ITEM 1. FINANCIAL STATEMENTS
Synthetic Biologics, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands except share and per
share amounts)
Assets
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7,843
|
|
|
$
|
14,625
|
|
Prepaid expenses and other current assets
|
|
|
1,389
|
|
|
|
1,591
|
|
Total Current Assets
|
|
|
9,232
|
|
|
|
16,216
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
51
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
Deposits and other assets
|
|
|
6
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
9,289
|
|
|
$
|
16,257
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,079
|
|
|
$
|
142
|
|
Accrued liabilities
|
|
|
153
|
|
|
|
885
|
|
Total Current Liabilities
|
|
|
1,232
|
|
|
|
1,027
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 10,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value; 100,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
58,535,010 issued and 58,453,528 outstanding and
|
|
|
|
|
|
|
|
|
58,295,808 issued and 58,214,326
outstanding, respectively
|
|
|
58
|
|
|
|
58
|
|
Additional paid-in capital
|
|
|
97,651
|
|
|
|
96,430
|
|
Accumulated deficit
|
|
|
(89,652
|
)
|
|
|
(81,258
|
)
|
Total Synthetic Biologics, Inc. and Subsidiaries Equity
|
|
|
8,057
|
|
|
|
15,230
|
|
Non-controlling interest
|
|
|
-
|
|
|
|
-
|
|
Total
Stockholders’ Equity
|
|
|
8,057
|
|
|
|
15,230
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
9,289
|
|
|
$
|
16,257
|
|
See accompanying notes to unaudited consolidated
financial statements.
Synthetic Biologics, Inc. and
Subsidiaries
Consolidated Statements of
Operations
(In thousands except share
and per share amounts)
(Unaudited)
|
|
For the three months ended June 30,
|
|
|
For the six months ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Operating Costs and Expenses:
|
|
|
|
|
|
|
General and administrative
|
|
$
|
1,814
|
|
|
$
|
1,258
|
|
|
$
|
2,936
|
|
|
$
|
2,380
|
|
Research and development
|
|
|
2,837
|
|
|
|
1,203
|
|
|
|
5,554
|
|
|
|
2,321
|
|
Total Operating Costs and Expenses
|
|
|
4,651
|
|
|
|
2,461
|
|
|
|
8,490
|
|
|
|
4,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(4,651
|
)
|
|
|
(2,461
|
)
|
|
|
(8,490
|
)
|
|
|
(4,701
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
-
|
|
|
|
10
|
|
|
|
1
|
|
|
|
21
|
|
Other income (expense)
|
|
|
95
|
|
|
|
(46
|
)
|
|
|
95
|
|
|
|
(45
|
)
|
Total
Other Income (Expense)
|
|
|
95
|
|
|
|
(36
|
)
|
|
|
96
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(4,556
|
)
|
|
|
(2,497
|
)
|
|
|
(8,394
|
)
|
|
|
(4,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Non-controlling Interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Synthetic Biologics, Inc. and Subsidiaries
|
|
$
|
(4,556
|
)
|
|
$
|
(2,497
|
)
|
|
$
|
(8,394
|
)
|
|
$
|
(4,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per Share - Basic and Dilutive
|
|
$
|
(0.08
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss Per Share Attributable to Synthetic Biologics, Inc. and Subsidiaries
|
|
$
|
(0.08
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
during the period - Basic and Dilutive
|
|
|
58,453,528
|
|
|
|
44,654,414
|
|
|
|
58,348,153
|
|
|
|
44,628,051
|
|
See accompanying notes to unaudited consolidated
financial statements.
Synthetic Biologics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
For the six months ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(8,394
|
)
|
|
$
|
(4,725
|
)
|
Adjustments to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
used in operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
1,217
|
|
|
|
864
|
|
Depreciation
|
|
|
7
|
|
|
|
23
|
|
Loss on sale of equipment
|
|
|
-
|
|
|
|
58
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
202
|
|
|
|
629
|
|
Deposits and other assets
|
|
|
(2
|
)
|
|
|
22
|
|
Accounts payable
|
|
|
937
|
|
|
|
(182
|
)
|
Accrued liabilities
|
|
|
(732
|
)
|
|
|
16
|
|
Net Cash Used In Operating Activities
|
|
|
(6,765
|
)
|
|
|
(3,295
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(21
|
)
|
|
|
(13
|
)
|
Net Cash Used In Investing Activities
|
|
|
(21
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock for stock option exercises
|
|
|
4
|
|
|
|
231
|
|
Net Cash Provided By Financing Activities
|
|
|
4
|
|
|
|
231
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
(6,782
|
)
|
|
|
(3,077
|
)
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
14,625
|
|
|
|
9,954
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
7,843
|
|
|
$
|
6,877
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash paid for taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
See accompanying notes to unaudited consolidated
financial statements.
Synthetic Biologics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
|
1.
|
Organization and Nature of Operations and Basis of
Presentation
|
Description of Business
Synthetic Biologics, Inc. (the “Company”
or “Synthetic Biologics”) is a biotechnology company focused on the development of novel anti-infective biologic and
drug candidates targeting specific pathogens that cause serious infections and diseases. The Company is developing an oral biologic
to protect the gastrointestinal (GI) microflora from the effects of intravenous (IV) antibiotics for the prevention of
C. diff
infection, an oral treatment to reduce the impact of methane producing organisms on constipation-predominant irritable bowel syndrome
(C-IBS), a series of monoclonal antibodies for the treatment of Pertussis and
Acinetobacter
infections, and a biologic targeted
at the prevention and treatment of a root cause of a subset of IBS. In addition, the Company is developing an oral estriol
drug for the treatment of relapsing-remitting multiple sclerosis (MS) and cognitive dysfunction in MS.
Therapeutic Area
|
|
Product Candidate
|
|
Status
|
|
|
|
|
|
Relapsing-remitting MS
|
|
Trimesta
(oral estriol)
|
|
Patient follow-up is complete in the Phase II trial and topline results were reported in
April 2014. The lead principal investigator from University of California, Los Angeles (UCLA) is scheduled to present
additional Phase II clinical outcome data, including more detailed results on improvements in cognitive and
disability measures at the ACTRIMS-ECTRIMS Joint Meeting in September 2014
|
|
|
|
|
|
Cognitive dysfunction in MS
|
|
Trimesta
(oral estriol)
|
|
Patient enrollment underway in Phase II clinical trial
|
|
|
|
|
|
C. difficile
infection prevention
|
|
SYN-004
(oral enzyme)
|
|
SYN-004, second generation candidate in
preclinical studies; Intend to initiate Phase Ia and Ib clinical trials
during 2nd half of 2014
|
|
|
|
|
|
Constipation-predominant irritable bowel syndrome (C-IBS)
|
|
SYN-010
(oral compound)
|
|
Planning for
in vivo
studies underway; Intend to initiate Phase II clinical trial during 2nd half of 2014; Collaboration with Cedars-Sinai Medical Center
|
|
|
|
|
|
Pertussis
|
|
SYN-005
(monoclonal antibody)
|
|
Positive preclinical research findings reported
in
April 2014; Collaborations with Intrexon
and
The University of Texas at Austin
|
|
|
|
|
|
Acinetobacter
infection
|
|
SYN-001
(monoclonal antibody)
|
|
Discovery; Collaboration with Intrexon
|
|
|
|
|
|
IBS
|
|
SYN-007
(biologic)
|
|
Discovery; We are still evaluating the option;
Collaboration with Intrexon
|
Basis of Presentation
The accompanying consolidated financial
statements have been prepared pursuant to the rules and regulations of Securities and Exchange Commission (“SEC”) for
interim financial information. Accordingly, they do not include all of the information and notes required by U.S. Generally Accepted
Accounting Principles (“GAAP”) for complete financial statements. The accompanying consolidated financial statements
include all adjustments, comprised of normal recurring adjustments, considered necessary by management to fairly state our results
of operations, financial position and cash flows. The operating results for the interim periods are not necessarily indicative
of results that may be expected for any other interim period or for the full year. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K
for the year ended December 31, 2013 (“2013 Form 10-K”) as filed with the SEC. The interim results for the three
and six months ended June 30, 2014, are not necessarily indicative of results for the full year.
The consolidated financial statements are
prepared in conformity with U.S. GAAP, which requires the use of estimates, judgments and assumptions that affect the amounts of
assets and liabilities at the reporting date and the amounts of revenue and expenses in the periods presented. We believe that
the accounting estimates employed are appropriate and the resulting balances are reasonable; however, due to the inherent uncertainties
in making estimates actual results could differ from the original estimates, requiring adjustments to these balances in future
periods.
Change in Filing Status
On June 30, 2014, the Company
exceeded the $75.0 million public float threshold to trigger accelerated filer status with the SEC. Consequently the Company
is no longer a Smaller Reporting Company (SRC) and the Company’s auditors must provide an auditor attestation on our
internal controls to be included in the Company’s Form 10-K for the year ending December 31, 2014. Such Form 10-K
will continue to provide scaled SRC-level disclosures; the larger reporting company disclosures will commence in the
Company’s Form 10-Q for the three months ended March 31, 2015.
The Company has incurred an accumulated
deficit of $89.7 million through June 30, 2014. With the exception of the quarter ended June 30, 2010, the Company has incurred
negative cash flow from operations since it started the business. The Company has spent, and expects to continue to spend, substantial
amounts in connection with implementing its business strategy, including the planned product development efforts, clinical trials,
and research and discovery efforts.
The actual amount of funds the Company
will need to operate is subject to many factors, some of which are beyond our control. These factors include the following:
|
·
|
the progress of research activities;
|
|
·
|
the number and scope of research programs;
|
|
·
|
the progress of preclinical and clinical development activities;
|
|
·
|
the progress of the development efforts of parties with whom the Company has entered into research and development agreements;
|
|
·
|
costs associated with additional clinical trials of product candidates;
|
|
·
|
the ability to maintain current research and development licensing arrangements and to establish new research and development, and licensing arrangements;
|
|
·
|
the ability to achieve milestones under licensing arrangements;
|
|
·
|
the costs involved in prosecuting and enforcing patent claims and other intellectual property rights; and
|
|
·
|
the costs and timing of regulatory approvals.
|
The Company has based its estimate on assumptions
that may prove to be wrong. The Company may need to obtain additional funds sooner or in greater amounts than it currently anticipates.
Potential sources of financing include strategic relationships, public or private sales of the Company’s shares or debt and
other sources.
The Company may seek to access the public
or private equity markets when conditions are favorable due to long-term capital requirements. The Company does not have any committed
sources of financing at this time, and it is uncertain whether additional funding will be available when needed on terms that will
be acceptable to it, or at all. If the Company raises funds by selling additional shares of common stock or other securities convertible
into common stock, the ownership interest of the existing stockholders will be diluted. If the Company is not able to obtain financing
when needed, it may be unable to carry out the business plan. As a result, the Company may have to significantly limit its operations
and its business, financial condition and results of operations would be materially harmed.
|
3.
|
Fair Value of Financial Instruments
|
The fair value accounting standards define
fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants. As such, fair value is determined based upon assumptions that market participants would use in pricing an
asset or liability. Fair value measurements are rated on a three-tier hierarchy as follows:
|
·
|
Level 1 inputs: Quoted prices (unadjusted) for
identical assets or liabilities in active markets;
|
|
·
|
Level 2 inputs: Inputs, other than quoted prices included
in Level 1, that are observable either directly or indirectly; and
|
|
·
|
Level 3 inputs: Unobservable inputs for which there
is little or no market data, which require the reporting entity to develop its own assumptions.
|
If the inputs used to measure fair value
fall in different levels of the fair value hierarchy, the hierarchy level is based upon the lowest level of input that is significant
to the fair value measurement.
Cash and cash equivalents include money
market accounts of $7.8 million and $11.0 million as of June 30, 2014 and December 31, 2013, respectively, that are measured
using Level 1 inputs.
|
4.
|
Selected Balance Sheet Information
|
Prepaid expenses and other current assets
(in thousands)
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
Intrexon prepaid research and development expenses
|
|
$
|
1,133
|
|
|
$
|
1,361
|
|
Prepaid insurance
|
|
|
114
|
|
|
|
177
|
|
Prepaid credit cards
|
|
|
90
|
|
|
|
-
|
|
Prepaid expenses
|
|
|
52
|
|
|
|
53
|
|
Total
|
|
$
|
1,389
|
|
|
$
|
1,591
|
|
The anticipated Intrexon research and development
expenses for the next twelve months are classified as a current asset. The Company may terminate the arrangement at any time and
receive a cash refund of the remaining balance minus any amounts owed to Intrexon.
Property and equipment (in thousands)
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
Computer and office equipment
|
|
$
|
66
|
|
|
$
|
45
|
|
Software
|
|
|
11
|
|
|
|
11
|
|
|
|
|
77
|
|
|
|
56
|
|
Less accumulated depreciation
|
|
|
(26
|
)
|
|
|
(19
|
)
|
Total
|
|
$
|
51
|
|
|
$
|
37
|
|
|
5.
|
Stock-Based Compensation
|
Stock Incentive Plan
During 2001, the Company’s Board
of Directors and stockholders adopted the 2001 Stock Incentive Plan (the “2001 Stock Plan”). The total number of shares
of stock with respect to which stock options and stock appreciation rights may be granted to any one employee of the Company or
a subsidiary during any one-year period under the 2001 Stock Plan shall not exceed 250,000. All awards pursuant to the 2001 Stock
Plan shall terminate upon the termination of the grantee’s employment for any reason. Awards include options, restricted
shares, stock appreciation rights, performance shares and cash-based awards (the “Awards”). The 2001 Stock Plan contains
certain anti-dilution provisions in the event of a stock split, stock dividend or other capital adjustment, as defined in the plan.
The 2001 Stock Plan provides for a Committee of the Board to grant Awards and to determine the exercise price, vesting term, expiration
date and all other terms and conditions of the Awards, including acceleration of the vesting of an Award at any time. As of June
30, 2014, there were 682,449 options issued and outstanding under the 2001 Stock Plan.
On March 20, 2007, the Company’s
Board of Directors approved the 2007 Stock Incentive Plan (the “2007 Stock Plan”) for the issuance of up to 2,500,000
shares of common stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend
equivalent rights, restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors
and consultants of the Company and its subsidiaries. This plan was approved by stockholders on November 2, 2007. The exercise price
of stock options under the 2007 Stock Plan is determined by the compensation committee of the Board of Directors, and may be equal
to or greater than the fair market value of the Company’s common stock on the date the option is granted. The total number
of shares of stock with respect to which stock options and stock appreciation rights may be granted to any one employee of the
Company or a subsidiary during any one-year period under the 2007 plan shall not exceed 250,000. Options become exercisable over
various periods from the date of grant, and generally expire ten years after the grant date. As of June 30, 2014, there were 428,657
options issued and outstanding under the 2007 Stock Plan.
On November 2, 2010, the Board of Directors
and stockholders adopted the 2010 Stock Incentive Plan (“2010 Stock Plan”) for the issuance of up to 3,000,000 shares
of common stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend
equivalent rights, restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors
and consultants of the Company and its subsidiaries. On October 22, 2013, the stockholders approved and adopted an amendment to
the Company’s 2010 Incentive Stock Plan to increase the number of shares of the Company’s common stock reserved for
issuance under the Plan from 3,000,000 to 6,000,000. The exercise price of stock options under the 2010 Stock Plan is determined
by the compensation committee of the Board of Directors, and may be equal to or greater than the fair market value of the Company’s
common stock on the date the option is granted. Options become exercisable over various periods from the date of grant, and generally
expire ten years after the grant date. As of June 30, 2014, there were 4,220,000 options issued and outstanding under the 2010 Stock
Plan.
In the event of an employee’s termination,
the Company will cease to recognize compensation expense for that employee. There is no deferred compensation recorded upon initial
grant date, instead, the fair value of the stock-based payment is recognized ratably over the stated vesting period.
The Company has applied fair
value accounting for all share based payment awards since inception. The fair value of each option or warrant granted is
estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes assumptions used in the three
and six months ended June 30, 2014 and 2013 are as follows:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Exercise price
|
|
|
$2.52 - $2.91
|
|
|
|
-
|
|
|
|
$2.52 - $2.91
|
|
|
$
|
1.74
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
-
|
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
106% - 150%
|
|
|
|
-
|
|
|
|
106% - 150%
|
|
|
|
148
|
%
|
Risk free interest rate
|
|
|
1.73% - 2.73%
|
|
|
|
-
|
|
|
|
1.57% - 2.73%
|
|
|
|
0.77
|
%
|
Expected life of option
|
|
|
5 years – 10 years
|
|
|
|
-
|
|
|
|
5 years – 10 years
|
|
|
|
5 years
|
|
Expected forfeitures
|
|
|
0
|
%
|
|
|
-
|
|
|
|
0
|
%
|
|
|
0
|
%
|
The Company records stock-based compensation
based upon the stated vested provisions in the related agreements. The vesting provisions for these agreements have various terms
as follows:
|
·
|
half vesting immediately and remaining over three
years,
|
|
·
|
quarterly over three years,
|
|
·
|
annually over three years,
|
|
·
|
one-third immediate vesting and remaining annually
over two years,
|
|
·
|
one half immediate vesting and remaining over
nine months,
|
|
·
|
one quarter immediate vesting and remaining over
three years,
|
|
·
|
one quarter immediate vesting and remaining over
33 months; and
|
|
·
|
monthly over three years.
|
During the six months ended June
30, 2014, the Company granted 1,732,500 options to employees, Board members and consultants having an approximate fair value
of $4.1 million based upon the Black-Scholes option pricing model. During the same period in 2013, the Company granted
117,500 options to employees and consultants having an approximate fair value of $185,000 based upon the Black-Scholes option
pricing model.
A summary of stock option activities as
of June 30, 2014, and for the year ended December 31, 2013, is as follows:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Average Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Life
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2012
|
|
|
4,453,746
|
|
|
$
|
1.78
|
|
|
|
6.43 years
|
|
|
$
|
1,308,000
|
|
Granted
|
|
|
222,500
|
|
|
$
|
1.69
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(291,666
|
)
|
|
$
|
0.79
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(475,000
|
)
|
|
$
|
2.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2013
|
|
|
3,909,580
|
|
|
$
|
1.78
|
|
|
|
5.59 years
|
|
|
$
|
785,000
|
|
Granted
|
|
|
1,732,500
|
|
|
$
|
2.63
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6,583
|
)
|
|
$
|
0.58
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(304,391
|
)
|
|
$
|
1.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – June 30, 2014 - outstanding
|
|
|
5,331,106
|
|
|
$
|
2.05
|
|
|
|
6.26 years
|
|
|
$
|
920,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – June 30, 2014 - exercisable
|
|
|
3,340,280
|
|
|
$
|
1.77
|
|
|
|
5.36 years
|
|
|
$
|
919,000
|
|
Grant date fair value of options granted – June 30, 2014
|
|
|
|
|
|
$
|
4,088,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value – June 30, 2014
|
|
|
|
|
|
$
|
2.36
|
|
|
|
|
|
|
|
|
|
Grant date fair value of options granted – December 31, 2013
|
|
|
|
|
|
$
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value – December 31, 2013
|
|
|
|
|
|
$
|
1.57
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense included
in general and administrative expenses and research and development expenses relating to stock options issued to employees and
consultants for the three months ended June 30, 2014 and 2013 was $855,000 and $407,000, respectively and $1,217,000 and $864,000
for the six month periods ended June 30, 2014 and 2013, respectively.
As of June 30, 2014, total unrecognized
stock-based compensation expense related to stock options was $4.5 million, which is expected to be expensed through April 2017.
|
6.
|
Stock Purchase Warrants
|
On October 25, 2012, the Company entered
into a Common Stock Purchase Agreement with certain accredited investors. As part of this agreement, the Company issued warrants
to purchase 635,855 shares of common stock to the placement agent, or its permitted assigns. The warrants have an exercise price
of $1.60 and a life of five years. The warrants vested immediately and expire October 25, 2017. Since these warrants were granted
as part of an equity raise, the Company has treated them as a direct offering cost. The result of the transaction has no affect
to equity. Warrants outstanding as of June 30, 2014 were 316,522.
On March 15, 2012, the Company entered
into a consulting agreement for a financial communications program, for a period of twelve months that began on February 20, 2012.
As compensation for such program, the consultant is paid a monthly fee and will be issued a performance warrant exercisable for
250,000 shares of the Company’s common stock based on achievement of certain stock price milestones. Upon initiation of the
program, 50,000 of the performance warrants vested. The performance warrant is exercisable for a period of two years from the date
of issuance for an exercise price equal to the price ($2.20 per share) of the Company’s common stock on the date of execution
(March 15, 2012). In March 2013, the performance warrants’ vesting period was extended to March 14, 2014. All other provisions
of the performance warrants remain unchanged. These warrants expired unexercised on March 14, 2014.
On December 20, 2011, the
Company entered into a consulting agreement for financial advisory services, for a period of twelve months. As compensation
for such services, the consultant was paid a monthly fee and on February 2, 2012, was issued warrants exercisable for 100,000
shares of the Company’s common stock. The warrant is exercisable upon issuance for a period of five years from the date
of issue at an exercise price equal to the price ($1.14 per share) of the Company’s common stock on the date of issue.
As of June 30, 2014, all of these warrants have been exercised.
A summary of warrant activity for the Company
for the six months ended June 30, 2014 and for the year ended December 31, 2013 is as follows:
|
|
|
|
|
Weighted Average
|
|
|
|
Number of Warrants
|
|
|
Exercise Price
|
|
Balance at December 31, 2012
|
|
|
1,632,501
|
|
|
$
|
1.99
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Balance at December 31, 2013
|
|
|
1,632,501
|
|
|
|
1.99
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(232,619
|
)
|
|
|
1.47
|
|
Forfeited
|
|
|
(454,896
|
)
|
|
|
1.88
|
|
Balance at June 30, 2014
|
|
|
944,986
|
|
|
$
|
2.16
|
|
Stock-based compensation expense included
in general and administrative expenses relating to warrants issued to consultants was $0 and $22,000 for the three months ended
June 30, 2014 and 2013, respectively, and $0 and $22,000 for the six months ended June 30, 2014 and 2013, respectively.
A summary of all outstanding and exercisable warrants as of
June 30, 2014 is as follows:
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Exercise
|
|
|
Warrants
|
|
|
Warrants
|
|
|
Remaining
|
|
|
Aggregate
|
|
Price
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Contractual Life
|
|
|
Intrinsic Value
|
|
$
|
1.60
|
|
|
|
316,522
|
|
|
|
316,522
|
|
|
|
3.32 years
|
|
|
$
|
38,000
|
|
$
|
2.22
|
|
|
|
517,257
|
|
|
|
517,257
|
|
|
|
2.41 years
|
|
|
$
|
-
|
|
$
|
3.30
|
|
|
|
61,207
|
|
|
|
61,207
|
|
|
|
0.92 years
|
|
|
$
|
-
|
|
$
|
3.75
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
1.63 years
|
|
|
$
|
-
|
|
$
|
2.58
|
|
|
|
944,986
|
|
|
|
944,986
|
|
|
|
2.58 years
|
|
|
$
|
38,000
|
|
During the six months ended June 30, 2014,
the Company issued 6,583 shares of common stock, in connection with the exercise of stock options, for proceeds of approximately
$4,000. The Company also issued 232,619 shares of common stock, in connection with cashless warrant exercises for the six months
ended June 30, 2014.
Net loss per share is computed by dividing
net loss by the weighted average number of common shares outstanding. Diluted loss per share is computed by dividing net loss by
the weighted average number of common shares outstanding including the effect of common share equivalents. All common equivalent
shares were anti-dilutive at June 30, 2014 and 2013, as such there is no separate computation for diluted loss per share. The number
of options and warrants for the purchase of common stock, that were excluded from the computations of net loss per common share
for the six months ended June 30, 2014 were 5,331,106 and 944,986, respectively, and for the six months ended June 30, 2013 were
3,866,136 and 1,632,501, respectively.
|
9.
|
Recent Accounting Pronouncements and Developments
|
In May 2014, the Financial Accounting Standards
Board issued a comprehensive new standard which amends revenue recognition principles and provides a single set of criteria for
revenue recognition among all industries. The new standard provides a five step framework whereby revenue is recognized when promised
goods or services are transferred to a customer at an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. The standard also requires enhanced disclosure pertaining to revenue recognition
in both the interim and annual periods. The standard is effective for interim and annual periods beginning after December 15, 2016
and allows for adoption using a full retrospective method, or a modified retrospective method. The Company is currently assessing
the method of adoption and the expected impact the new standard has on its financial position and results of operations.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
INFORMATION AND RESULTS OF OPERATIONS
The following discussion should be read
in conjunction with the attached unaudited consolidated financial statements and notes thereto, and with our audited consolidated
financial statements and notes thereto for the fiscal year ended December 31, 2013, found in our Annual Report on Form 10-K for
the year ended December 31, 2013. In addition to historical information, the following discussion contains forward-looking statements
that involve risks, uncertainties and assumptions. Where possible, we have tried to identify these forward looking statements by
using words such as “anticipate,” “believe,” “intends,” or similar expressions. Our actual
results could differ materially from those anticipated by the forward-looking statements due to important factors and risks including,
but not limited to, those set forth under “Risk Factors” in this 10-Q and as applicable in Part I, Item 1A of our Annual
Report on Form 10-K for the year ended December 31, 2013.
Overview
We are a biotechnology company focused
on the development of novel anti-infective biologic and drug candidates targeting specific pathogens that cause serious infections
and diseases. We are developing an oral biologic to protect the gastrointestinal (GI) microflora from the effects of intravenous
(IV) antibiotics for the prevention of
Clostridium difficile
(
C. diff)
infection, an oral treatment to reduce the
impact of methane producing organisms on constipation-predominant irritable bowel syndrome (C-IBS), a series of monoclonal antibodies
(mAbs) for the treatment of Pertussis and
Acinetobacter
infections, and a biologic targeted at the prevention and treatment
of a root cause of a subset of IBS. In addition, we have two legacy programs. We are also developing an oral estriol drug for the
treatment of relapsing-remitting multiple sclerosis (MS) and cognitive dysfunction in MS.
Product Pipeline:
Summary of Pathogen-Specific Anti-Infective Biologic
and Drug Programs:
|
·
|
C. diff
infections:
We are in preclinical development of a novel
second-generation oral enzyme drug candidate, SYN-004, for co-administration with commonly used IV antibiotics intended to
prevent the development of and severe effects from
C. diff
infections (CDI).
CDIs are a leading cause of
hospital acquired infections (HAIs), that generally occur secondary to treatment with IV antibiotics. Designed to be given
orally to protect the gut while certain IV beta-lactam antibiotics (penicillins and cephalosporins) fight the primary
infection, SYN-004 is believed to have a similar profile to its first-generation predecessor, which demonstrated protection of the gut flora (microbiome) during treatment with certain penicillins, with the potential to
act against a broader spectrum of IV beta-lactam antibiotics. Beta-lactam antibiotics are a mainstay in hospital
infection management and include the commonly used penicillin and cephalosporin classes of antibiotics. Approximately
14.4 million patients are administered "SYN-004 target" IV beta-lactam antibiotics annually, representing an
estimated target market for SYN-004 of 117.6 million beta-lactam doses purchased by U.S. hospitals. The addressable
market for SYN-004 is significant. Currently there are no approved treatments designed to protect the microbiome from the
damaging effects of IV antibiotics. This worldwide opportunity could represent a multi-billion dollar market.* We remain
on schedule to file an Investigational New Drug (IND) application for SYN-004, and intend to initiate Phase Ia and Ib
clinical studies in the fourth quarter of 2014. Preliminary Phase I topline data is expected by year-end 2014, and a
Phase II efficacy study of SYN-004 is planned to begin in the first half of 2015. Clinical drug manufacturing of SYN-004
in accordance with GMP guidelines has commenced.
|
|
*
|
This information is an estimate derived from the use of information under license from the following IMS Health Incorporated information service: CDM Hospital database for full year 2012. IMS expressly reserves all rights, including rights of copying, distribution and republication.
|
|
·
|
C-IBS:
In
December 2013, through our majority-owned subsidiary, Synthetic Biomics, Inc., we entered
into a worldwide exclusive license agreement with Cedars-Sinai Medical Center (CSMC) for the
right to develop products for therapeutic and prophylactic treatments for acute and chronic
diseases. An investigational team led by Mark Pimentel, M.D. at CSMC has discovered that these
products may reduce the production of methane gas by certain gastrointestinal (GI) microorganisms.
Methane produced by these organisms is perceived as the underlying cause of bloating, pain
and constipation associated with C-IBS, and may contribute to the pathology of other diseases.
Initially we are focusing on the development of SYN-010, an oral treatment being designed
to reduce the impact of methane producing organisms on C-IBS.
In vitro
and preclinical
animal model studies were initiated in June 2014. We plan to initiate a Phase II dose-discovery
and proof-of-mechanism clinical trial during the second half of 2014 under an Investigational
New Drug application (IND). Topline data from this Phase II trial are expected in mid-2015.
|
|
·
|
Pertussis:
In April 2014, we received positive preclinical research findings for
SYN-005, our proprietary monoclonal antibody (mAb) combination therapy for treating Pertussis (whooping cough), in two
non-human primate studies (n=15). In December 2012, in collaboration with Intrexon Corporation (NYSE: XON) (Intrexon), we
initiated development of a mAb therapy for the treatment of Pertussis infections, more commonly known as whooping cough. We
are developing a mAb therapy, SYN-005, designed to target and neutralize the pertussis toxin, in order to reduce the
mortality rate in infants. To further the development of this potential therapy for Pertussis, we entered into an agreement
with The University of Texas at Austin to license the rights to certain research and pending patents related to pertussis
antibodies. According to the World Health Organization, each year,
B. pertussis
infection causes an estimated 300,000
deaths worldwide, primarily among young, unvaccinated infants. Based on positive non-human primate and murine model
findings, we intend to file an IND application to support a Phase I clinical trial expected to initiate during the first
half of 2015. Topline data is expected to be available within approximately 90 days of the start of the trial. This is
expected to be followed by the initiation of a Phase II trial in the second half of 2015.
In addition, we have submitted an Orphan Drug designation request for SYN-005 for the treatment of Pertussis.
|
|
·
|
Acinetobacter
infections:
In September 2012, in collaboration with Intrexon, we initiated efforts to develop a mAb therapy for the treatment of
Acinetobacter
infections. Many strains of
Acinetobacter
are multidrug-resistant and pose an increasing global threat to hospitalized patients, wounded military personnel and those affected by natural disasters. A treatment for
Acinetobacter
infections represents a billion dollar market opportunity. This program is in the discovery stage and the generation of a panel of antibodies is ongoing.
|
|
·
|
IBS:
In December 2013, in collaboration with Intrexon, and partially utilizing the intellectual property optioned from CSMC, we announced an intent to develop biologic approaches targeted at the prevention, and acute and chronic treatment of a subset of IBS pathologies specifically caused by auto-antibodies. This program is in the early discovery stage, and we are still evaluating the option.
|
Summary of Multiple
Sclerosis Program:
|
·
|
Relapsing-Remitting MS:
Patient follow-up is complete in the Phase II, double-blinded,
placebo-controlled Trimesta trial which randomized 158 women with relapsing-remitting MS at 16 sites across the U.S. Positive
Phase II topline efficacy and safety results were presented in April 2014 by lead principal investigator, Dr. Rhonda Voskuhl
of the University of California, Los Angeles (UCLA) David Geffen School of Medicine at the 66th American Academy of Neurology
Annual Meeting. The UCLA-led Phase II study was designed to show statistical significance at 12 months for the MS relapse
rate reduction in patients treated with Trimesta plus Copaxone
®
compared
to patients given placebo plus Copaxone
®
. The trial was only powered to
trend toward statistical significance at the 24-month time point. According to the protocol, the results of topline data
demonstrate that Trimesta met the pre-specified goal of the study with rapid onset of activity observed for Trimesta plus
Copaxone
®
compared to placebo plus Copaxone
®
. The Trimesta study also demonstrated a clinically significant near-normalization of cognitive scores at
12 months of therapy in women taking Trimesta plus Copaxone
®
. The
cognition outcome is of high importance for MS specialists and patients and we believe it is the result of oral
estriol’s unique neuroprotective effect. In addition, adjunctive oral Trimesta plus injectable standard of care
Copaxone
®
was generally safe and well tolerated by women in the study.
This investigator-initiated clinical trial is supported by grants exceeding $8 million, awarded primarily by the National
Multiple Sclerosis Society (NMSS) in partnership with the NMSS’s Southern California chapter, and the National
Institutes of Health. Annual worldwide sales of current MS therapies are estimated at $14.1 billion. We are engaging with the
neurology community and potential strategic partners, as we determine next steps for Trimesta. In addition, Dr. Voskuhl is
scheduled to present additional Phase II clinical outcome data, including more detailed results on improvements in cognitive
and disability measures, at the 2014 Joint Americas and European Committees for Treatment and Research in Multiple Sclerosis
Meeting (ACTRIMS-ECTRIMS) in Boston in September 2014.
|
|
·
|
Cognitive Dysfunction:
Trimesta is also being developed for the treatment of cognitive dysfunction in female MS patients. This 12-month randomized, double-blind, placebo-controlled Phase II clinical trial is being conducted at four sites in the United States, including UCLA. The primary endpoint is the effect on cognitive function as assessed by Paced Auditory Serial Addition Test (PASAT). Patient enrollment is ongoing. The majority of the costs of this trial are being funded by grants from foundations and charitable organizations and we have pledged approximately $500,000 to UCLA to partially fund this trial payable over three years. An estimated 50-65% of MS patients are expected to develop disabilities due to cognitive dysfunction and there is currently no approved treatment.
|
Recent Developments
On December 11, 2013, we completed a firm
commitment underwritten public offering of 13,225,000 shares of our common stock at a closing price of $1.00 per share for gross
proceeds of $13.2 million. We paid direct offering costs of $1.0 million.
On December 5, 2013, through our newly formed, majority owned subsidiary, Synthetic Biomics, Inc. (“SYN
Biomics”), we entered into a worldwide exclusive license agreement (the “CSMC License Agreement”), and an option
agreement (the “CSMC Option Agreement”), which was extended until December xx, 2014, with CSMC for the right to develop,
manufacture, use, and sell products for the human and veterinary therapeutic and prophylactic treatments for acute and chronic
diseases. An investigational team lead by Mark Pimentel, M.D. at CSMC has discovered that these products may reduce gas production
by certain GI microorganisms. Methane produced by these organisms is perceived as an underlying cause of bloating, pain and constipation
associated with C-IBS, and may contribute to the pathology of obesity and type 2 diabetes. The portfolio of intellectual property
licensed to SYN Biomics under the License Agreement includes nine issued U.S. patents, one issued European patent validated in
18 countries, one issued European patent validated in three countries, two issued Australian patents, and one issued Japanese patent
as well as 13 pending U.S. and international patent applications for most fields of use and modalities (subject to certain agreed-upon
exceptions); two pending U.S. patent applications are optioned to SYN Biomics under the Option Agreement.” In collaboration
with Intrexon, and partially utilizing the intellectual property optioned from CSMC, we announced an intent to develop biologic
approaches targeted at the prevention, and acute and chronic treatment of a subset of IBS pathologies specifically caused by autoantibodies.
Since our inception in January
2001, our efforts and resources have been focused primarily on acquiring and developing our product candidates, our
clinical trials, raising capital, manufacturing and recruiting personnel. As of June 30, 2010, we emerged from the
development stage after entering into a sublicense agreement with Meda AB and receiving an up-front payment of $2.5
million. We consider this sublicense agreement to be an indication that we commenced our principal operations. Meda AB
has informed us that due to the decision of the European Medicines Agency (EMA) to limit the use of flupirtine for long-term
pill and systemic use, it has decided to postpone the planned fibromyalgia clinical trials in the U.S.
To date, we have financed our operations
primarily through public and private sales of our common stock, and we expect to continue to seek to obtain the required capital
in a similar manner. We have incurred an accumulated deficit of $89.7 million through June 30, 2014. We cannot provide any assurance
that we will be able to achieve profitability on a sustained basis, if at all, obtain the required funding, obtain the required
regulatory approvals, or complete additional corporate partnering or acquisition transactions.
Pipeline Programs and Therapeutic Areas
Pathogen-Specific Anti-Infective
Biologic and Drug Programs
We are a biotechnology company focused
on the development of novel anti-infective biologic and drug candidates targeting specific pathogens that cause serious infections
and other diseases. Infectious disease outbreaks are increasing while intervention options are declining due to widespread multidrug-resistant
bacteria, increasing numbers of immuno-compromised patients (e.g., the elderly and cancer patients), and the isolation of new
pathogens. We are developing an oral biologic to protect the gastrointestinal microflora from the effects of certain IV beta-lactam
antibiotics for the prevention of CDI, an oral treatment to reduce the impact of methane producing organisms on C-IBS, a series
of monoclonal antibodies for the treatment of Pertussis and
Acinetobacter
infections, and a biologic targeted at the prevention
and treatment of a root cause of a subset of IBS.
Several of our programs are focused on
protecting the microbiome, or our gut flora, which is home to millions of bacteria, composed of a natural balance of both “good”
beneficial bacteria and “bad” pathogenic bacteria. When that natural balance of all of these bacteria is disrupted,
a person’s health is compromised.
C. difficile
:
According to the Agency for
Healthcare Research and Quality, aggregate costs associated with CDI related stays in the hospital were $8.2 billion in the
U.S. during 2009. CDI is a rising global HAI problem in which the toxins produced by
C. difficile
bacteria result in
diarrhea antibiotic-associated diarrhea (AAD), and in the most serious cases, pseudomembranous colitis (erosion of the lower
GI tract) that can lead to death. The Centers for Disease Control and Prevention (CDC) identified
C. diff
as
an “urgent public health threat,” particularly given its resistance to many drugs used to treat other infections.
CDI is a major, unintended risk associated with the prophylactic or therapeutic use of IV antibiotics, which may alter the
natural balance of microflora that normally protect the GI tract, leading to
C. difficile
overgrowth and infection.
Other risk factors for CDI include hospitalization, prolonged length of stay, underlying illness, immune-compromising
conditions including the administration of chemotherapy, and advanced age.
CDI is a widespread and often drug resistant
infectious disease, and it is estimated that 1.1 million patients are infected with
C. diff
annually in the U.S.*, and it
has been reported that 30,000 patients die with a
C. diff
infection each year. CDI has surpassed methicillin-resistant staphylococcus
aureus (MRSA) as the most frequent infection acquired in the hospital. Controlling the spread of CDI has proven challenging, as
the
C. difficile
spores are easily transferred to patients via normal contact with healthcare personnel and other inanimate
objects. There is currently no vaccine or approved product for the prevention of
C. diff
infection.
*
|
This information is an estimated derived from the use of information under license from the following IMS Health Incorporated information service: CDM Hospital database for full year 2012. IMS expressly reserves all rights, including rights of copying, distribution and republication.
|
C. difficile: Acquisition of Clinical-Stage
Program
In November 2012, we acquired a series
of oral beta-lactamase enzymes (P1A, P2A and P3A) and related assets targeting the prevention of CDI, the leading HAI
that generally occurs secondary to treatment with IV antibiotics. The acquired assets include a pre-IND package for P3A (now referred
to as SYN-004), Phase I and Phase II clinical data for P1A, manufacturing processes and data, and a portfolio of issued and pending
U.S. and international patents intended to support an IND and Biologics License Application (BLA) with the FDA. Utilizing this
portfolio of assets, we intend to develop a proprietary oral beta-lactamase enzyme product candidate, SYN-004. When co-administered
with certain IV beta-lactam antibiotics, it is expected that SYN-004 can degrade the antibiotic that is excreted in the GI tract,
thus preserving the natural balance of the patient's microflora, and preventing opportunistic infections including CDI. Beta-lactam
antibiotics are a mainstay in hospital infection management and include the commonly used penicillin and cephalosporin classes
of antibiotics. Approximately 14.4 million patients are administered "SYN-004 target" IV beta-lactam antibiotics annually,
representing an estimated target market for SYN-004 of 117.6 million beta-lactam doses purchased by U.S. hospitals. The addressable
market is significant and currently there are no approved treatments designed to protect the microbiome from the damaging effects
of IV antibiotics. This worldwide opportunity could represent a multi-billion dollar market.*
*
|
This information is an estimated derived from the use of information under license from the following IMS Health Incorporated information service: CDM Hospital database for full year 2012. IMS expressly reserves all rights, including rights of copying, distribution and republication.
|
C. difficile: Oral Enzyme Background
We acquired a series of oral beta-lactamase
enzymes. Beta-lactamase enzymes have the ability to degrade beta-lactam antibiotics that may be excreted into the GI tract. P1A
(the first generation candidate) showed acceptable safety and tolerability in a Phase I study. In addition, two Phase II clinical
studies demonstrated that P1A had the ability to preserve GI microflora in hospitalized patients treated with intravenous ampicillin
or the combination of piperacillin and tazobactam.
C. difficile: Preclinical and Clinical Development
Compared to the first generation oral enzyme
candidate, P1A, we believe that the second generation candidate, SYN-004 (formerly P3A), will have activity against a broader spectrum
of beta-lactam antibiotics, including both penicillins and certain cephalosporins. Due to the structural similarities between P1A
and SYN-004, and based on previous discussions with the FDA, it is anticipated that certain preclinical data collected on P1A may
be used in support of an IND for our new product candidate, SYN-004.
In June 2014, we formed a Clinical Advisory
Board (CAB) to support development of SYN-004. The CAB is comprised of industry leaders Mark Wilcox, M.D., (Chairman), Curtis Donskey,
M.D., Ciarán Kelly, M.D. and Tom Louie, M.D., all of whom are expected to provide expertise and guidance on each aspect
of the
C. diff
clinical program.
In August 2014, we announced an
agreement with Evonik for GMP manufacturing of the Company’s proprietary oral beta-lactamase
enzyme, SYN-004, for use in the planned clinical trials. Evonik plans to formulate and encapsulate enterically coated SYN-004
for oral delivery using material generated by our API manufacturer FUJIFILM Diosynth Biotechnologies UK Limited.
We remain on schedule to file an Investigational
New Drug (IND) application for SYN-004, and intend to initiate Phase Ia and Ib clinical studies in the fourth quarter of 2014.
Preliminary Phase I topline data is expected by year-end 2014, and a Phase II efficacy study of SYN-004 is planned to begin in
the first half of 2015.
C-IBS:
Irritable Bowel Syndrome (IBS) is a functional
GI disorder characterized by gas, abdominal pain, bloating and diarrhea or constipation, or alternating episodes of both. According
to reports published by The International Foundation for Functional Gastrointestinal Disorders (IFFGD),
IBS affects an estimated 10 to 15 percent of the population, or as many as 40 million Americans. The illness affects both men and
women; two-thirds of diagnosed sufferers are women. The onset of IBS can begin anytime from adolescence to adulthood.
Four
bowel patterns may be seen with IBS, including: C-IBS (constipation predominant), D-IBS (diarrhea predominant), M-IBS (mixed diarrhea
and constipation) and A-IBS (alternating diarrhea and constipation).
It has been reported that one-third of
all IBS patients have C-IBS.
Current FDA-approved therapies for the treatment of C-IBS include
AMITIZA
®
(lubiprostone) and LINZESS
®
(linaclotide). Prescription and over-the-counter laxatives are also used by C-IBS patients for symptomatic relief. According to
GlobalData, sales of approved drugs to treat C-IBS in seven major markets are projected to reach $1.3 billion by 2018.
C-IBS: Acquisition of Clinical-Stage
Program
In December 2013, we entered into a worldwide
exclusive license agreement with CSMC for the right to develop products for therapeutic and prophylactic treatments for acute and
chronic diseases. We licensed and optioned from CSMC a portfolio of intellectual property comprised of several U.S. and international
patents and pending patent applications for various fields of use, including C-IBS, obesity and diabetes. An investigational team
led by Mark Pimentel, M.D. at CSMC has discovered that these products may reduce the production of methane gas by certain GI microorganisms.
Methane produced by these organisms is perceived as the underlying cause of bloating, pain and constipation associated with C-IBS,
and may contribute to the pathology of other diseases. Initially we will focus on the development of SYN-010, an oral treatment
being designed to reduce the impact of methane producing organisms on C-IBS.
IBS: Gas Producing Organisms Background
In the 1990’s, research showed that IBS patients (over a given time) produced five times more gas
than did people without IBS. Since the only source of those gases was bacterial, the initial presumption was that IBS patients
had excessive bacteria in the colon. Subsequent studies showed that IBS patients had excessive quantities of gas in the small bowel;
these data were the catalyst for studying small bowel bacteria in IBS. Normally the small intestine contains a very small quantity
of bacteria. In published studies, indirect measures of small bowel bacteria suggest that 84% of IBS sufferers have excessive quantities
of bacteria typically found in the colon. The CSMC investigational team led by Dr. Pimentel is researching a recent theory that
defines IBS as a bacterial disease. Gut microflora that should normally be confined to the large intestine inappropriately colonize
the small intestine. This process is referred to as small intestine bacterial overgrowth (SIBO), which results in gas, bloating,
abdominal pain and altered stool habits characterized by IBS.
IBS: Gas Producing Organisms Background
In the 1990’s, research showed that
IBS patients (over a given time) produced five times more gas than did people without IBS. Since the only source of those gases
was bacterial, the initial presumption was that IBS patients had excessive bacteria in the colon. Subsequent studies showed that
IBS patients had excessive quantities of gas in the small bowel; these data were the catalyst for studying small bowel bacteria
in IBS. Normally the small intestine contains a very small quantity of bacteria. In published studies, indirect measures of small
bowel bacteria suggest that 84% of IBS sufferers have excessive quantities of bacteria typically found in the colon.
The CSMC investigational team led by Dr.
Pimentel is researching a recent theory that defines IBS as a bacterial disease. Gut microflora that should normally be confined
to the large intestine inappropriately colonize the small intestine. This process is referred to as small intestine bacterial overgrowth
(SIBO), which results in gas, bloating, abdominal pain and altered stool habits characterized by IBS.
C-IBS: Methane Producing Organisms Background
Further research by the CSMC investigational team led by Dr. Pimentel is focused on the C-IBS patient
population. Extensive studies conducted by Dr. Pimentel and collaborators have shown that overproduction of methane gas is directly
associated with bloating, pain and constipation in C-IBS patients. CSMC investigators have discovered that inhibiting intestinal
methane production may reverse constipation associated with C-IBS, and can be beneficial in other major diseases such as obesity
and type 2 diabetes.
C-IBS: Preclinical and Clinical Development
Ongoing efforts led by Dr. Pimentel include
formulating and testing non-antibiotic FDA-approved oral drug candidates for ultimate product registration via potential expedited
pathways. Such candidates are intended for the reduction or elimination of methane gas production within the intestines, with the
goal of having little or no unintended impact on a patient's normal intestinal microflora. Initially we will focus on the development
of an oral treatment to reduce the impact of methane producing organisms on C-IBS.
In April 2014, we formed a CAB to support
development of SYN-010, an oral treatment being designed to reduce the impact of methane producing organisms on C-IBS. We also
announced that gastroenterologist and lead investigator for the C-IBS program, Dr. Mark Pimentel of CSMC, will Chair the CAB.
In vitro
and preclinical animal model studies were initiated in June 2014. We plan to initiate a Phase II dose-discovery and proof of
mechanism clinical trial during the second half of 2014 under an IND. Topline data from this Phase II trial is expected in
mid-2015.
Monoclonal Antibodies:
Monoclonal Antibodies for Infectious
Diseases
Acting as the body's army, antibodies are
proteins, generally found in the bloodstream, that provide immunity in detecting and destroying pathogens, such as viruses and
bacteria and their associated toxins. MAbs can also be designed and produced as therapeutic agents, utilizing protein engineering
and recombinant production technologies. The mAbs being developed under our collaboration with Intrexon are intended to supplement
a patient's own immune system by providing the means to specifically and rapidly neutralize and/or clear specific pathogens and
toxins of interest in a process known as “passive immunity”. Many pathogens that cause infectious diseases are innately
resistant to, or over time have developed increased resistance to, antibiotics and other drugs.
Intrexon Collaboration: Monoclonal Antibodies
for Infectious Diseases
In August 2012, we entered into a worldwide
exclusive channel collaboration (“Second ECC”) with Intrexon through which we intend to develop a series of mAb therapies
for the treatment of certain infectious diseases not adequately addressed by existing therapies. Utilizing Intrexon’s comprehensive
suite of proprietary technologies, including the mAbLogix
TM
platform for rapid
discovery of fully human mAbs and the LEAP
TM
cell processing station, our initial
efforts will target three infectious disease indications.*** We also have the option to target an additional five infectious
disease indications under this collaboration. To date, we have initiated development of a mAb therapy for the treatment of Pertussis
and
Acinetobacter
infections.
***mAbLogix
TM
and LEAP
TM
are registered trademarks of Intrexon Corporation.
Pertussis:
Bordetella pertussis (B. pertussis)
is a gram-negative bacterium that infects the upper respiratory tract, causing uncontrollable, and violent coughing. Antibiotic
treatment does not have a major effect on the course of Pertussis, because while it can eliminate the
B. pertussis
bacteria
from the respiratory tract, it does not neutralize the pertussis toxin. Infants with Pertussis often require hospitalization in
pediatric intensive care units, frequently requiring mechanical ventilation. Pertussis in adults generally leads to a chronic cough
referred to as the "cough of 100 days." The incidence of Pertussis is increasing due to a less effective acellular vaccine
introduced in the 1990s, exposure of unvaccinated and under-vaccinated individuals including infants who are not yet fully vaccinated,
exposure of individuals whose immunity has diminished over time, as well as asymptomatic carriers.
According to the World Health Organization
there are 50 million cases of whooping cough and
B. pertussis
infection that causes an estimated 300,000 deaths each year
worldwide, primarily among young, unvaccinated infants. Recent news reports throughout the U.S. indicate that the pertussis vaccine
introduced in the 1990s does not provide long-term protection and, as a result, whooping cough cases have increased to a 60-year
high.
Pertussis: Intrexon Collaboration and
The University of Texas at Austin Agreement
In December 2012, we initiated mAb development
for the treatment of Pertussis focusing on toxin neutralization pursuant to our August 2012 collaboration with Intrexon. Unlike
antibiotics, we are developing a mAb therapy, SYN-005, to target and neutralize the pertussis toxin, in order to reduce the mortality
rate in infants.
To further the development of this potential
therapy for pertussis, we have entered into an agreement with The University of Texas at Austin to license the rights to certain
research and pending patents related to pertussis antibodies. These research efforts are being conducted at the Cockrell School
of Engineering in the laboratory of Assistant Professor, Jennifer A. Maynard, Ph.D., the Laurence E. McMakin, Jr. Centennial Faculty
Fellow in the McKetta Department of Chemical Engineering. Dr. Maynard brings to the project her expertise in defining the key neutralizing
epitopes of pertussis toxin to optimize the potential efficacy of antibody therapeutics.
Pertussis: Preclinical and Clinical Development
Working with our collaborator, Intrexon,
and our academic collaborator, The University of Texas at Austin, we have established a combination of two humanized antibodies
designed to neutralize pertussis toxin, a major cause of pertussis-mediated infant morbidity and mortality. Benchtop studies demonstrated
high affinity binding to the toxin, as well as potent neutralization of the toxin. In addition, the antibodies were highly efficacious
in a murine model of pertussis in which they completely mitigated elevations of the white blood cell count that is characteristic
of the illness.
In April 2014, we received positive preclinical
research findings for SYN-005, our proprietary mAb combination therapy for treating Pertussis (whooping cough),
in two non-human primate studies (n=15). In the second pertussis study in particular, SYN-005 was associated with favorable decreases
in white blood cell counts within two days and the achievement of nearly normal levels within one week of treatment with SYN-005.
Based on positive non-human primate
and murine model findings, we have filed an additional patent application around pertussis antibodies, intend to move into
cGMP manufacturing of SYN-005, and intend to file an IND application to support a Phase I clinical trial expected to initiate
during the first half of 2015. Topline data is expected to be available within approximately 90 days of the start of the
trial. This is expected to be followed by the initiation of a Phase II trial in the
second half of 2015. In addition, we have submitted an Orphan Drug designation request for SYN-005 for the treatment
of Pertussis.
Acinetobacter Infections:
Acinetobacter baumanii
is a difficult
to treat pathogen due to its rapid and well-established development of resistance to most antibiotics, making it a multidrug-resistant
pathogen. In addition, as a biofilm-forming pathogen,
Acinetobacter baumanii
has the ability to survive up to twice as long
as non-biofilm-forming pathogens. In the U.S.,
Acinetobacter baumanii
has been reported to be the cause of up to 2.6% of
hospital acquired infections, 1.3% of bloodstream infections and 7.0% of ICU respiratory tract infections, and more than half of
the
Acinetobacter baumanii
isolates are multidrug-resistant. According to published articles, mortality rates associated
with
Acinetobacter
infections as high as 43.0% are reported in hospitals and ICU settings. While
Acinetobacter baumanii
is a well-documented pathogen in the hospital setting, this pathogen also poses an increasing danger to wounded servicemen and
women in military treatment centers and to those treated in trauma centers following natural disasters.
A treatment for
Acinetobacter
infections
represents a billion dollar market opportunity.
Acinetobacter: Intrexon Collaboration
In August 2012, we initiated a mAb discovery
and development program for
Acinetobacter
infections pursuant to our August 2012 collaboration with Intrexon. Discovery
efforts for the development of a mAb are currently underway.
IBS:
Existing IBS therapies, which are primarily
focused on supportive care, are unlikely to address the treatment needs of the patient population with auto-antibodies, an underlying
immune-specific pathology. Through our collaboration with Intrexon, we intend to address the unmet medical need in these patients
with personalized medicine and target the root causes of a subset of IBS-associated pathologies.
IBS: Intrexon Collaboration
In December 2013, in collaboration with
Intrexon, and partially utilizing the intellectual property optioned from CSMC, we announced an intent to develop biologic approaches
targeted at the prevention, and acute and chronic treatment of a subset of IBS pathologies specifically caused by auto-antibodies.
We intend to utilize intellectual property
optioned from CSMC. According to an increasing body of recent work conducted by CSMC, a subset of IBS cases appear to be causally
initiated by one or more encounters with acute infectious gastroenteritis, such as the foodborne illness
, Campylobacter jejuni
.
CSMC has identified a novel autoimmune target for this subset of IBS cases because of the development of cross-reacting antibodies
between a bacterial toxin and a protein important for controlling GI motility. This program is in the discovery stage, and we are
still evaluating the option.
Multiple Sclerosis Program
Relapsing-Remitting MS:
MS is a progressive neurological disease
in which the body loses the ability to transmit messages along the central nervous system, leading to pain, loss of muscle control,
paralysis, cognitive impairment and in some cases death. According to the National Multiple Sclerosis Society (NMSS), more than
2.3 million people worldwide (approximately 400,000 patients in the U.S. of which approximately 65% are women) have been diagnosed
with MS. The diagnosis is typically made in young adults, ages 20 to 50. According to the NMSS, approximately 85% of MS patients
are initially diagnosed with the relapsing-remitting form, and 10-15% with other progressive forms.
There are nine FDA-approved therapies for
the treatment of relapsing-remitting MS: Betaseron
®
, Rebif
®
,
Avonex
®
, Copaxone
®
, Tysabri
®
,
Gilenya
®
, Extavia
®
, Aubagio
®
and Tecfidera
®
. Many of these therapies provide only a modest benefit for patients
with relapsing-remitting MS. All of these drugs except Gilenya
®
, Aubagio
®
and Tecfidera
®
require frequent (daily, weekly & monthly) injections (or
infusions) on an ongoing basis and can be associated with unpleasant side effects (such as flu-like symptoms) and high rates of
non-compliance among users. Despite the availability of therapies for the treatment of relapsing-remitting MS, the disease is highly
underserved and exacts a heavy personal and economic toll. Annual worldwide sales of MS therapies were estimated at $14.1
billion in 2012.
Relapsing-Remitting MS: Background
Research has shown that pregnant women
with MS tend to experience a spontaneous reduction of disease symptoms during pregnancy, particularly in the third trimester. The
PRIMS (Pregnancy In MS) study published in 1998, a landmark observational clinical study published in the
New England Journal
of Medicine
followed 254 women with MS during 269 pregnancies and for up to one year after delivery. The PRIMS study demonstrated
that relapse rates were significantly reduced by 71% (p < 0.001) through the third trimester of pregnancy compared to pre-pregnancy-rates,
and that relapse rates increased by 120% (p < 0.001) during the first three months after birth (post-partum) and then return
to pre-pregnancy rates. It has been hypothesized that the female hormone, estriol, produced by the placenta during pregnancy, plays
a role in “fetal immune privilege”, a process that prevents a mother’s immune system from attacking and
rejecting the fetus. The maternal levels of estriol increase linearly through the third trimester of pregnancy until birth, whereupon
it abruptly returns to low circulating levels. The anti-autoimmune effects of estriol are thought to be responsible for the therapeutic
effects of pregnancy on MS.
Rhonda Voskuhl, M.D., Director, UCLA MS
program, UCLA Department of Neurology, has found that plasma levels of estriol achieved during pregnancy have potent immunomodulatory
effects. Dr. Voskuhl further postulated and tested in a pilot clinical study that oral doses of estriol may have a therapeutic
benefit when administered to non-pregnant female MS patients by, in essence, mimicking the spontaneous reduction in relapse
rates seen in MS patients during pregnancy.
Estriol has been approved and marketed
for over 40 years throughout Europe and Asia for the oral treatment of post-menopausal symptoms. It has never been approved by
the U.S. FDA for any indication.
Relapsing-Remitting MS: Clinical Development
Trimesta (oral estriol) is being developed
as an adjunctive oral once-daily treatment for relapsing-remitting MS in women. An investigator-initiated, 10-patient, 22-month,
single-agent, crossover clinical trial to study the therapeutic effects of 8 mg. of oral Trimesta taken daily in non-pregnant female
relapsing-remitting MS patients was completed in the U.S. The total volume and number of gadolinium-enhancing lesions were measured
by brain magnetic resonance imaging (an established neuroimaging measure of disease activity in MS). Over the next three months
of treatment with Trimesta, the median total enhancing lesion volumes decreased by 79% (p = 0.02) and the number of lesions decreased
by 82% (p = 0.09). They remained decreased during the next 3 months of treatment, with lesion volumes decreased by 82% (p = 0.01),
and numbers decreased by 82% (p = 0.02). Following a six-month drug holiday during which the patients were not on any drug therapies,
median lesion volumes and numbers returned to near baseline pretreatment levels. Trimesta therapy was reinitiated during a four-month
retreatment phase of this clinical trial. The relapsing-remitting MS patients again demonstrated a decrease in enhancing lesion
volumes of 88% (p = 0.008) and a decrease in the number of lesions by 48% (p = 0.04) compared with original baseline scores.
Patient follow-up is complete in the Phase
II, double-blinded, placebo-controlled trial randomized 158 women with relapsing-remitting MS at 16 sites across the U.S. The study
evaluated Trimesta as an oral, once-daily dose of 8 mg per day plus Copaxone
®
in women with relapsing-remitting MS, aged 18-50 years. Positive topline efficacy and safety results were presented in April 2014
by lead principal investigator, Dr. Rhonda Voskuhl of UCLA David Geffen School of Medicine at the 66th American Academy of Neurology
Annual Meeting. The UCLA-led Phase II study was designed to show statistical significance at 12 months for the MS relapse rate
reduction in patients treated with Trimesta plus Copaxone
®
compared to patients
given placebo plus Copaxone
®
. The trial was only powered to trend toward statistical
significance at the 24-month time point. According to the protocol, the results of topline data demonstrate that Trimesta met the
pre-specified goal of the study with rapid onset of activity observed for Trimesta plus Copaxone
®
compared to placebo plus Copaxone
®
. Dr. Voskuhl and her
team anticipated an approximately 29% reduction in MS relapse rate, per the study protocol. A statistically significant 47% decrease
in relapse rate was observed at 12 months of therapy (p-value = 0.03 / powered for significance level of 0.05), as well as a clear
trend toward a 32% reduction at 24 months (p-value = 0.15 / powered for significance level of 0.10), which far surpassed the investigator’s
expectations. The Trimesta study also demonstrated a clinically significant near-normalization of cognitive scores at 12 months
of therapy in women taking Trimesta plus Copaxone
®
. This outcome is of high
importance for MS specialists and patients and we believe it is the result of oral estriol’s unique neuroprotective effect.
In addition, adjunctive oral Trimesta plus injectable standard of care Copaxone
®
was generally safe and well tolerated by women in the study.
By demonstrating the therapeutic potential
and safety of Trimesta in the Phase II exploratory trial, we achieved a key goal of the Trimesta program, which is providing further
support to enable us to attract a strategic partner to accelerate development of this innovative therapy for MS. We are engaging
with the neurology community and potential strategic partners, as we determine next steps for Trimesta.
In addition, Dr. Voskuhl is scheduled to
present additional Phase II clinical outcome data, including more detailed results on improvements in cognitive and disability
measures, at the 2014 Joint Americas and European Committees for Treatment and Research in Multiple Sclerosis Meeting (ACTRIMS-ECTRIMS)
in Boston in September 2014.
This investigator-initiated clinical trial
is supported by grants exceeding $8 million, awarded primarily by the National Multiple Sclerosis Society (NMSS) in partnership
with the NMSS’s Southern California chapter, and the National Institutes of Health.
Relapsing-Remitting MS: Patents
In March 2014, we announced that the U.S.
Patent & Trademark Office issued U.S. Patent No. 8,658,627 entitled,
Pregnancy Hormone Combination for Treatment of Autoimmune
Diseases
, to the Regents of the University of California. The patent includes claims to the use of our drug candidate, Trimesta
(oral estriol), in conjunction with a gestagen for the treatment of multiple sclerosis (MS) and other autoimmune diseases. The
patent also includes a claim for the administration of Trimesta, a gestagen and a third standard of care MS agent, such as glatiramer
acetate injection (Copaxone
®
), interferon beta-1a (Avonex
®
,
Rebif
®
), interferon beta-1b (Betaseron
®
,
Extavia
®
) or sphingosine-1-phosphate receptor modulator (Gilenya
®
).
In April 2013, we announced that the U.S.
Patent & Trademark Office issued U.S. Patent No. 8,372,826 entitled,
Estriol Therapy for Multiple Sclerosis and Other Autoimmune
Diseases
, to the Regents of the University of California which includes claims to the use of our drug candidate, Trimesta (oral
estriol), in combination with glatiramer acetate injection (Copaxone
®
). According to Teva Pharmaceutical Industries
Ltd.’s Form 20-F for the year ended December 31, 2013, filed with the SEC on February 10, 2014. Copaxone
®
is the number one selling drug for multiple sclerosis with approximately $4.3 billion in global annual sales. Currently marketed
exclusively by Teva Pharmaceutical Industries Ltd., Copaxone
®
is expected
to face generic competition in the U.S., as certain patent terms began to expire in May 2014.
Through our wholly owned subsidiary, we
hold the exclusive worldwide license to issued U.S. Patents 8,658,627, 8,372,826 and 6,936,599 and pending patents for multiple
sclerosis and other autoimmune diseases covering the uses of our drug candidate, Trimesta.
Cognitive Dysfunction in MS:
According to the NMSS and the Multiple
Sclerosis Society of Canada publication,
Hold that Thought! Cognition and MS
, it is fairly common for people with MS to
complain of cognitive difficulties, such as remembering things, finding the right words and the ability to concentrate. Among MS
patients, 50-65% have some degree of cognitive dysfunction.
The major areas of cognition that may be
affected include complex attention and executive functions
.
Complex attention involves multitasking, the speed with which
information can be processed, learning and memory, and perceptual skills; executive functions include problem solving, organizational
skills, the ability to plan, and word finding. Just as the nature, frequency, and severity of MS-related physical problems can
widely vary, not all people with MS will have cognitive dysfunction, and no two people will experience exactly the same type or
severity.
Cognitive Dysfunction in MS: Background
In the investigator-initiated, 10-patient,
22-month, single-agent, crossover clinical trial conducted by Dr. Rhonda Voskuhl, a statistically significant 14% improvement from
baseline in the PASAT cognitive testing scores (p = 0.04) was observed in relapsing-remitting MS patients after six months of Trimesta
therapy. PASAT is a routine cognitive test performed in patients with a wide variety of neuropsychological disorders such as MS.
The PASAT scores are expressed as a mean percent change from baseline.
Cognitive Dysfunction in MS: Clinical Development
Our Trimesta (oral estriol) drug candidate
is also being developed for the treatment of cognitive dysfunction in female MS patients. This randomized, double-blind, placebo-controlled
Phase II clinical trial to evaluate Trimesta’s potential neuroprotective and therapeutic effect on cognitive dysfunction
in female MS patients is currently enrolling relapsing-remitting or secondary-progressive female MS patients at four clinical sites
in the United States, including UCLA. Up to 64 patients between the ages of 18 and 50 will be randomized 1:1 into the treatment
and placebo groups. Dr. Voskuhl will administer either oral Trimesta or a matching placebo, in addition to an FDA-approved MS treatment,
including Copaxone
®
, Avonex
®
,
Betaseron
®
, Extavia
®
, Rebif
®
, Gilenya
®
, Aubagio
®
and Tecfidera
®
. Each patient will be dosed and monitored for one year after
being enrolled. The primary endpoint in this clinical trial being run under an investigator-initiated IND application is expected
to be improvement in PASAT cognitive testing scores versus matching placebo. We and a private foundation have pledged to equally
support this new clinical trial, and we will also provide Trimesta drug supply. The trial also received contributions from several
other supporters. Patient recruitment and enrollment into this trial is ongoing.
Critical Accounting Policies
The consolidated financial statements are
prepared in conformity with U.S. GAAP, which require the use of estimates, judgments and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses in the periods presented. We believe that the accounting estimates employed are appropriate
and resulting balances are reasonable; however, due to inherent uncertainties in making estimates, actual results could differ
from the original estimates, requiring adjustments to these balances in future periods. The critical accounting estimates that
affect the consolidated financial statements and the judgments and assumptions used are consistent with those described in the
MD&A section in our Annual Report on Form 10-K for the year ended December 31, 2013.
Recent Accounting Pronouncements and Developments
In May 2014, the Financial Accounting Standards
Board issued a comprehensive new standard which amends revenue recognition principles and provides a single set of criteria for
revenue recognition among all industries. The new standard provides a five step framework whereby revenue is recognized when promised
goods or services are transferred to a customer at an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. The standard also requires enhanced disclosure pertaining to revenue recognition
in both the interim and annual periods. The standard is effective for interim and annual periods beginning after December 15, 2016
and allows for adoption using a full retrospective method, or a modified retrospective method. We are currently assessing the method
of adoption and the expected impact the new standard has on its financial position and results of operations.
Results of Operations
Three Months Ended June 30, 2014
and 2013
General and Administrative Expenses
General and administrative expenses increased
by 44% to $1.8 million for the three months ended June 30, 2014, from $1.3 million for the three months ended June 30, 2013.
This increase is primarily the result of supplemental compensation granted by our Board of Directors to our executive officers
and increased stock-based compensation expense. The charge relating to stock-based compensation expense was $645,000 for the three
months ended June 30, 2014, compared to $298,000 for the three months ended June 30, 2013.
Research and Development Expenses
Research and development expenses increased
by 136% to $2.8 million for the three months ended June 30, 2014, from $1.2 million for the three months ended June 30, 2013.
This increase is primarily the result of increased program costs associated with expanded research, development and manufacturing
activities in our anti-infective pipeline, including our
C. diff,
C-IBS and Pertussis programs. Research and development
expenses also include a charge relating to non-cash stock-based compensation expense of $210,000 for the three months ended June,
2014, compared to $109,000 for the three months ended June 30, 2013.
Other Income (Expense)
Other income was $95,000 for the three
months ended June 30, 2014, compared to other expense of $36,000 for the three months ended June 30, 2013.
Net Loss
Our net loss was $4.6 million, or $0.08
per common share for the three months ended June 30, 2014, compared to a net loss of $2.5 million, or $0.06 per common share for
the three months ended June 30, 2013.
Six Months Ended June 30, 2014 and
2013
General and Administrative Expenses
General and administrative expenses increased
to $2.9 million for the six months ended June 30, 2014, from $2.4 million for the six months ended June 30, 2013. This increase
of 23% is primarily the result of supplemental compensation granted by our Board of Directors to our executive officers and increased
stock-based compensation expense. The charge relating to stock-based compensation expense was $899,000 for the six months ended
June 30, 2014, compared to $652,000 for the six months ended June 30, 2013.
Research and Development Expenses
Research and development expenses increased
to $5.6 million for the six months ended June 30, 2014, from $2.3 million for the six months ended June 30, 2013. This increase
of 139% is primarily the result of increased program costs associated with expanded research, development and manufacturing activities
in our anti-infective pipeline, including our
C. diff,
C-IBS and Pertussis programs. Research and development expenses also
include a charge relating to non-cash stock-based compensation expense of $318,000 for the six months ended June, 2014, compared
to $212,000 for the six months ended June 30, 2013.
Other Income (Expense)
Other income was $96,000 for the six months
ended June 30, 2014, compared to other expense of $24,000 for the six months ended June 30, 2013.
Net Loss
Our net loss was $8.4 million, or $0.14
per common share for the six months ended June 30, 2014, compared to a net loss of $4.7 million, or $0.11 per common share for
the six months ended June 30, 2013.
Liquidity and Capital Resources
We have financed our operations since inception
primarily through proceeds from equity financings, corporate partnering license fees, laboratory revenues and miscellaneous equipment
sales.
Our cash totaled $7.8 million as of June
30, 2014, a decrease of $6.8 million from December 31, 2013. During the six months ended June 30, 2014, the primary use of
cash was for working capital requirements and operating activities which resulted in a net loss of $8.4 million for the six months
ended June 30, 2014.
Our continued operations will primarily
depend on our ability to raise additional capital from various sources including equity and debt financings, as well as, license
fees from potential corporate partners, joint ventures and grant funding. Such additional funds may not become available on acceptable
terms and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs in the long
term. We will continue to fund operations from cash on hand and through the similar sources of capital previously described. We
can give no assurance that any additional capital that we are able to obtain will be sufficient to meet our needs.
Current and Future Financing Needs
We have incurred an accumulated deficit
of $89.7 million through June 30, 2014. With the exception of the quarter ended June 30, 2010, we have incurred negative cash flow
from operations since we started our business. We have spent, and expect to continue to spend, substantial amounts in connection
with implementing our business strategy, including our planned product development efforts, our clinical trials, and our research
and discovery efforts.
However, the actual amount of funds we
will need to operate is subject to many factors, some of which are beyond our control. These factors include the following:
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the progress of our research activities;
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·
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the number and scope of our research programs;
|
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·
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the progress of our preclinical and clinical development
activities;
|
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·
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the progress of the development efforts of parties
with whom we have entered into research and development agreements;
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·
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our ability to maintain current research and development licensing
arrangements and to establish new research and development and licensing arrangements;
|
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·
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our ability to achieve our milestones under licensing
arrangements;
|
|
·
|
the costs involved in prosecuting and enforcing patent
claims and other intellectual property rights; and
|
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·
|
the costs and timing of regulatory approvals.
|
We have based our estimate on assumptions
that may prove to be wrong. We may need to obtain additional funds sooner or in greater amounts than we currently anticipate. Potential
sources of financing include strategic relationships, public or private sales of our shares or debt and other sources. We may seek
to access the public or private equity markets when conditions are favorable due to our long-term capital requirements. We do not
have any committed sources of financing at this time, and it is uncertain whether additional funding will be available when we
need it on terms that will be acceptable to us, or at all. If we raise funds by selling additional shares of common stock or other
securities convertible into common stock, the ownership interest of our existing stockholders will be diluted. If we are not able
to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit
our operations and our business, financial condition and results of operations would be materially harmed.