ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Synthetic Biologics,
Inc. and Subsidiaries
Condensed
Consolidated
Balance Sheets
(In thousands except share and per share
amounts)
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
13,471
|
|
|
$
|
19,055
|
|
Prepaid expenses and other current assets
|
|
|
3,366
|
|
|
|
2,515
|
|
Total Current Assets
|
|
|
16,837
|
|
|
|
21,570
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
859
|
|
|
|
905
|
|
|
|
|
|
|
|
|
|
|
Deposits and other assets
|
|
|
23
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
17,719
|
|
|
$
|
22,498
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,796
|
|
|
$
|
1,993
|
|
Accrued expenses
|
|
|
2,134
|
|
|
|
2,627
|
|
Warrant liabilities
|
|
|
9,731
|
|
|
|
14,821
|
|
Accrued employee benefits
|
|
|
787
|
|
|
|
313
|
|
Deferred rent
|
|
|
40
|
|
|
|
3
|
|
Total Current Liabilities
|
|
|
16,488
|
|
|
|
19,757
|
|
|
|
|
|
|
|
|
|
|
Long term deferred rent
|
|
|
470
|
|
|
|
492
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
16,958
|
|
|
|
20,249
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 10,000,000 shares authorized, none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value; 250,000,000 shares authorized, 118,017,693 issued and 117,936,211 outstanding and 117,254,196 issued and 117,172,714 outstanding, respectively
|
|
|
118
|
|
|
|
117
|
|
Additional paid-in capital
|
|
|
177,331
|
|
|
|
175,762
|
|
Accumulated deficit
|
|
|
(174,880
|
)
|
|
|
(172,034
|
)
|
Total Synthetic Biologics, Inc. and Subsidiaries Equity
|
|
|
2,569
|
|
|
|
3,845
|
|
Non-controlling interest
|
|
|
(1,808
|
)
|
|
|
(1,596
|
)
|
Total Stockholders’ Equity
|
|
|
761
|
|
|
|
2,249
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
17,719
|
|
|
$
|
22,498
|
|
See accompanying notes to unaudited condensed
consolidated financial statements.
Synthetic Biologics, Inc. and Subsidiaries
Condensed Consolidated Statements
of Operations
(In thousands except share and per share
amounts)
(Unaudited)
|
|
For the three months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Operating Costs and Expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
$
|
2,090
|
|
|
$
|
2,426
|
|
Research and development
|
|
|
6,059
|
|
|
|
8,155
|
|
Total Operating Costs and Expenses
|
|
|
8,149
|
|
|
|
10,581
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(8,149
|
)
|
|
|
(10,581
|
)
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liability
|
|
|
5,090
|
|
|
|
(498
|
)
|
Interest income
|
|
|
1
|
|
|
|
1
|
|
Total Other Income (Expense)
|
|
|
5,091
|
|
|
|
(497
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(3,058
|
)
|
|
|
(11,078
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Non-controlling Interest
|
|
|
(212
|
)
|
|
|
(233
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Synthetic Biologics, Inc. and Subsidiaries
|
|
$
|
(2,846
|
)
|
|
$
|
(10,845
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss Per Share - Basic and Dilutive
|
|
$
|
(0.02
|
)
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding during the period - Basic and Dilutive
|
|
|
117,447,260
|
|
|
|
90,826,752
|
|
See accompanying notes to unaudited condensed
consolidated financial statements.
Synthetic Biologics, Inc. and Subsidiaries
Condensed Consolidated Statements
of Cash Flows
(In thousands except share and per share
amounts)
(Unaudited)
|
|
For the three months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(3,058
|
)
|
|
$
|
(11,078
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
1,135
|
|
|
|
1,052
|
|
Change in fair value of warrant liabilities
|
|
|
(5,090
|
)
|
|
|
498
|
|
Depreciation
|
|
|
57
|
|
|
|
37
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(851
|
)
|
|
|
2,403
|
|
Deposits and other assets
|
|
|
-
|
|
|
|
(12
|
)
|
Accounts payable
|
|
|
1,803
|
|
|
|
184
|
|
Accrued expenses
|
|
|
(493
|
)
|
|
|
649
|
|
Accrued employee benefits
|
|
|
474
|
|
|
|
592
|
|
Deferred rent
|
|
|
15
|
|
|
|
1
|
|
Net Cash Used In Operating Activities
|
|
|
(6,008
|
)
|
|
|
(5,674
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(11
|
)
|
|
|
(44
|
)
|
Net Cash Used In Investing Activities
|
|
|
(11
|
)
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock from stock option exercises
|
|
|
166
|
|
|
|
-
|
|
Proceeds from “at the market” stock issuance
|
|
|
269
|
|
|
|
-
|
|
Net Cash Provided By Financing Activities
|
|
|
435
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
(5,584
|
)
|
|
|
(5,718
|
)
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
19,055
|
|
|
|
20,818
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
13,471
|
|
|
$
|
15,100
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash paid for taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
See accompanying notes to unaudited condensed
consolidated financial statements.
Synthetic Biologics, Inc. and Subsidiaries
Notes to Condensed 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 late-stage clinical company developing therapeutics designed to preserve the microbiome
to protect and restore the health of patients. The Company’s lead candidates poised for Phase 3 development are: (1) SYN-010
which is intended to reduce the impact of methane-producing organisms in the gut microbiome to treat an underlying cause of irritable
bowel syndrome with constipation (IBS-C), and (2) SYN-004 which is designed to protect the gut microbiome (gastrointestinal (GI)
microflora) from the effects of certain commonly used intravenous (IV) antibiotics for the prevention of
C. difficile
infection
(CDI) and antibiotic-associated diarrhea (AAD). In collaboration with Intrexon Corporation (NYSE: XON), the Company is also developing
preclinical stage monoclonal antibody therapies for the prevention and treatment of pertussis, and novel discovery stage biotherapeutics
for the treatment of phenylketonuria (PKU).
Basis of Presentation
The accompanying condensed consolidated
financial statements have been prepared pursuant to the rules and regulations of the SEC for interim financial information. Accordingly,
they do not include all of the information and notes required by U.S. Generally Accepted Accounting Principles (“U.S. GAAP”)
for complete financial statements. The accompanying condensed consolidated financial statements include all adjustments, comprised
of normal recurring adjustments, considered necessary by management to fairly state the Company’s 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 condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2016 Form 10-K.
The interim results for the three months ended March 31, 2017, are not necessarily indicative of results for the full year.
The condensed 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. The Company believes
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.
Recent Accounting Pronouncements
and Developments
In August 2016, the Financial Accounting Standards
Board, (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15,
Statement of Cash Flows (Topic 230),
Classification of Certain Cash Receipts and Cash Payments
, to clarify whether the following items should be categorized as
operating, investing or financing in the statement of cash flows: (i) debt prepayments and extinguishment costs, (ii) settlement
of zero-coupon debt, (iii) settlement of contingent consideration, (iv) insurance proceeds, (v) settlement of corporate-owned life
insurance (COLI) and bank-owned life insurance (BOLI) policies, (vi) distributions from equity method investees, (vii) beneficial
interests in securitization transactions, and (viii) receipts and payments with aspects of more than one class of cash flows. Accordingly,
ASU No. 2016-015 is effective for public business entities for fiscal years beginning after December 15, 2017
,
with early adoption permitted. The Company does not anticipate any impact in the adoption of this standard on its condensed
consolidated financial statements.
In March 2016, the FASB, issued ASU, No.
2016-09,
Compensation - Stock Compensation (Topic 718)
, which is part of the FASB’s Simplification Initiative. The updated
guidance simplifies the accounting for share-based payment transactions. The amended guidance is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2016, with early adoption permitted. The Company has adopted this
standard beginning January 1, 2017. The adoption did not result in significant changes to the recognition and disclosure of stock
based compensation.
In February 2016, the FASB issued ASU No.
2016-02,
Leases (Topic 842
), which establishes a new lease accounting model for lessees. The updated guidance requires an
entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional
qualitative and quantitative disclosures. The amended guidance is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of the
adoption of this standard on its condensed consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, to provide guidance on revenue recognition. ASU No. 2014-09 requires
a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration
to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more
judgment and make more estimates than under today’s guidance. These may include identifying performance obligations in the
contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price
to each separate performance obligation.
In August 2015, the FASB issued ASU No.
2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
, which provided for the adoption
of the new standard for fiscal years beginning after December 15, 2017. Accordingly, ASU No. 2014-09 is effective for the Company
in the first quarter of 2018. Early adoption up to the first quarter of 2017 is permitted. Upon adoption, ASU No. 2014-09 can be
applied retrospectively to all periods presented or only to the most current period presented with the cumulative effect of changes
reflected in the opening balance of retained earnings in the most current period presented. The FASB has also issued the following
standards which clarify ASU No. 2014-09 and have the same effective date as the original standard:
|
·
|
ASU No. 2016-10,
Identifying Performance Obligations and Licensing (Topic 606);
|
|
·
|
ASU No. 2016-11,
Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting;
|
|
·
|
ASU No. 2016-12,
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
;
|
|
·
|
ASU No. 2016-20,
Technical Correction and Improvements and
|
|
·
|
ASU No. 2016-20,
Technical correction and improvements to Topic 606, Revenue form Contracts with Customers
.
|
The adoption of ASU 2014-09 may have a
material effect on the recognition of future revenues. ASU 2014-09 differs from the current accounting standard in many respects,
such as in the accounting for variable consideration, including milestone payments. Accordingly, we expect that our evaluation
of the accounting for collaboration agreements under the new revenue standard could identify material changes from the current
accounting treatment. The new accounting standard will require entities to determine an appropriate attribution method using either
output or input methods and does not include a presumption that entities would default to a ratable attribution approach for upfront
non-refundable fees. These factors could materially impact the amount and timing of our revenue recognition from our license
and collaboration agreements under the new revenue standard. The Company will need to evaluate the impact of adoption ASU No. 2014-09
on its results of operations, cash flows and financial position.
2. Going Concern
The accompanying condensed consolidated financial statements have been prepared assuming the Company will
continue as a going concern. The Company has recurring losses and as of March 31 2017 the Company has an accumulated deficit of
approximately $174.9 million. Since inception, the Company has financed its activities principally with proceeds from the issuance
of equity securities.
The Company’s ability to continue
as a going concern is dependent upon the Company’s ability to raise additional debt or equity capital. There can be no assurance
that such capital will be available in sufficient amounts or on terms acceptable to the Company. These factors raise substantial
doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements
do not include any adjustments relating to the recoverability of the recorded assets or the classification of liabilities that
may be necessary should the Company be unable to continue as a going concern.
The Company does not have sufficient capital
to fund its plan of operations over the next twelve months. In order to address its capital needs, including its planned Phase
2b/3 and Phase 3 clinical trials, the Company is actively pursuing additional equity or debt financing in the form of either a
private placement or a public offering. The Company has been in ongoing discussions with strategic institutional investors and
investment banks with respect to such possible offerings. Such additional financing opportunities might not be available to the
Company, when and if needed, on acceptable terms or at all. If the Company is unable to obtain additional financing in sufficient
amounts or on acceptable terms under such circumstances, the Company’s operating results and prospects will be adversely
affected.
With the exception of the quarter ended
June 30, 2010, the Company has incurred negative cash flow from operations since its inception. The Company has spent, and expects
to continue to spend, substantial amounts in connection with implementing its business strategy, including its planned product
development efforts, clinical trials, and research and discovery efforts.
At March 31, 2017, the Company had cash and cash equivalents of approximately $13.5 million. Based upon
the Company’s current business plans, management does not believe that the Company’s current cash on hand will be sufficient
to execute its near term plans. The Company will be required to obtain additional funding in order to continue the development
of its current product candidates within the anticipated time periods, if at all, and to continue to fund operations at the current
cash expenditure levels. Currently, the Company does not have commitments from any third parties to provide it with capital. Potential
sources of financing include strategic relationships, public or private sales of equity (including through the “at-the-market”
Issuance Sales Agreement (the “FBR Sales Agreement”) that the Company entered into with FBR Capital Markets & Co.
in August 2016) or debt and other sources. The Company cannot assure that it will meet the requirements for use of the FBR Sales
Agreement or that additional funding will be available on favorable terms, or at all. If the Company fails to obtain additional
funding in the next few months and otherwise when needed, it will not be able to execute its business plan as planned and will
be forced to cease certain development activities until funding is received and its business will suffer, which would have a material
adverse effect on its financial position, results of operations and cash flows. These factors raise doubt regarding the Company’s
ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
The actual amount of funds the Company
will need to operate is subject to many factors, some of which are beyond the Company’s 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 associated with manufacturing-related services to produce
material for use in its clinical trials;
|
|
·
|
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 estimates 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.
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 its 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
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.
|
In many cases, a valuation technique used
to measure fair value includes inputs from multiple levels of the fair value hierarchy described above. The lowest level of significant
input determines the placement of the entire fair value measurement in the hierarchy.
The carrying amounts of the Company’s
short-term financial instruments, including cash and cash equivalents, other current assets, accounts payable and accrued liabilities
approximate fair value due to the relatively short period to maturity for these instruments.
Cash and cash equivalents include money
market accounts of $1.1 million and $1.7 million as of March 31, 2017 and December 31, 2016, respectively, that are measured using
Level 1 inputs.
The warrants issued in conjunction with
the registered direct offering in October 2014 include a provision that if the Company were to enter into a certain transaction,
as defined in the warrant agreement, the warrants would be purchased from the holder at a premium. The warrants issued in conjunction
with the public offering of the Company’s securities in November 2016 include a provision, that if the Company were to enter
into a certain transaction, as defined in the warrant agreement, the warrants would be purchased from the holder for cash. Accordingly,
the Company recorded the warrants as liabilities at their fair value upon issuance and re-measures the fair value at each period
end with the change in fair value recorded in the condensed consolidated statement of operations. The Company uses a Monte Carlo
simulation to estimate the fair value of the warrants. In using this model, the fair value is determined by applying Level 3 inputs
for which there is little or no observable market data, requiring the Company to develop its own assumptions. The assumptions used
in calculating the estimated fair value of the warrants represent the Company’s best estimates; however, these estimates
involve inherent uncertainties and the application of management judgment. As a result, if factors change and different assumptions
are used, the warrant liability and the change in estimated fair value could be materially different.
4. Selected Balance Sheet Information
Prepaid expenses and other current assets
(in thousands)
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Prepaid clinical research organizations expense
|
|
$
|
2,224
|
|
|
$
|
1,677
|
|
Prepaid travel and conference expenses
|
|
|
397
|
|
|
|
295
|
|
Prepaid manufacturing expenses
|
|
|
330
|
|
|
|
-
|
|
Prepaid insurances
|
|
|
240
|
|
|
|
358
|
|
Other current assets
|
|
|
175
|
|
|
|
185
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,366
|
|
|
$
|
2,515
|
|
Prepaid clinical research organizations
expense is classified as a current asset. The Company makes payments to the clinical research organizations based on agreed upon
terms that includes payments in advance of study services. The Company anticipates that the majority of the prepaid clinical research
organization expenses will be applied to research and development expenses during fiscal year 2017.
Property and equipment, net (in thousands)
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Computer and office equipment
|
|
$
|
652
|
|
|
$
|
641
|
|
Leasehold improvements
|
|
|
439
|
|
|
|
439
|
|
Software
|
|
|
11
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,102
|
|
|
|
1,091
|
|
Less accumulated depreciation and amortization
|
|
|
(243
|
)
|
|
|
(186
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
859
|
|
|
$
|
905
|
|
Accrued expenses (in thousands)
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Accrued clinical consulting services
|
|
$
|
1,812
|
|
|
$
|
2,211
|
|
Accrued vendor payments
|
|
|
280
|
|
|
|
400
|
|
Accrued manufacturing expense
|
|
|
38
|
|
|
|
14
|
|
Other accrued expenses
|
|
|
4
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,134
|
|
|
$
|
2,627
|
|
Accrued employee benefits (in thousands)
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Accrued bonus expense
|
|
$
|
446
|
|
|
$
|
-
|
|
Accrued vacation expense
|
|
|
341
|
|
|
|
261
|
|
Other accrued employee benefits
|
|
|
-
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
787
|
|
|
$
|
313
|
|
5. Stock-Based Compensation
Stock Incentive 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, directors, other employees
and consultants of the Company and its subsidiaries. This plan was approved by the 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 Stock 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 March 31, 2017, there were
743,924 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, directors, other employees
and consultants of the Company and its subsidiaries. On October 22, 2013, the stockholders approved and adopted an amendment to
the 2010 Stock Plan to increase the number of shares of the Company’s common stock reserved for issuance under the 2010 Stock
Plan from 3,000,000 to 6,000,000. On May 15, 2015, the stockholders approved and adopted an amendment to the 2010 Stock Plan to
increase the number of shares of the Company’s common stock reserved for issuance under the 2010 Stock Plan from 6,000,000
to 8,000,000. On August 25, 2016, the stockholders approved and adopted an amendment to the 2010 Stock Plan to increase the number
of shares of the Company’s common stock reserved for issuance under the 2010 Stock Plan from 8,000,000 to 14,000,000. 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.
There is no limit on the number or the value of the shares 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. Options become exercisable over various
periods from the date of grant, and generally expire between five to ten years after the grant date. As of March 31, 2017, there
were 10,745,591 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 stock-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 months ended March 31, 2017
and 2016 are as follows:
|
|
Three months ended March 31,
|
|
|
2017
|
|
2016
|
Exercise price
|
|
$0.83-$0.87
|
|
$1.08-$1.31
|
Expected dividends
|
|
0%
|
|
0%
|
Expected volatility
|
|
89.93%-91.82%
|
|
117%
|
Risk free interest rate
|
|
1.67%-1.75%
|
|
1.40%-1.46%
|
Expected life of option
|
|
4.24-4.29
|
|
7 years
|
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:
|
·
|
immediate vesting;
|
|
·
|
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 three months ended March 31,
2017, the Company granted 543,927 options to employees having an approximate fair value of $308,000 based upon the Black-Scholes
option pricing model. During the same period in 2016, the Company granted 150,000 options to employees having an approximate
fair value of $153,000 million based upon the Black-Scholes option pricing model.
A summary of stock option activities as of March 31, 2017, and
for the year ended December 31, 2016, is as follows:
|
|
Options
|
|
|
Weighted
Average Exercise
Price
|
|
|
Weighted Average
Remaining
Contractual Life
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2015
|
|
|
8,941,930
|
|
|
$
|
2.14
|
|
|
5.67 years
|
|
$
|
2,900,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,861,425
|
|
|
|
0.98
|
|
|
|
|
|
|
|
Exercised
|
|
|
(445,334
|
)
|
|
|
1.83
|
|
|
|
|
|
137,488
|
|
Expired
|
|
|
(338,529
|
)
|
|
|
1.96
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(383,265
|
)
|
|
|
2.26
|
|
|
|
|
|
|
|
Balance - December 31, 2016
|
|
|
11,636,227
|
|
|
|
1.77
|
|
|
5.49 years
|
|
$
|
194,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
543,927
|
|
|
|
0.85
|
|
|
|
|
|
|
|
Exercised
|
|
|
(418,773
|
)
|
|
|
0.40
|
|
|
|
|
|
163,050
|
|
Expired
|
|
|
(271,866
|
)
|
|
|
1.84
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance -March 31, 2017 - outstanding
|
|
|
11,489,515
|
|
|
$
|
1.77
|
|
|
5.73 years
|
|
$
|
17,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2016 - exercisable
|
|
|
6,177,207
|
|
|
$
|
2.11
|
|
|
4.94 years
|
|
$
|
17,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant date fair value of options granted - March 31, 2017
|
|
|
|
|
|
$
|
308,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value - March 31, 2017
|
|
|
|
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant date fair value of options granted - December 31, 2016
|
|
|
|
|
|
$
|
3,091,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value - December 31, 2016
|
|
|
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
Stock-based compensation expense included in general and administrative
expenses and research and development expenses related to stock options issued to employees and consultants for the three months
ended March 31, 2017 and 2016 was $1.1 million.
As of March 31, 2017, total unrecognized
stock-based compensation expense related to stock options was $5.6 million, which is expected to be expensed through February 2020.
6.
Stock Purchase Warrants
On November 18, 2016, the Company completed a public offering of 25 million shares of common stock in
combination with accompanying warrants to purchase an aggregate of 50 million shares of the common stock. The stock and warrants
were sold in combination, with two warrants for each share of common stock sold, a Series A warrant and a Series B warrant, each
representing the right to purchase one share of common stock. The purchase price for each share of common stock and accompanying
warrants was $1.00. The shares of common stock were immediately separable from the warrants and were issued separately. The initial
per share exercise price of the Series A warrants is $1.43 and the per share exercise price of the Series B warrants is $1.72,
each subject to adjustment as specified in the Warrants. The Series A and Series B warrants may be exercised at any time on or
after the date of issuance. The Series A warrants are exercisable until the four year anniversary of the issuance date. The Series
B warrants are exercisable until December 31, 2017. The warrants include a provision, that if the Company were to enter into a
certain transaction, as defined in the agreement, the warrants would be purchased from the holder for cash. Accordingly, the Company
recorded the warrants as a liability at their estimated fair value on the issuance date, which was $15.7 million, and changes in
estimated fair value will be recorded as non-cash income or expense in the Company’s Statement of Operations at each subsequent
period. At March 31, 2017, the fair value of the warrant liability was $8.6 million, which resulted in non-cash income of $4.1
million in 2017. In accordance with U.S. GAAP, the warrants were valued on the date of grant using a Monte Carlo simulation. The
assumptions used by the Company are summarized in the following table:
|
|
Series A
|
|
|
Series B
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
Issuance
Date
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
Issuance
Date
|
|
Closing stock price
|
|
$
|
0.63
|
|
|
$
|
0.76
|
|
|
$
|
0.89
|
|
|
$
|
0.63
|
|
|
$
|
0.76
|
|
|
$
|
0.89
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
90
|
%
|
|
|
85
|
%
|
|
|
85
|
%
|
|
|
85
|
%
|
|
|
90
|
%
|
|
|
85
|
%
|
Risk free interest rate
|
|
|
1.64
|
%
|
|
|
1.67
|
%
|
|
|
1.58
|
%
|
|
|
0.97
|
%
|
|
|
0.85
|
%
|
|
|
0.81
|
%
|
Expected life of warrant
|
|
|
3.64 years
|
|
|
|
3.9 years
|
|
|
|
4 years
|
|
|
|
0.75 years
|
|
|
|
1.0 years
|
|
|
|
1.1 years
|
|
On October 10, 2014, the Company raised
net proceeds of $19.1 million through the sale of 14,059,616 units at a price of $1.47 per unit to certain institutional investors
in a registered direct offering. Each unit consisted of one share of the Company’s common stock and a warrant to purchase
0.5 shares of common stock. The warrants, exercisable for an aggregate of 7,029,808 shares of common stock, have an exercise price
of $1.75 per share and a life of five years. The warrants vested immediately and expire October 10, 2019.
The warrants issued in conjunction with the registered direct offering in October 2014 include a provision
that if the Company were to enter into a certain transaction, as defined in the agreement, the warrants would be purchased from
the holder at a premium. Accordingly, the Company recorded the warrants as a liability at their estimated fair value on the issuance
date, which was $7.4 million, and changes in estimated fair value are being recorded as non-cash income or expense in the Company’s
condensed consolidated statement of operations at each subsequent period. At March 31, 2017, the fair value of the warrant liability
was $1.1 million, which resulted in non-cash income of $1.0 million in 2017. At March 31, 2016, the fair value of the warrant liability
was $11.1 million, which resulted in non-cash income of $0.5 million in 2016. In accordance with guidance U.S. GAAP, the warrants
were valued on the date of grant using the Black-Scholes valuation model which approximates the value derived using a Monte Carlo
simulation. The assumptions used by the Company are summarized in the following table:
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
Issuance
Date
|
|
Closing stock price
|
|
$
|
0.63
|
|
|
$
|
0.76
|
|
|
$
|
1.75
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
0.85
|
%
|
|
|
95
|
%
|
|
|
95
|
%
|
Risk free interest rate
|
|
|
1.4
|
%
|
|
|
1.41
|
%
|
|
|
1.39
|
%
|
Expected life of warrant
|
|
|
2.55 years
|
|
|
|
2.79 years
|
|
|
|
5 years
|
|
The following
table summarizes the estimated fair value of the warrant liability
(in thousands)
:
Balance at December 31, 2016
|
|
$
|
14,821
|
|
Change in fair value of warrant liability
|
|
|
(5,090
|
)
|
Balance at March 31, 2017
|
|
$
|
9,731
|
|
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 effect
to equity. Warrants outstanding as of March 31, 2017 were 311,834.
A summary of warrant activity for the Company
for the three months ended March 31, 2017 and for the year ended December 31, 2016 is as follows:
|
|
Number of
Warrants
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
7,908,899
|
|
|
$
|
1.79
|
|
Granted
|
|
|
50,000,000
|
|
|
|
1.58
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(567,257
|
)
|
|
|
2.35
|
|
Balance at December 31, 2016
|
|
|
57,341,642
|
|
|
|
1.60
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Balance at March 31, 2017
|
|
|
57,341,642
|
|
|
$
|
1.60
|
|
A summary of all outstanding and exercisable
warrants as of March 31, 2017 is as follows:
Exercise Price
|
|
|
Warrants
Outstanding
|
|
|
Warrants
Exercisable
|
|
|
Weighted Average
Remaining
Contractual Life
|
$
|
1.43
|
|
|
|
25,000,000
|
|
|
|
25,000,000
|
|
|
3.64 years
|
$
|
1.60
|
|
|
|
311,834
|
|
|
|
311,834
|
|
|
0.57 years
|
$
|
1.72
|
|
|
|
25,000,000
|
|
|
|
25,000,000
|
|
|
0.75 years
|
$
|
1.75
|
|
|
|
7,029,808
|
|
|
|
7,029,808
|
|
|
2.53 years
|
$
|
1.60
|
|
|
|
57,341,642
|
|
|
|
57,341,642
|
|
|
2.23 years
|
7. Net Loss per Share
Basic net loss per share is computed by dividing net loss by the weighted average number of common shares
outstanding. Diluted net 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. Diluted net loss per share assumes the issuance of potential dilutive common
shares outstanding for the period and adjusts for any changes in income and the repurchase of common shares that would have occurred
from the assumed issuance, unless such effect is anti-dilutive. 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 three months ended March 31, 2017 were 11,489,515
and 57,341,642, respectively, and for the three months ended March 31, 2016 were 8,992,428 and 7,858,899, respectively.
The following tables set forth the computation of diluted net loss per weighted average number of shares
outstanding attributable to Synthetic Biologics and Subsidiaries for the three months ended March 31, 2017 and 2016
(in thousands
except share and per share amounts)
:
|
|
Three months ended March 31, 2017
|
|
|
Three months ended March 31, 2016
|
|
|
|
Net loss
(Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per Share
Amount
|
|
|
Net Loss
(Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per Share
Amount
|
|
Net loss - Basic
|
|
$
|
(2,846
|
)
|
|
|
117,447,260
|
|
|
$
|
(0.02
|
)
|
|
$
|
(10,845
|
)
|
|
|
90,826,752
|
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive shares related to warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss - Dilutive
|
|
$
|
(2,846
|
)
|
|
|
117,447,260
|
|
|
$
|
(0.02
|
)
|
|
$
|
(24,880
|
)
|
|
|
90,826,752
|
|
|
$
|
(0.12
|
)
|
8. Non-controlling Interest
The Company’s non-controlling interest is accounted for under ASC 810,
Consolidation
(“ASC
810”) and represents the minority shareholder’s ownership interest related to the Company’s subsidiary, Synthetic
Biomics, Inc. (“SYN Biomics”). In accordance with ASC 810, the Company reports its non-controlling interest in subsidiaries
as a separate component of equity in the condensed consolidated balance sheets and reports both net loss attributable to the non-controlling
interest and net loss attributable to the Company and its subsidiaries on the face of the condensed consolidated statements of
operations. The Company’s equity interest in SYN Biomics is 88.5% and the non-controlling stockholder’s interest is
11.5%. For the three months ended March 31, 2017, the accumulated net loss attributable to the non-controlling interest was $1.8
million.
9. FBR Sales Agreement
On August 5, 2016, the Company entered
into the FBR Sales Agreement with FBR Capital Markets & Co., which enables the Company to offer and sell shares of the Company’s
common stock with an aggregate sales price of up to $40.0 million from time to time through FBR Capital Markets & Co. as the
Company’s sales agent. Sales of common stock under the FBR Sales Agreement are made in sales deemed to be “at-the-market”
equity offerings as defined in Rule 415 promulgated under the Securities Act, as amended. FBR Capital Markets & Co. is entitled
to receive a commission rate of up to 3.0% of gross sales in connection with the sale of the Company’s common stock sold
on the Company’s behalf. For the three months ending March 31, 2017, the Company sold through the FBR Sales Agreement an
aggregate of 344,724 shares of the Company’s common stock, and received gross proceeds of approximately $269,000, before
deducting issuance expenses. Subsequent to quarter end, the Company has sold approximately 3,958,000 shares of the Company’s
common stock, and received gross proceeds of approximately $2.2 million.
10. Related Party Transactions
In December 2013, through the Company’s subsidiary, Synthetic
Biomics, Inc., the Company entered into a worldwide exclusive license agreement with Cedars-Sinai Medical Center (“CSMC”)
and acquired the rights to develop products for therapeutic and prophylactic treatments of acute and chronic diseases, including
the development of SYN-010 to target IBS-C. The Company licensed from CSMC a portfolio of intellectual property comprised of several
U.S. and foreign patents and pending patent applications for various fields of use, including IBS-C, obesity and diabetes. An investigational
team led by Mark Pimentel, M.D. at CSMC discovered that these products may reduce the production of methane gas by certain GI microorganisms.
During the three months ended March 31, 2017 and 2016, the Company did not pay Cedars-Sinai Medical Center for milestone payments
related this license agreement.
11. Subsequent Events
The Company evaluated subsequent events
through May 4, 2017 which is the date the condensed consolidated financial statements were issued. Other than the stock sales discussed
in Note 9, no subsequent events were noted that required disclosure in the condensed consolidated financial statements.
ITEM 2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read
in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report
on Form 10-Q, and our audited consolidated financial statements and notes thereto for the year ended December 31, 2016 included
elsewhere in our Annual Report on Form 10-K filed with the SEC on March 2, 2017. This discussion contains forward-looking statements
reflecting our current expectations that involve risks and uncertainties. See “Note Regarding Forward-Looking Statements”
for a discussion of the uncertainties, risks and assumptions associated with these statements. Our actual results and the timing
of events could differ materially from those expressed or implied by the forward-looking statements due to important factors and
risks including, but not limited to, those set forth below under “Risk Factors” and elsewhere herein, and those identified
under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 2, 2017.
Overview
We are a late-stage clinical stage company
focused on developing therapeutics designed to preserve the microbiome to protect and restore the health of patients. Our lead
candidates poised for Phase 3 development are: (1) SYN-010 which is intended to reduce the impact of methane-producing organisms
in the gut microbiome to treat an underlying cause of irritable bowel syndrome with constipation (IBS-C), and (2) SYN-004 (ribaxamase)
which is designed to protect the gut microbiome from the effects of certain commonly used intravenous (IV) beta-lactam antibiotics
for the prevention of
C. difficile
infection (CDI), antibiotic-associated diarrhea (AAD) and the emergence of antimicrobial
resistance (AMR). We are also developing preclinical stage monoclonal antibody therapies for the prevention and treatment of pertussis,
and novel discovery stage biotherapeutics for the treatment of phenylketonuria (PKU).
Product Pipeline:
* Two Phase 2 studies completed. Planning a Phase 2b/3 pivotal
trial
C- Cedars-Sinai Medical Center Collaboration
I-Intrexon Collaboration
T- The University of Texas at Austin Collaboration
Summary of Clinical and Preclinical
Programs
Therapeutic Area
|
|
Product Candidate
|
|
Status
|
|
|
|
|
|
|
|
Prevention of CDI and AAD (Degrade IV beta-lactam antibiotics)
|
|
SYN-004 (ribaxamase)
(oral enzyme)
|
|
·
|
|
Reported supportive Phase 1a/1b data (1Q 2015)
|
|
|
|
|
·
|
|
Initiated Phase 2b proof-of-concept clinical trial (3Q 2015)
|
|
|
|
|
|
|
|
|
|
|
|
·
|
|
Reported supportive topline data from first Phase 2a clinical trial (4Q 2015)
|
|
|
|
|
|
|
|
|
|
|
|
·
|
|
Reported supportive topline data from second Phase 2a clinical trial (2Q 2016)
|
|
|
|
|
|
|
|
|
|
|
|
·
|
|
Received USAN approval of the generic name “ribaxamase” for SYN -004 (July 2016)
|
|
|
|
|
|
|
|
|
|
|
|
·
|
|
Completed Enrollment of Phase 2b proof-of concept clinical trial (3Q 2016)
|
|
|
|
|
|
|
|
|
|
|
|
·
|
|
Awarded contract by the Centers for Disease Control and Prevention (CDC) (4Q 2016)
|
|
|
|
|
|
|
|
|
|
|
|
·
|
|
Announced positive topline data from Phase 2b proof-of-concept clinical trial, including achievement of primary endpoint of significantly reducing CDI (1Q 2017)
|
|
|
|
|
·
|
|
Announced additional results from Phase 2b proof-of-concept clinical trial demonstrating ribaxamase protected and maintained the naturally occurring composition of gut microbes from antibiotic-mediated dysbiosis in treated patients (Q2 2017)
|
|
|
|
|
|
|
|
|
|
|
|
·
|
|
Plan to initiate Phase 3 clinical trial(s) (1H 2018)
|
|
|
|
|
|
|
|
Treatment of IBS-C
|
|
SYN-010
(oral modified-release
lovastatin lactone)
|
|
·
|
|
Reported supportive topline data from two Phase 2 clinical trials (4Q 2015 & 1Q 2016)
|
|
|
|
|
|
|
|
|
|
|
|
·
|
|
Received Type C meeting responses from U.S. Food and Drug Administration (FDA) regarding late-stage aspects of clinical pathway (2Q 2016)
|
|
|
|
|
|
|
|
|
|
|
|
·
|
|
Presented detailed data supporting previously reported positive topline data from two Phase 2 clinical trials at Digestive Disease Week Conference 2016 (DDW) (May 2016)
|
|
|
|
|
|
|
|
|
|
|
|
·
|
|
Held End of Phase 2 meeting with FDA (July 2016)
|
|
|
|
|
|
|
|
|
|
|
|
·
|
|
Confirmed key elements of Pivotal Phase 2b/3 clinical trial design pursuant to consultations with FDA (1Q 2017)
|
|
|
|
|
|
|
|
|
|
|
|
·
|
|
Collaboration with Cedars-Sinai Medical Center
|
|
|
|
|
|
|
|
Prevention of CDI and AAD (Degrade oral beta-lactam antibiotics)
|
|
SYN-007
(oral enzyme)
|
|
·
|
|
Preclinical work ongoing to determine ability of SYN-007 to protect the gut microbiome and degrade oral beta-lactam antibiotics
|
|
|
|
|
|
|
|
Prevention and Treatment of pertussis
|
|
SYN-005
(monoclonal antibody
therapies)
|
|
·
|
|
Reported supportive preclinical research findings (2014)
|
|
|
|
|
·
|
|
The University of Texas at Austin (“UT Austin”) received a grant from the Bill and Melinda Gates Foundation to support a preclinical study to evaluate the prophylactic capability of SYN-005 (4Q 2015)
|
|
|
|
|
·
|
|
Reported supportive preclinical data demonstrating SYN-005 provided protection from pertussis five weeks in neonatal non-human primate study (Q2 2017)
|
|
|
|
|
·
|
|
Collaborations with Intrexon and UT Austin
|
Our Microbiome-Focused Pipeline
Our IBS-C and CDI/AAD programs are focused
on protecting the healthy function of the gut microbiome, or gut flora, which is home to billions of microbial species and composed
of a natural balance of both “good” beneficial species and potentially “bad” pathogenic species. When the
natural balance or normal function of these microbial species is disrupted, a person’s health can be compromised. All of
our programs are supported by our growing intellectual property portfolio. We are maintaining and building our patent portfolio
through: filing new patent applications; prosecuting existing applications; and licensing and acquiring new patents and patent
applications. In total, we hold approximately 140 U.S. and foreign patents and have over 55 U.S. and foreign patents pending.
SYN-004 (ribaxamase) — Prevention
of C. difficile infections (CDI) and antibiotic-associated diarrhea (AAD)
SYN-004 (ribaxamase) is an oral prophylactic
therapy designed to degrade certain IV beta-lactam antibiotics within the gastrointestinal (GI) tract and maintain the natural
balance of the gut microbiome for the prevention of CDI, AAD and emergence of antibiotic-resistant organisms. SYN-004 (ribaxamase)
is a beta-lactamase enzyme which, when released in the proximal small intestine, can degrade beta-lactam antibiotics in the GI
tract without altering systemic antibiotic levels. Beta-lactam antibiotics are a mainstay in hospital infection management and
include the commonly used penicillin and cephalosporin classes of antibiotics.
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 healthcare-associated
infection that generally occurs secondary to treatment with IV antibiotics from Prev ABR LLC. The acquired assets include a pre-Investigation
New Drug (IND) package for P3A, Phase 1 and Phase 2 clinical data for P1A, manufacturing processes and data, and a portfolio of
issued and pending U.S. and foreign patents intended to support an IND and Biologics License Application (BLA) with the FDA. Utilizing
this portfolio of assets, we developed a proprietary, second generation oral beta-lactamase enzyme product candidate that we now
refer to as ribaxamase.
Compared to the first generation oral enzyme
candidate of P1A, we believe that the second generation candidate, SYN-004 (ribaxamase), 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 (ribaxamase), and based on previous discussions with the FDA, certain preclinical data collected on P1A were used in
support of an IND application for our new product candidate, SYN-004 (ribaxamase).
Specifically, P1A had been evaluated in
four Phase 1 and one Phase 2 clinical trials conducted in Europe. In total, 112 patients and 143 healthy normal subjects participated
in these studies.
P1A (the first generation candidate) showed
acceptable safety and tolerability in a Phase 1 clinical trial. In addition, data from two Phase 2 clinical trials demonstrated
that P1A had the ability to preserve GI microflora in hospitalized patients treated with IV ampicillin or the combination of piperacillin
and tazobactam.
In September 2016, we completed enrollment
in our randomized placebo-controlled Phase 2b proof-of-concept clinical trial intended to evaluate the ability of SYN-004 (ribaxamase)
to prevent CDI,
C. difficile
associated diarrhea (CDAD) and AAD in patients hospitalized for a lower respiratory tract infection
and receiving IV ceftriaxone.
On January 5, 2017, we announced positive
topline data from our Phase 2b clinical trial demonstrating SYN-004 (ribaxamase) achieved its primary endpoint of significantly
reducing CDI. Preliminary analysis of the data indicated seven confirmed cases of CDI in the placebo group compared to two cases
in the ribaxamase treatment group. Patients receiving ribaxamase achieved a 71.4% relative risk reduction (p-value=0.045) in CDI
rates compared to patients receiving placebo. Adverse events reported during this trial were comparable between treatment and placebo
arms.
Preliminary analysis of the data demonstrated
a significant reduction in new colonization by vancomycin-resistant enterococci (VRE) for patients receiving ribaxamase compared
to placebo (p-value=0.0002). With agreement from the FDA, the study included a secondary endpoint to assess ribaxamase’s
capacity to decrease the incidence of antibiotic-associated diarrhea from all causes. Preliminary analysis of the data suggested
a trend towards such a reduction (p-value=0.13), which was due, for the most part, to the reduction of CDI.
On April 7, 2017, we met with the CDC
to share additional supportive results from several exploratory endpoints from our Phase 2b proof-of-concept clinical trial demonstrating
ribaxamase successfully protected and preserved the naturally occurring composition of gut microbes in patients receiving ribaxamase
from the dysbiotic effects of antibiotic-mediated intravenous ceftriaxone compared to placebo. Results indicate that patients
who were administered ribaxamase in conjunction with IV ceftriaxone demonstrated significantly better maintenance of and recovery
of the composition and diversity of the gut microbiome, compared to placebo. Patients receiving ribaxamase also demonstrated lower
incidences of new colonization by opportunistic and potentially pathogenic microorganisms, such as VRE, compared to placebo.
We are in the process of further analyzing
data from this clinical trial and expect to share results from additional exploratory endpoints as they become available later
this year, including results focused on ribaxamase’s ability to prevent the emergence of antimicrobial resistance in the
gut microbiome.
In 2017, we also plan to continue collaborative
eff
orts with CDC to gain public health support for ribaxamase, hold an
end of Phase 2 meeting
with the FDA, and expect to initiate Phase 3 trial(s) towards the first half of 2018 or later.
SYN-010 — Treatment
of Irritable Bowel Syndrome with Constipation (IBS-C)
SYN-010 is our proprietary, modified-release
formulation of lovastatin lactone that is intended to reduce methane production by certain microorganisms (
M. smithii
)
in the gut while minimizing disruption to the microbiome. Methane produced by
M. smithii
is an underlying cause of pain,
bloating and constipation associated with IBS-C, and published reports have associated higher intestinal methane production with
increased constipation severity in IBS-C patients. SYN-010 is intended to act primarily in the intestinal lumen while avoiding
systemic absorption, thereby targeting the major cause of IBS-C, not just the patient’s symptoms.
In December 2013, through our subsidiary
Synthetic Biomics, Inc. (SYN Biomics), we entered into a worldwide exclusive license agreement with Cedars-Sinai Medical Center
(CSMC) and acquired the rights to develop products for therapeutic and prophylactic treatments of acute and chronic diseases, including
the development of SYN-010 to target IBS-C. We licensed from CSMC a portfolio of intellectual property comprised of several U.S.
and foreign patents and pending patent applications for various fields of use, including IBS-C, obesity and diabetes. An investigational
team led by Mark Pimentel, M.D. at CSMC discovered that these products may reduce the production of methane gas by certain GI microorganisms.
We believe SYN-010 may reduce the impact
of methane producing organisms on IBS-C.
Overview of our two Phase 2 Clinical
Trials
In 2015 and 2016, we reported supportive
data from our two SYN-010 Phase 2 trials, the first study was comprised of a randomized, double-blind, placebo-controlled, 4-week
study comparing SYN-010 21 mg and 42 mg dose strengths to placebo (Study 1), followed by an open-label study in which eligible
patients who completed Study 1 received SYN-010 42 mg for an additional 8 weeks (Study 2). The two Phase 2 SYN-010 clinical trials
evaluated the change from baseline (Day 1 of Study 1) in breath methane, stool frequency and abdominal pain and bloating at the
end of weeks 1, 4, 8 and 12 (Study 2 – Day 84) in patients diagnosed with IBS-C and with breath methane levels greater than
10 parts per million (ppm) at screening.
Phase 3 Planning
On July 20, 2016, we participated in an End of Phase 2 meeting with the FDA. Following a review of data from
the two Phase 2 clinical trials of SYN-010 conducted by us, a collaborative and positive discussion ensued with the FDA to determine
the optimal pathway to advance SYN-010 into Phase 3 development. On January 18, 2017, and in accordance with guidance from the
FDA, we confirmed our plan to conduct a Phase 2b/3 adaptive design study for our first pivotal trial of SYN-010 which we plan to
initiate subject to our successful pursuit of opportunities that will allow us to establish the clinical infrastructure and financial
resources necessary to successfully initiate and complete this plan.
In accordance with collaborative discussions
with the FDA, key components of the SYN-010 Phase 2b/3 adaptive pivotal trial will include:
|
·
|
A 12-week, multi-center, double-blind, placebo-controlled, adaptive design clinical trial
|
|
·
|
A study population of approximately 840 adult subjects diagnosed with IBS-C
|
|
·
|
Evaluation of efficacy and safety of two dose strengths of SYN-010 (21 mg and 42 mg) compared to placebo
|
|
·
|
Conducted in approximately 150 clinical sites in North America
|
|
·
|
Study subjects will be randomized in a 1:1:1 ratio, receiving either 21 mg of SYN-010, 42 mg of SYN-010, or placebo
|
|
·
|
Enrollment will be open to all IBS-C patients; breath-methane will be measured at baseline to ensure a comparable ratio of
high-to-low breath methane IBS-C patients in each treatment arm
|
|
·
|
An interim futility analysis may be conducted when approximately 50% of patients in each dosing arm have completed treatment
|
Consistent with FDA written guidance, the
primary objective for this study is to determine the efficacy of SYN-010, measured as an improvement from baseline in the percentage
of overall weekly responders during the 12-week treatment period for SYN-010 21 mg and 42 mg daily doses compared to placebo. Secondary
efficacy endpoints for both dose strengths of SYN-010 will measure changes from baseline in abdominal pain, bloating, bowel movement
frequency and stool consistency. Exploratory outcomes include adequate relief and quality of life measures using the well-validated
EQ-5D-5L and PAC-SYM patient questionnaires.
Anticipated Regulatory Strategy
We believe that we will be able to utilize
the regulatory approval pathway provided in Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act (the “FDCA”)
for SYN-010. A New Drug Application (NDA) submitted under Section 505(b)(2), referred to as a 505(b)(2) NDA, contains full safety
and efficacy reports but allows at least some of the information required for NDA approval, such as safety and efficacy information
on the active ingredient, to come from studies not conducted by or for the applicant and for which the applicant has not obtained
a right of reference. We believe we can rely in part on the FDA’s previous findings of safety for Mevacor (lovastatin) in
published clinical data. We expect to rely on published clinical trials using Mevacor to provide support of efficacy.
SYN-007 — Prevention
of CDI and AAD
Preclinical work is ongoing to determine
the ability of SYN-007 to degrade oral beta-lactam antibiotics and protect the gut microbiome. SYN-007 comprises a reformulated
version of SYN-004 for use with oral beta-lactam antibiotics versus IV beta-lactam antibiotics.
SYN-006 — Prevention
of CDI and AAD
The development of SYN-006 is in the discovery
stage. SYN-006 is intended to be an oral prophylactic therapy designed to degrade IV carbapenem antibiotics (a third class of beta-lactam
antibiotics) within the GI tract and maintain the natural balance of the gut microbiome for the prevention of CDI and AAD. While
SYN-004 (ribaxamase) is intended to degrade penicillin and certain cephalosporins in the GI tract, the SYN-006 discovery program
has the potential to expand the activity to a broader spectrum of IV beta-lactam antibiotics in the GI tract to include carbapenem
antibiotics.
Research Programs
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.
SYN-005 — Pertussis
(Whooping Cough)
Intrexon Collaboration and The University
of Texas (UT) at Austin Agreement
In August 2012, we entered into a worldwide
exclusive channel collaboration with Intrexon through which we intend to develop monoclonal antibody (mAb) therapies for the treatment
of certain infectious diseases not adequately addressed by existing therapies. In December 2012, we initiated mAb development
for the prevention and treatment of pertussis focusing on toxin neutralization. Unlike antibiotics, we are developing a mAb therapy
to target and neutralize the pertussis toxin as a prophylaxis for high-risk newborns and in order to reduce the mortality rate
in infected infants.
To further the development of this potential
therapy for pertussis, we entered into an agreement with UT 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 Associate 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 the development, optimization, and application of mAbs
for the treatment of pertussis.
We previously reported that SYN-005, a cocktail
of two mAbs, was highly efficacious as a therapeutic in non-human primates infected with B. pertussis. The data were published
in
Science Translational Medicine
in December 2015.
In October 2015, the Bill & Melinda Gates
Foundation awarded a grant to UT Austin to generate preclinical proof-of-concept data in the neonatal non-human primate model to
test the hypothesis that antibody administration at birth may have a role in the prevention of pertussis.
In December 2015, the non-human primate
prophylaxis study was initiated by UT Austin to determine if administration of hu1B7, one component of SYN-005, at two days of
age could protect animals from a subsequent pertussis infection. On April 19, 2017, we announced supportive preclinical data demonstrating
hu1B7 provided five weeks of protection from pertussis in neonatal non-human primates. Control animals (n=6), infected with
Bordetella
pertussis (B. pertussis)
at five weeks of age, demonstrated marked elevations in white blood cell counts and most exhibited
behavioral signs of pertussis, including coughing and diminished activity. In contrast, the experimental animals (n=7), who were
treated with hu1B7 at two days of age and then infected five weeks later, had significantly lower peak white blood cell counts
(p=0.004) that remained within the normal range or were only slightly elevated. Importantly, all seven of the animals that received
prophylactic hu1B7 appeared healthy and none exhibited any behavioral signs of pertussis. Building on this early success, we have
initiated preclinical testing of a modified version of hu1B7 that has the potential to extend the plasma half-life and substantially
reduce the required dose of SYN-005.
This current study expands the potential clinical
utility beyond therapy to also include prophylaxis.
SYN-200 — Treatment
of Phenylketonuria (PKU)
In August 2015, we initiated the SYN-200
discovery program for development and commercialization of novel biotherapeutics for the treatment of patients with PKU pursuant
to an exclusive channel collaboration with Intrexon. We are utilizing Intrexon’s ActoBiotics platform to provide a
proprietary method of delivering therapeutic protein to the GI tract through food-grade microbes. This program is in the discovery
stage.
SYN-020 — Oral Intestinal
Alkaline Phosphatase
SYN-020 is in the preclinical development stage.
SYN-020 is being developed as a modified-release oral dosage form of intestinal alkaline phosphatase (IAP). Published preclinical
and clinical studies on IAP indicate that an oral IAP product may have efficacy in a broad range of significant therapeutic indications
including inflammatory bowel disease, microbial dysbiosis and metabolic syndrome. We have generated manufacturing cell lines and
processes, and are initiating preclinical animal modeling for multiple novel indications.
Intellectual Property
All of our programs are supported by growing
patent estates that we either own or exclusively license. Each potential product has issued patents that provide protection. In
total, we have approximately 140 U.S. and foreign patents and over 55 U.S. and foreign patents pending. For instance, U.S. Patent
No. 8,894,994, which has claims to compositions of matter and pharmaceutical compositions of beta-lactamases, including ribaxamase,
carries a patent term to at least 2031. Further, U.S. Patent 9,301,995 and 9,301,996, both of which will expire in 2031, cover
various uses of beta-lactamases, including ribaxamase, in protecting the microbiome, and allowed U.S. Patent No.s 9,290,754, 9,376,673,
9,404,103 and 9,464,280, which, will expire in 2035, covers further beta-lactamase compositions of matter related to ribaxamase.
Also, U.S. Patent No. 9,192,618, which expires in approximately 2023, includes claims that cover use of statins, including SYN-010,
for the treatment of IBS-C. U.S. Patent No. 9,289,418, which expires in approximately 2033, includes claims that cover the use
of a variety of compounds, including the active agent of SYN-010, to treat constipation in certain screened patients. Pending applications
PCT /US2015/045140 and US 14/826,115, cover SYN-010 formulations and, if issued (after nationalization), are expected to have a
term to at least 2035.
Our goal is to (i) obtain, maintain, and
enforce patent protection for our products, formulations, processes, methods, and other proprietary technologies, (ii) preserve
our trade secrets, and (iii) operate without infringing on the proprietary rights of other parties, worldwide. We seek, where appropriate,
the broadest intellectual property protection for product candidates, proprietary information, and proprietary technology through
a combination of contractual arrangements and patents.
Critical Accounting Policies
The condensed 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 condensed consolidated financial statements and the judgments and assumptions used are consistent with those described
under Part II, Item 7 of our 2016 Form 10-K.
Results of Operations
Three Months Ended March 31, 2017 and
2016
General and Administrative Expenses
General and administrative expenses decreased
by 14% to $2.1 million for the three months ended March 31, 2017, from $2.4 million for the three months ended March 31, 2016. This
decrease is primarily the result of lower employee salary expense and related benefits costs along with reduced travel and legal
expenses. The charge related to stock-based compensation expense was $698,000 for the three months ended March 31, 2017, compared
to $643,000 the three months ended March 31, 2016.
Research and Development Expenses
Research and development expenses decreased
by 26% to $6.0 million for the three months ended March 31, 2017, from $8.2 million for the three months ended March 31, 2016.
This decrease is primarily the result of lower ribaxamase program costs associated with its clinical development program, as well
as manufacturing and research activities within our other microbiome-focused research and development activities. The charge related
to non-cash stock-based compensation expense was $437,000 for the three months ended March 31, 2017, compared to $409,000 for the
three months ended March 31, 2016.
The following table sets forth our research
and development expenses directly related to our therapeutic areas for the three months ended March 31, 2017 and 2016. These direct
expenses were external costs associated with preclinical studies and clinical trials. Indirect research and development expenses
related to employee costs, facilities, stock-based compensation and research and development support services that are not directly
allocated to specific drug candidates.
Therapeutic Areas
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
SYN-010
|
|
$
|
1,849
|
|
|
$
|
2,028
|
|
Ribaxamase
|
|
|
633
|
|
|
|
2,480
|
|
SYN-005
|
|
|
14
|
|
|
|
22
|
|
Other therapeutic areas
|
|
|
(1
|
)
|
|
|
12
|
|
SYN-010
|
|
|
|
|
|
|
|
|
Total direct costs
|
|
|
2,495
|
|
|
|
4,542
|
|
Total indirect costs
|
|
|
3,564
|
|
|
|
3,613
|
|
|
|
|
|
|
|
|
|
|
Total Research and Development
|
|
$
|
6,059
|
|
|
$
|
8,155
|
|
Other Income (Expense
)
Other income was $5.1 million for the three
months ended March 31, 2017, compared to other expense of $0.5 million for the three months ended March 31, 2016. Other income
for the three months ended March 31, 2017 is due to non-cash income of $5.1 million from the change in fair value of warrants.
The decrease in the fair value of the warrants was due to the decrease in our stock price from the prior quarter.
Net Loss
Our net loss was $2.8 million, or $0.02 per basic and dilutive
common share for the three months ended March 31, 2017, compared to a net loss of $10.8 million, or $0.12 per basic common share
and dilutive common share for the three months ended March 31, 2016.
Liquidity and Capital Resources
With the exception of the three months
ended June 30, 2010, we have experienced significant losses since inception and have a significant accumulated deficit. 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 $174.9 million as of March 31, 2017
and expect to continue to incur losses in the future. With the exception of the quarter ended June 30, 2010, we have incurred negative
cash flow from operations since our inception. We have spent, and expect to continue to spend, a substantial amount of funds in
connection with implementing our business strategy, including our planned product development efforts, our clinical trials and
our research and discovery efforts.
Based on our current plans, our cash and
cash equivalents will not be sufficient to enable us to meet our near term expected plans. Our notes to the condensed consolidated
financial statements contain an explanatory paragraph referring to our recurring and continuing losses from operations and expressing
substantial doubt in our ability to continue as a going concern without additional capital becoming available. We cannot provide
any assurance that we will be able to achieve profitability on a sustained basis, if at all, obtain the required funding to achieve
our current business plan, obtain the required regulatory approvals for our product candidates or complete additional corporate
partnering or acquisition transactions in order to commercialize such product candidates once regulatory approval is received.
Our cash and cash equivalents totaled $13.5
million as of March 31, 2017, a decrease of $5.6 million from December 31, 2016. During the three months ended March 31, 2017,
the primary use of cash was for working capital requirements and operating activities which resulted in a net loss of $3.1 million
for the three months ended March 31, 2017.
Our continued operations as currently planned
will primarily depend on our ability to raise additional capital from various sources, including equity (the FBR Sales Agreement
as well as other equity sources) and debt financings, as well as license fees from potential corporate partners, joint ventures
and grant funding. Although we have been awarded a contract by the CDC’s
Broad Agency Announcement
(BAA) 2016-N-17812, the amount of the award will not be sufficient to enable us to complete our clinical trials as planned and
therefore we will be required to obtain additional capital.
Such additional funds may not become available on acceptable
terms or at all and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs.
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
Based on our current plans, our cash and
cash equivalents will not be sufficient to enable us to meet our near term expected plans. Our notes to the condensed consolidated
financial statements contain an explanatory paragraph referring to our recurring and continuing losses from operations and expressing
substantial doubt in our ability to continue as a going concern without additional capital becoming available. We will be
required to obtain additional funding in order to continue the development of our current product candidates as currently planned
and to continue to fund operations at the current cash expenditure levels, although we do not currently have commitments from any
third parties to provide us with capital. Potential sources of financing include strategic relationships, public or private sales
of our equity (including through the FBR Sales Agreement that we entered into with FBR Capital Markets & Co. in August 2016)
or debt and other sources. We cannot assure that we will meet the requirements for use of the FBR Sales Agreement or that additional
funding will be available on favorable terms, or at all. If we fail to obtain additional funding in the next few months we will
be forced to delay the initiation of our planned clinical trials until such time as we obtain adequate financing and if we fail
to obtain additional funding otherwise in the future when needed, we may not be able to execute our business plan as planned and
we may be forced to cease certain development activities until funding is received and our business will suffer, which would have
a material adverse effect on our financial position, results of operations and cash flows.
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:
|
·
|
the progress of our research activities;
|
|
·
|
the number and scope of our research programs
;
|
|
·
|
the progress of our preclinical and clinical development activities;
|
|
·
|
the progress of the development efforts of parties with whom we have
entered into research and development agreements;
|
|
·
|
our ability to maintain current research and development licensing
arrangements and to establish new research and development and licensing arrangements;
|
|
·
|
our ability to achieve our milestones under licensing arrangements;
|
|
·
|
the costs associated with manufacturing-related services to produce
material for use in our clinical trials;
|
|
·
|
the costs involved in prosecuting and enforcing patent claims and
other intellectual property rights; and
|
|
·
|
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 (including through the FBR Sales Agreement,
if we meet the conditions for sale thereunder) or debt and other sources. Additionally, 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. During the past several months our only source of funding was from the sale of our common stock through
the FBR Sales Agreement. From August 11, 2016 through December 31, 2016, we sold through the FBR Sales Agreement an aggregate of
900,628 shares of our common stock, and received gross proceeds of approximately $1,550,197. During the quarter ended March 31,
2017, we sold through the FBR Sales Agreement an aggregate of 344,721 shares of our common stock, and received gross proceeds of
approximately $218,000 and subsequent to quarter end, we sold approximately 3,958,000 shares of our common stock, and received
gross proceeds of approximately $2.2 million. During the year ended December 31, 2016, our only source of funding was from the
sale of our securities in our public offering of 25 million shares of common stock in combination with accompanying warrants to
purchase an aggregate of 50,000,000 shares of the common stock for gross proceeds of $25,000,000 and sales of common stock through
the FBR Sales Agreement. However, there can be no assurance that we will be able to continue to raise funds through the sale of
shares of common stock through the FBR Sales Agreement. 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 will be unable to carry out our business plan and we will be forced to delay the initiation
of our planned clinical trials until such time as we obtain adequate financing. As a result, we may have to significantly limit
our operations and our business, financial condition and results of operations would be materially harmed.
Off-Balance Sheet Arrangements
During the three months ended March 31,
2017, we did not have, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.
Contractual Obligations
There have been no material changes to
our contractual obligations during the period covered by this report from those disclosed in our 2016 Form 10-K.