References to the "Company," "MSD Acquisition Corp.," "MSD Acquisition," "our,"
"us" or "we" refer to MSD Acquisition Corp. The following discussion and
analysis of the Company's financial condition and results of operations should
be read in conjunction with the condensed financial statements and the notes
thereto contained elsewhere in this report. Certain information contained in the
discussion and analysis set forth below includes forward-looking statements that
involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Exchange Act. We have based these forward-looking statements
on our current expectations and projections about future events. These
forward-looking statements are subject to known and unknown risks, uncertainties
and assumptions about us that may cause our actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "should," "could," "would," "expect,"
"plan," "anticipate," "believe," "estimate," "continue," or the negative of such
terms or other similar expressions. Such forward-looking statements relate to
future events or future performance, but reflect management's current beliefs,
based on information currently available. A number of factors could cause actual
events, performance or results to differ materially from the events, performance
and results discussed in the forward-looking statements. For information
identifying important factors that could cause actual results to differ
materially from those anticipated in the forward-looking statements, please
refer to the Risk Factors section of this Quarterly Report and the Risk Factors
section of the Form 10-K for the 2021 fiscal year that was filed with the SEC on
March 24, 2022. The Company's securities filings can be accessed on the EDGAR
section of the SEC's website at www.sec.gov. Except as expressly required by
applicable securities law, the Company disclaims any intention or obligation to
update or revise any forward-looking statements whether as a result of new
information, future events or otherwise.
Overview
We are a blank check company incorporated as a Cayman Islands exempted company
on February 5, 2021. We were formed for the purpose of effecting a Business
Combination. We are an emerging growth company and, as such, we are subject to
all of the risks associated with emerging growth companies.
As of September 30, 2022, we had not yet commenced operations. All activity for
the period from February 5, 2021 (inception) through September 30, 2022 relates
to our formation and the initial public offering (the "Initial Public
Offering"), which is described below, and, subsequent to the Initial Public
Offering, identifying a target company for a Business Combination. We will not
generate any operating revenues until after the completion of its initial
Business Combination, at the earliest. We generate non-operating income in the
form of interest income from the proceeds derived from the Initial Public
Offering.
The registration statement for our Initial Public Offering was declared
effective on March 24, 2021. On March 29, 2021, we consummated our Initial
Public Offering generating gross proceeds of $575.0 million, and incurring
offering costs of approximately $33 million, of which approximately $20.1
million was for deferred underwriting commissions (see Note 7).
Simultaneously with the closing of the Initial Public Offering, we consummated
the Private Placement, at a price of $1.50 per Private Placement Warrant with
the Sponsor, generating gross proceeds of $14.0 million (see Note 5).
Upon the closing of Initial Public Offering and the Private Placement, $575.0
million ($10.00 per Unit) of the net proceeds of the Initial Public Offering and
certain of the proceeds of the Private Placement were placed in the Trust
Account with Continental Stock Transfer & Trust Company acting as trustee and
will be invested in the Trust Investments, until the earlier of: (i) the
completion of a Business Combination and (ii) the distribution of the Trust
Account as described below.
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Our management has broad discretion with respect to the specific application of
the net proceeds of its Initial Public Offering and the sale of the Private
Placement Warrants, although substantially all of the net proceeds are intended
to be applied generally toward consummating a Business Combination. Our initial
Business Combination must be with one or more operating businesses or assets
with a fair market value equal to at least 80% of the net assets held in the
Trust Account (excluding the deferred underwriting commissions and taxes payable
on the income earned on the Trust Account) at the time we sign a definitive
agreement in connection with the initial Business Combination. However, we will
only complete a Business Combination if the post-Business Combination company
owns or acquires 50% or more of the outstanding voting securities of the target
business or otherwise acquires a controlling interest in the target business
sufficient for it not to be required to register as an investment company under
the Investment Company Act.
If we are unable to complete a Business Combination within the Combination
Period, we will (i) cease all operations except for the purpose of winding up,
(ii) as promptly as reasonably possible but not more than ten business days
thereafter, redeem the Public Shares, at a per-share price, payable in cash,
equal to the aggregate amount then on deposit in the Trust Account, including
interest (which interest shall be net of taxes payable and up to $100,000 of
interest to pay dissolution expenses), divided by the number of then issued and
outstanding Public Shares, which redemption will completely extinguish Public
Shareholders' rights as shareholders (including the right to receive further
liquidation distributions, if any) and (iii) as promptly as reasonably possible
following such redemption, subject to the approval of the remaining shareholders
and the board of directors, liquidate and dissolve, subject, in the case of
clauses (ii) and (iii), to our obligations under Cayman Islands law to provide
for claims of creditors and in all cases subject to the other requirements of
applicable law.
Liquidity and Going Concern
As of September 30, 2022, the Company had approximately $117,000 in its
operating bank account and working capital of approximately $349,000.
The Company's liquidity needs through September 30, 2022 were satisfied through
$25,000 paid by the Sponsor to cover certain expenses in exchange for the
issuance of the Founder Shares, a loan of approximately $192,000 from the
Sponsor pursuant to the Note (as defined in Note 6), and the proceeds from the
consummation of the Private Placement not held in the Trust Account of $2.5
million. The Company repaid the Note in full on March 30, 2021. In addition, in
order to finance transaction costs in connection with a Business Combination,
the Sponsor or an affiliate of the Sponsor, or certain of the Company's officers
and directors may, but are not obligated to, provide the Company Working Capital
Loans (as defined in Note 6). As of September 30, 2022 and December 31 2021
there were no amounts outstanding under any Working Capital Loan.
In connection with our assessment of going concern considerations in accordance
with FASB ASC Topic 205-40, "Presentation of Financial Statements - Going
Concern," management has determined that the mandatory liquidation and
subsequent dissolution raises substantial doubt about our ability to continue as
a going concern. No adjustments have been made to the carrying amounts of assets
or liabilities should we be required to liquidate after March 29, 2023. The
unaudited condensed financial statements do not include any adjustment that
might be necessary if we are unable to continue as a going concern. The Company
intends to complete the proposed Business Combination before the mandatory
liquidation date.
Management continues to evaluate the impact of the COVID-19 pandemic on the
industry and has concluded that while it is reasonably possible that the virus
could have a negative effect on our financial position, results of our
operations and/or search for a target company, the specific impact is not
readily determinable as of the date of the condensed financial statements. The
unaudited condensed financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
In February 2022, the Russian Federation and Belarus commenced a military action
with the country of Ukraine. As a result of this action, various nations,
including the United States, have instituted economic sanctions against the
Russian Federation and Belarus. Further, the impact of this action and related
sanctions on the world economy are not determinable as of the date of these
unaudited condensed financial statements. The specific impact on the Company's
financial condition, results of operations, and cash flows is also not
determinable as of the date of these condensed financial statements.
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Results of Operations
Our entire activity since inception up to September 30, 2022 was in preparation
for our formation and the Initial Public Offering, and since the closing of the
Initial Public Offering, the search for a prospective Business Combination. We
will not be generating any operating revenues until the closing and completion
of our initial Business Combination.
For the three months ended September 30, 2022, we had net income of
approximately $7,297,000, which consisted of approximately $4,911,0000 of
non-operating gain resulting from the change in fair value of derivative
liabilities and income from investments held in the Trust Account of
approximately $2,595,000, partially offset by approximately $179,000 in general
and administrative expense, and $30,000 in related party general and
administrative expenses.
For the three months ended September 30, 2021, we had net income of
approximately $3,519,000, which consisted of income from investments held in the
Trust Account of approximately $7,000 and approximately $3,728,000 non-operating
gain resulting from the change in fair value of derivative liabilities, offset
by approximately $186,000 in general and administrative expense and
approximately $30,000 in related party general and related party expenses.
For the nine months ended September 30, 2022, we had net income of approximately
$25,006,000, which consisted of approximately $22,258,000 of non-operating gain
resulting from the change in fair value of derivative liabilities and income
from investments held in the Trust Account of approximately $3,430,000,
partially offset by approximately $591,000 in general and administrative
expense, and $90,000 in related party general and administrative expenses.
For the period from February 5, 2021 (inception) through ended September 30,
2021, we had net loss of approximately $3,100,000, which consisted of
approximately $514,000 in general and administrative expense, approximately
$70,000 in related party general and related party expenses, approximately
$697,000 of offering costs associated with the issuance of our Public Warrants,
and approximately $1,846,000 non-operating loss resulting from the change in
fair value of derivative liabilities, offset by income from investments held in
the Trust Account of approximately $29,000.
Contractual Obligations
Registration and Shareholder Rights
The holders of the Founder Shares, Private Placement Warrants and warrants that
may be issued upon conversion of Working Capital Loans (and any Class A ordinary
shares issuable upon the exercise of the Private Placement Warrants and warrants
that may be issued upon conversion of Working Capital Loans) were entitled to
registration rights pursuant to a registration and shareholder rights agreement
signed upon the effective date of the Initial Public Offering. The holders of
these securities were entitled to make up to three demands, excluding short form
demands, that we register such securities. In addition, the holders have certain
"piggy-back" registration rights with respect to registration statements filed
subsequent to the completion of the initial Business Combination. We will bear
the expenses incurred in connection with the filing of any such registration
statements.
Pursuant to the forward purchase agreement, the Company has agreed to use
reasonable best efforts (i) to file within 30 days after the closing of the
initial business combination a registration statement with the SEC for a
secondary offering of the forward purchase shares and the forward purchase
warrants (and underlying Class A ordinary shares), (ii) to cause such
registration statement to be declared effective promptly thereafter but in no
event later than sixty (60) days after the initial filing, (iii) to maintain the
effectiveness of such registration statement until the earliest of (A) the date
on which the sponsor or its assignees cease to hold the securities covered
thereby and (B) the date all of the securities covered thereby can be sold
publicly without restriction or limitation under Rule 144 under the Securities
Act and (iv) after such registration statement is declared effective, causes the
Company to conduct firm commitment underwritten offerings, subject to certain
limitations. In addition, the forward purchase agreement provides for
"piggy-back" registration rights to the holders of forward purchase securities
to include their securities in other registration statements filed by the
Company.
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Underwriting Agreement
We granted the underwriters a 45-day option from the date of our final
prospectus to purchase up to 7,500,000 additional Units at the Initial Public
Offering price less the underwriting discounts and commissions. On March 29,
2021, the underwriter fully exercised its over-allotment option.
The underwriters were entitled to an underwriting discount of $0.20 per unit, or
$11.5 million in the aggregate, paid upon the closing of the Initial Public
Offering. In addition, $0.35 per unit, or approximately $20.1 million in the
aggregate will be payable to the underwriters for deferred underwriting
commissions. The deferred fee will become payable to the underwriters from the
amounts held in the Trust Account solely in the event that we complete a
Business Combination, subject to the terms of the underwriting agreement.
Critical Accounting Policies
Derivative Liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. We evaluate all of our financial instruments, including
issued stock purchase warrants and forward purchase agreements, to determine if
such instruments are derivatives or contain features that qualify as embedded
derivatives, pursuant to ASC 480 and ASC 815-40. The classification of
derivative instruments, including whether such instruments should be recorded as
liabilities or as equity, is re-assessed at the end of each reporting period.
The Public Warrants and the Private Placement Warrants are recognized as
derivative liabilities in accordance with ASC 815-40. Accordingly, we recognized
the warrant instruments as liabilities at fair value and adjusts the instruments
to fair value at each reporting period until they are exercised. The liabilities
are subject to re-measurement at each balance sheet date until exercised. The
estimated fair value of the Public Warrants issued in connection with the
Initial Public Offering was initially estimated using a Monte Carlo simulation
model. For periods where no observable traded price is available, the fair value
continues to be estimated using a Monte Carlo simulation. As the transfer of
Private Placement Warrants to anyone who is not a permitted transferee would
result in the Private Placement Warrants having substantially the same terms as
the Public Warrants, we determined that the fair value of each Private Placement
Warrant is equivalent to that of each Public Warrant. The fair value of the
Warrants as of September 30, 2022 is based on observable listed prices for such
warrants. The determination of the fair value of the warrant liability may be
subject to change as more current information becomes available and accordingly
the actual results could differ significantly. Derivative warrant liabilities
are classified as non-current liabilities as their liquidation is not reasonably
expected to require the use of current assets or require the creation of current
liabilities.
The agreement between the Company and a certain investor, providing for the
investor to purchase up to $50,000,000 of units, with each unit consisting of
one Class A ordinary share and one-fifth of one warrant to purchase one Class A
ordinary share, at a purchase price of $10.00 per unit in a private placement
concurrently with the closing of the initial Business Combination, is recognized
as a derivative liability in accordance with ASC 815-40. Accordingly, the
Company recognizes the instrument as a liability at fair value and with changes
in fair value recognized in the Company's condensed statements of operations.
The fair value of the forward purchase agreement is measured at fair value using
a Black-Scholes option pricing model.
Class A Ordinary Shares Subject to Possible Redemption
We account for our Class A ordinary shares subject to possible redemption in
accordance with the guidance in ASC 480. Class A ordinary shares subject to
mandatory redemption (if any) are classified as liability instruments and are
measured at fair value. Conditionally redeemable Class A ordinary shares
(including Class A ordinary shares that feature redemption rights that are
either within the control of the holder or subject to redemption upon the
occurrence of uncertain events not solely within our control) are classified as
temporary equity. At all other times, Class A ordinary shares are classified as
shareholders' equity. Our Class A ordinary shares feature certain redemption
rights that are considered to be outside of our control and subject to the
occurrence of uncertain future events. Accordingly, 57,500,000 Class A ordinary
shares subject to possible redemption are presented as temporary equity, outside
of the shareholders' equity section of our condensed balance sheets.
We recognize changes in redemption value immediately as they occur and adjusts
the carrying value of the Class A ordinary shares subject to possible redemption
to equal the redemption value at the end of each reporting period. This method
views the end of the reporting period as if it were also the redemption date for
the security. Effective with the closing of the Initial Public Offering
(including exercise of the over-allotment option), we recognized the accretion
from initial book value to redemption amount, which resulted in charges against
additional paid-in capital (to the extent available) and accumulated deficit.
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Net Income (Loss) per Ordinary Share
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share." We have two classes of shares, which are referred to as
Class A ordinary shares and Class B ordinary shares. Income and losses are
shared pro rata between the two classes of shares. This presentation assumes a
business combination as the most likely outcome. Net income (loss) per ordinary
share is calculated by dividing the net income (loss) by the weighted average
ordinary shares outstanding for the respective period.
The calculation of diluted net income (loss) per ordinary shares does not
consider the effect of the warrants issued in connection with the Initial Public
Offering (including exercise of the over-allotment option) and the Private
Placement to purchase an aggregate of 20,833,333 Class A ordinary shares since
their inclusion would be anti-dilutive under the treasury stock method. As a
result, diluted net income (loss) per share is the same as basic net income
(loss) per share for the three and nine months ended September 30, 2022, the
three months ended September 30, 2021 and for the period from February 5, 2021
(inception) through September 30, 2021. Accretion associated with the redeemable
Class A ordinary shares is excluded from earnings per share as the redemption
value approximates fair value.
Recent Accounting Standards
In June 2022, the FASB issued ASU 2022-03, ASC Subtopic 820 "Fair Value
Measurement of Equity Securities Subject to Contractual Sale Restrictions". The
ASU amends ASC 820 to clarify that a contractual sales restriction is not
considered in measuring an equity security at fair value and to introduce new
disclosure requirements for equity securities subject to contractual sale
restrictions that are measured at fair value. The ASU applies to both holders
and issuers of equity and equity-linked securities measured at fair value. The
amendments in this ASU are effective for the Company in fiscal years beginning
after December 15, 2023, and interim periods within those fiscal years. Early
adoption is permitted for both interim and annual financial statements that have
not yet been issued or made available for issuance. The Company is still
evaluating the impact of this pronouncement on the condensed financial
statements.
Our management does not believe that any other recently issued, but not yet
effective, accounting standards updates, if currently adopted, would have a
material effect on the accompanying financial statement.
Off-Balance Sheet Arrangements
As of September 30, 2022, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K.
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