Asset Acquisition

12 Months Ended

Dec. 31, 2021

Asset Acquisition [Abstract]

Asset Acquisition

Note 4 – Asset Acquisition

The Asset Acquisition

On September 13, 2021, the Company completed its acquisition of FWB, in accordance with the terms of an Agreement and Plan of Merger dated as of September 13, 2021 (the “Merger Agreement”) by and among the Company, Alpha Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), and FWB. On September 13, 2021, pursuant to the Merger Agreement, Merger Sub was merged with and into FWB (the “Merger”), with FWB being the surviving corporation and becoming a wholly owned subsidiary of the Company. In connection with the Merger, AzurRx changed its name to First Wave BioPharma, Inc.

At the effective time of the Merger, the former FWB stockholders received an applicable pro rata share of (i) $3.0 million in cash and (ii) 624,025 shares of the Common Stock. The remaining non-contingent purchase price was payable to the former FWB stockholders on a pro rata basis upon the Company’s payment of (i) $8.0 million in cash, payable within 45 days of the Merger, (iii) $7.0 million in cash, payable by March 31, 2022. As of November 15, 2021, the Company reached an agreement with the hired representative of the former stockholders of FWB to substantially reduce the immediate payment obligations of the Company and defer certain remaining milestone and other payment obligations over time, with an immediate payment of $2.0 million related to a milestone payment and periodic installments of $500,000 per month payable from January 2022 through August 2022 and $1.0 million per month payable from September 2022 through July 2023 until an aggregate of $17.0 million is received. In addition, the Company cancelled 332,913 shares of Common Stock held by FWB immediately prior to the Merger for no additional consideration, which shares of Common Stock are authorized and unissued.

The former FWB stockholders are also entitled to up to $207 million of cash milestone payments contingent upon the achievement of specified development, regulatory and sales goals relating to the use of the acquired assets. All milestone payments will be payable in cash, provided that 25% of the milestone payments attributable to a certain IBD indications may be payable in Common Stock, at the option of the Company. In addition, the former FWB stockholders are entitled to 10% of certain specified revenue received by the Company from any third-party with a pre-existing niclosamide development program relating to COVID.

Accounting Treatment

The Company concluded that the Merger should be accounted for as an asset acquisition under ASC 805 because substantially all the fair value of the assets being acquired are concentrated in a single asset - intellectual property, which does not constitute a business. Because the acquired intellectual property has not received regulatory approval, the $21.3 million non-contingent purchase price was immediately expensed in the Company’s statement of operations as research and development – intellectual property acquired. The $0.9 million of transaction expenses paid at closing were classified in general and administrative expenses. The Common Stock issued for the asset acquisition was valued at $4.0 million which is equal to the 624,025 common shares issued multiplied by $6.41 per share.

Achievement of Milestone pursuant to Merger Agreement

On October 4, 2021, the Company achieved a milestone for clinical development pursuant to the Merger Agreement in connection with dosing of the first patient in the Company’s Phase 2 clinical trial for FW-UP for ulcerative proctitis resulting in a $2.0 million payment to FWB, which is included in the $17.0 million aggregate payment amount discussed under the heading “FWB Payments” below. This $2.0 million milestone was accrued and expensed in research and development as the product candidate is still in clinical development.

FWB Payments

Fortis Advisors LLC is the hired representative (in such capacity, the “Representative”) of the former stockholders of FWB in connection with the Merger Agreement. On October 29, 2021, the Representative filed a complaint against us in the Court of Chancery of the State of Delaware, seeking to enforce rights to payment of $8.0 million due October 28, 2021, pursuant to the Merger Agreement, which the Company did not pay.  On November 15, 2021, the Company reached an agreement with the Representative to settle the litigation, under terms that, among other things, involve a substantial reduction in immediate payment obligations and deferrals of certain remaining milestone and other payment obligations over time, with an immediate payment of $2.0 million for the milestone and periodic installments of $500,000 per month payable from January 2022 through August 2022 and $1.0 million per month payable from September 2022 through July 2023 until an aggregate of $17.0 million is received.

During the year ended December 31, 2021, the Company paid an aggregate of $5.0 million in cash related to the Merger Agreement.