value to the common stock.
The December 2023 Valuation considered the likelihood that the Company would seek a trade sale, which was determined to be [***]%.
Under this scenario, the recent transaction approach was used to determine the equity value of the Company and to allocate the equity
value to the respective classes of the Company’s capital stock using the OPM. The December 2023 Valuation then applied a discount
for lack of marketability of [***]% under the initial public offering scenario and [***]% under the trade sale scenario. These assumptions,
including the weightings of [***]% to the initial public offering scenario and [***]% to the trade sale scenario, resulted in a valuation
of the Company’s common stock of $[***] per share.

CONFIDENTIAL TREATMENT REQUESTED BY ZENAS BIOPHARMA, INC.

Securities and Exchange Commission

August 27, 2024

Page 6

February 27,
2024 Option Grants. The Board determined that the fair value of the Company’s shares of common stock was $[***]
per share as of February 15, 2024 based on input from management, the objective and subjective factors (disclosed on page 99
of the Registration Statement) that it believed were relevant, and the results of the February 2024 Valuation. The February 2024
Valuation was prepared taking into account the Company’s progress and its prospects for a potential initial public offering, including
its initial confidential submission of the draft registration submission with the SEC, and two scenarios: (i) a potential initial
public offering and (ii) a mergers and acquisitions transaction. The February 2024 Valuation utilized a hybrid approach using
these scenarios. The February 2024 Valuation considered the likelihood that the Company would successfully seek an initial public
offering based on the status of preparations for a potential initial public offering, which was determined to be [***]%. Under the initial
public offering scenario, a direct waterfall approach was used to allocate the value to the common stock. The February 2024 Valuation
considered the likelihood that the Company would seek a trade sale, which was determined to be [***]%. Under this scenario, the market
adjusted equity method was used to determine the equity value of the Company and to allocate the equity value to the respective classes
of the Company’s capital stock using the OPM. The February 2024 Valuation then applied a discount for lack of marketability
of [***]% under the initial public offering scenario and [***]% under the trade sale scenario. These assumptions, including the weightings
of [***]% to the initial public offering scenario and [***]% to the trade sale scenario, resulted in a valuation of the Company’s
common stock of $[***] per share.

M