Item 8.01. Other Events.
On September
27, 2022, Good Works II Acquisition Corp. (the “Company”) and Direct Biologics, Inc., a late-stage biotechnology company
(“Direct Biologics”), announced the signing of a non-binding letter of intent for a potential business combination. The letter
of intent is non-binding except with respect to certain specified provisions relating to, among other things, exclusivity, expenses and
other customary provisions.
The
letter of intent provides that, until November 21, 2022, the Company and Direct Biologics will negotiate exclusively with each other
to achieve a definitive agreement whereby the Company would combine with Direct Biologics, resulting in a combined publicly traded company.
Completion of the proposed transaction is subject to the negotiation of a definitive agreement and the satisfaction of conditions contained
therein. Accordingly, there can be no assurance that a definitive agreement will be entered into or that the proposed transaction will
be consummated or, if a transaction is consummated, as to its terms, structure or timing.
Direct Biologics is using its proprietary extracellular
vesicle platform technology to harness the power of bone marrow-derived mesenchymal stem cells to develop cell-free
therapeutic candidates. Its product candidate, ExoFlo, is in a Phase 3 clinical trial for treating moderate-to-severe acute respiratory
distress syndrome (“ARDS”) in hospitalized adults with severe-to-critical COVID-19 (the “EXTINGuish COVID-19 trial”).
ExoFlo received regenerative medicine advanced therapy designation for this indication from the U.S. Food and Drug
Administration (“FDA”), which is designed to expedite the approval of promising regenerative medical products in the U.S.
that demonstrate clinical evidence indicating the ability to address an unmet medical need for a serious life-threatening disease or condition.
Commencing in the fourth quarter of 2022 and the first quarter of 2023,
Direct Biologics intends to commence clinical trials with ExoFlo in all-cause ARDS, ulcerative colitis, Crohn’s disease and abdominal
solid organ transplant. In addition, there are numerous investigator-initiated trials underway with ExoFlo at leading research institutions
addressing other applications as Direct Biologics believes ExoFlo holds potential in a wide range of other medical indications involving
inflammation and tissue repair, including mild-to-moderate and long COVID.
The EXTINGuish COVID-19 trial is a multicenter, randomized, double-blinded,
placebo-controlled clinical trial investigating the infusion of ExoFlo in up to 610 adults. The primary efficacy endpoints are all-cause
mortality at day 60 and median days to recovery. The trial includes an interim efficacy analysis based on 50% enrollment, with potential
to submit a Biologics License Application (“BLA”) should statistical significance be reached.
Transaction
Overview
The
proposed transaction values Direct Biologics at an enterprise value of $675.0 million. As a condition to closing the transaction, the
combined company is required to have at least $75.0 million in net cash at closing, to consist of proceeds from a private placement of
Direct Biologics securities in addition to cash from the Company trust account. IB Investments I LLC, an affiliate of the placement agent and the sponsor,
has invested $5.0 million in the private placement. The Company trust account currently holds approximately $231.4
million in cash from its initial public offering in July 2021. On October 11, 2022, the Company will hold a vote to amend its amended
and restated certificate of incorporation to extend the date by which the Company must consummate a business combination from October
14, 2022 to April 14, 2023 (the “Extension Meeting”). At the Extension Meeting, the Company shareholders will have the
opportunity to redeem their shares of the Company for a proportional amount of the money held in the Company’s trust account. If
the proposed transaction is consummated, cash from this proposed transaction, net of transaction fees, is intended to be used
to fund clinical trials and provide working capital for commercializing Direct Biologics’ lead product.
Assuming
no redemptions from the trust account (at both the Extension Meeting and at the closing of the proposed transaction) and proceeds
from the private placement in an amount of $100.0 million, resulting in gross proceeds of $331.4 million, current Direct Biologics
owners will become the majority owners of the combined company at closing with approximately 61.7% pro forma ownership, and existing
shareholders and investors will continue to hold their equity ownership subject to a one-year lock-up period. Private placement
investors will own approximately 11.4% of the combined company, presuming a $100.0 million raise, and the sponsor of the Company and
the public shareholders will own approximately 26.9% of the combined company.
If
in 2023 Direct Biologics or the combined company obtains either BLA approval or an Emergency Use Authorization from the FDA for its ExoFlo
product (or a derivative product for any applicable indication), owners of Direct Biologics
may receive, subject to certain conditions common stock currently valued at $325 million in the combined company.
The
proposed transaction is expected to be completed in the first half of 2023 and will be subject to approval by the Company’s stockholders,
and the satisfaction or waiver of any closing conditions identified in the definitive agreement, including the minimum net cash
condition of $75.0 million.
