ITEM 1. FINANCIAL STATEMENTS
Synthetic Biologics, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands except share and per share
amounts)
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,100
|
|
|
$
|
20,818
|
|
Prepaid expenses and other current assets
|
|
|
7,116
|
|
|
|
9,519
|
|
Total Current Assets
|
|
|
22,216
|
|
|
|
30,337
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
501
|
|
|
|
494
|
|
|
|
|
|
|
|
|
|
|
Deposits and other assets
|
|
|
26
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
22,743
|
|
|
$
|
30,845
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
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|
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Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,597
|
|
|
$
|
4,413
|
|
Accrued expenses
|
|
|
946
|
|
|
|
297
|
|
Warrant liabilities
|
|
|
11,065
|
|
|
|
10,567
|
|
Accrued employee benefits
|
|
|
869
|
|
|
|
277
|
|
Deferred rent
|
|
|
49
|
|
|
|
21
|
|
Total Current Liabilities
|
|
|
17,526
|
|
|
|
15,575
|
|
|
|
|
|
|
|
|
|
|
Long term deferred rent
|
|
|
240
|
|
|
|
267
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
17,766
|
|
|
|
15,842
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
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, 90,908,234 issued and 90,826,752 outstanding and 90,908,234 issued and 90,826,752 outstanding
|
|
|
91
|
|
|
|
91
|
|
Additional paid-in capital
|
|
|
161,791
|
|
|
|
160,739
|
|
Accumulated deficit
|
|
|
(155,624
|
)
|
|
|
(144,779
|
)
|
Total Synthetic Biologics, Inc. and Subsidiaries Equity
|
|
|
6,258
|
|
|
|
16,051
|
|
Non-controlling interest
|
|
|
(1,281
|
)
|
|
|
(1,048
|
)
|
Total Stockholders' Equity
|
|
|
4,977
|
|
|
|
15,003
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
22,743
|
|
|
$
|
30,845
|
|
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 March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Operating Costs and Expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
$
|
2,426
|
|
|
$
|
1,713
|
|
Research and development
|
|
|
8,155
|
|
|
|
6,494
|
|
Total Operating Costs and Expenses
|
|
|
10,581
|
|
|
|
8,207
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(10,581
|
)
|
|
|
(8,207
|
)
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liability
|
|
|
(498
|
)
|
|
|
(4,152
|
)
|
Interest income
|
|
|
1
|
|
|
|
1
|
|
Total Other Income (Expense)
|
|
|
(497
|
)
|
|
|
(4,151
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(11,078
|
)
|
|
|
(12,358
|
)
|
Net Loss Attributable to Non-controlling Interest
|
|
|
(233
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Synthetic Biologics, Inc. and
Subsidiaries
|
|
$
|
(10,845
|
)
|
|
$
|
(12,358
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss Per Share - Basic and Dilutive
|
|
$
|
(0.12
|
)
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding during the period - Basic and Dilutive
|
|
|
90,826,752
|
|
|
|
72,673,959
|
|
See accompanying notes to unaudited consolidated
financial statements.
Synthetic Biologics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
For the three months ended March 31,
|
|
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|
2016
|
|
|
2015
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(11,078
|
)
|
|
$
|
(12,358
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
1,052
|
|
|
|
827
|
|
Stock issued for milestone payments
|
|
|
-
|
|
|
|
350
|
|
Change in fair value of warrant liabilities
|
|
|
498
|
|
|
|
4,152
|
|
Depreciation
|
|
|
37
|
|
|
|
8
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
2,403
|
|
|
|
(26
|
)
|
Deposits and other assets
|
|
|
(12
|
)
|
|
|
(12
|
)
|
Accounts payable
|
|
|
184
|
|
|
|
563
|
|
Accrued expenses
|
|
|
649
|
|
|
|
1,348
|
|
Accrued employee benefits
|
|
|
592
|
|
|
|
(310
|
)
|
Deferred rent
|
|
|
1
|
|
|
|
-
|
|
Net Cash Used In Operating Activities
|
|
|
(5,674
|
)
|
|
|
(5,458
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(44
|
)
|
|
|
(18
|
)
|
Net Cash Used In Investing Activities
|
|
|
(44
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
(5,718
|
)
|
|
|
(5,476
|
)
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
20,818
|
|
|
|
17,525
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
15,100
|
|
|
$
|
12,049
|
|
|
|
|
|
|
|
|
|
|
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 clinical stage company developing therapeutics to protect
the gut microbiome while targeting pathogen-specific diseases. The Company’s lead candidates in Phase 2 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) beta-lactam
antibiotics for the prevention of
C. difficile
infection (CDI) and antibiotic-associated diarrhea (AAD). In
collaboration with Intrexon Corporation, 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).
At March 31, 2016, the Company had cash
and cash equivalents of approximately $15.1 million. Management believes that the Company’s current cash on hand will be
sufficient to fund its operations for at least the foreseeable future. The Company will ultimately be required to obtain additional
funding in order to execute its long-term business plans, although it does not currently have commitments from any third parties
to provide it with capital. The Company cannot assure that additional funding will be available on favorable terms, or at all.
If the Company fails to obtain additional funding when needed, it may not be able to execute its business plans and its business
may suffer, which would have a material adverse effect on its financial position, results of operations and cash flows.
Basis of Presentation
The accompanying consolidated financial
statements have been prepared pursuant to the rules and regulations of the 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, 2015 (“2015 Form 10-K”) as filed with the SEC. The interim results for the
three months ended March 31, 2016, 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.
2. Management’s Plan
The Company has incurred an accumulated
deficit of $155.6 million through March 31, 2016. 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 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:
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·
|
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 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.
|
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 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
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 $6.9 million and $5.3 million as of March 31, 2016 and December 31, 2015, 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 certain transactions,
as defined in the agreement, the warrants would be purchased from the holder at a premium. 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 Consolidated Statements of Operations. The Company uses the Black-Scholes options pricing model 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, 2016
|
|
|
December 31,
2015
|
|
Intrexon prepaid research and development expenses
|
|
$
|
307
|
|
|
$
|
643
|
|
Prepaid clinical research organizations
|
|
|
6,160
|
|
|
|
8,329
|
|
Prepaid insurances
|
|
|
224
|
|
|
|
339
|
|
Other prepaid expenses
|
|
|
425
|
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,116
|
|
|
$
|
9,519
|
|
The Intrexon prepaid research and development
expenses 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. The Company anticipates that the majority of the prepaid will be applied
to research and development expenses during 2016.
Prepaid clinical research organization expense are 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 2016.
Property and equipment (in thousands)
|
|
March 31, 2016
|
|
|
December 31,
2015
|
|
Computer and office equipment
|
|
$
|
371
|
|
|
$
|
346
|
|
Software
|
|
|
11
|
|
|
|
11
|
|
Leasehold improvements
|
|
|
242
|
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
624
|
|
|
|
599
|
|
Less accumulated depreciation and amortization
|
|
|
(123
|
)
|
|
|
(105
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
501
|
|
|
$
|
494
|
|
Accrued expenses (in thousands)
|
|
March 31, 2016
|
|
|
December 31,
2015
|
|
Accrued manufacturing costs
|
|
$
|
2
|
|
|
$
|
-
|
|
Accrued vendor payments
|
|
|
388
|
|
|
|
133
|
|
Accrued clinical consulting services
|
|
|
556
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
946
|
|
|
$
|
297
|
|
Accrued employee benefits (in thousands)
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Accrued bonus expense
|
|
$
|
355
|
|
|
$
|
-
|
|
Accrued vacation expense
|
|
|
248
|
|
|
|
153
|
|
Other accrued employee benefits
|
|
|
266
|
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
869
|
|
|
$
|
277
|
|
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 March
31, 2016, there were 671,607 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 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, 2016, there were 379,155
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 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. 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 ten years after the grant date.
As of March 31, 2016, there were 7,941,666 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, 2016
and 2015 are as follows:
|
|
Three months ended March 31,
|
|
|
2016
|
|
2015
|
Exercise price
|
|
$1.08 -$1.31
|
|
$1.54
|
Expected dividends
|
|
0%
|
|
0%
|
Expected volatility
|
|
117%
|
|
131%
|
Risk free interest rate
|
|
1.40% - 1.46%
|
|
2.03%
|
Expected life of option
|
|
7 years
|
|
10 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,
2016, the Company granted 150,000 options to employees having an approximate fair value of $153,000 based upon the Black-Scholes
option pricing model. During the same period in 2015, the Company granted 550,000 options to employees having an approximate
fair value of $817,000 based upon the Black-Scholes option pricing model.
A summary of stock option activities as
of March 31, 2016, and for the year ended December 31, 2015, is as follows:
|
|
Options
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contractual Life
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2014
|
|
|
5,981,106
|
|
|
$
|
2.01
|
|
|
5.80 years
|
|
$
|
685,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,781,666
|
|
|
$
|
2.37
|
|
|
|
|
|
|
|
Exercised
|
|
|
(35,008
|
)
|
|
$
|
1.16
|
|
|
|
|
$
|
44,000
|
|
Expired
|
|
|
(483,332
|
)
|
|
$
|
2.48
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(302,502
|
)
|
|
$
|
1.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2015
|
|
|
8,941,930
|
|
|
$
|
2.14
|
|
|
5.80 years
|
|
$
|
2,900,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
150,000
|
|
|
$
|
1.16
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
$
|
-
|
|
Expired
|
|
|
(99,502
|
)
|
|
$
|
2.22
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance -March 31, 2016 - outstanding
|
|
|
8,992,428
|
|
|
$
|
2.13
|
|
|
5.41 years
|
|
$
|
3,400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 31, 2016 - exercisable
|
|
|
5,093,799
|
|
|
$
|
1.95
|
|
|
4.38 years
|
|
$
|
2,600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant date fair value of options granted - March 31, 2016
|
|
|
|
|
|
$
|
153,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value - March 31, 2016
|
|
|
|
|
|
$
|
1.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant date fair value of options granted - December 31, 2015
|
|
|
|
|
|
$
|
7,974,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value - December 31, 2015
|
|
|
|
|
|
$
|
2.12
|
|
|
|
|
|
|
|
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, 2016 and 2015 was $1.1 million and $827,000, respectively.
As of March 31, 2016, total unrecognized
stock-based compensation expense related to stock options was $7.3 million, which is expected to be expensed through May 2018.
6.
Stock Purchase Warrants
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 will be recorded as non-cash income or expense in the Consolidated Statements of Operations at each subsequent period.
At March 31, 2016, the fair value of the warrant liability was $11.1 million, which resulted in non-cash expense of $0.5 million
for the three months ended March 31, 2016. At March 31, 2015, the fair value of the warrant liability was $10.9 million, which
resulted in non-cash expense of $4.2 million for the three months ended March 31, 2015. In accordance with authoritative accounting
guidance, the warrants were valued on the date of grant using the Black-Scholes valuation model. The assumptions used by the Company
are summarized in the following table:
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Issuance Date
|
Closing stock price
|
|
$2.36
|
|
$2.29
|
|
$1.75
|
Expected dividends
|
|
0%
|
|
0%
|
|
0%
|
Expected volatility
|
|
90%
|
|
85%
|
|
95%
|
Risk free interest rate
|
|
0.96%
|
|
1.49%
|
|
1.39%
|
Expected life of warrant
|
|
3.54 years
|
|
3.79 years
|
|
5 years
|
The following
table summarizes the estimated fair value of the warrant liability
(in thousands)
:
Balance at December 31, 2015
|
|
$
|
10,567
|
|
Change in fair value of warrant liability
|
|
|
498
|
|
Balance at March 31, 2016
|
|
$
|
11,065
|
|
As of March
31, 2016, all of the warrants remained outstanding.
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 March 31, 2016 were 311,834.
A summary of warrant activity for the Company
for the three months ended March 31, 2016 and for the year ended December 31, 2015 is as follows:
|
|
Number of
Warrants
|
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
7,974,794
|
|
|
$
|
1.80
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
(2,448
|
)
|
|
$
|
1.60
|
|
Forfeited
|
|
|
(63,447
|
)
|
|
$
|
1.79
|
|
Balance at December 31, 2015
|
|
|
7,908,899
|
|
|
$
|
1.79
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Forfeited
|
|
|
(50,000
|
)
|
|
$
|
3.75
|
|
Balance at March 31, 2016
|
|
|
7,858,899
|
|
|
$
|
1.77
|
|
A summary of all outstanding and exercisable warrants as of
March 31, 2016 is as follows:
Exercise Price
|
|
|
Warrants
Outstanding
|
|
|
Warrants
Exercisable
|
|
|
Weighted Average
Remaining
Contractual Life
|
$
|
1.60
|
|
|
|
311,834
|
|
|
|
311,834
|
|
|
1.57 years
|
$
|
1.75
|
|
|
|
7,029,808
|
|
|
|
7,029,808
|
|
|
3.53 years
|
$
|
2.22
|
|
|
|
517,257
|
|
|
|
517,257
|
|
|
0.66 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.77
|
|
|
|
7,858,899
|
|
|
|
7,858,899
|
|
|
3.26 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, 2016 were 8,992,428 and 7,858,899, respectively, and for the three months ended March
31, 2015 were 6,531,106 and 7,974,794, respectively.
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 Consolidated Balance Sheets and reports both net loss attributable to the
non-controlling interest and net loss attributable to the Company’s common shareholders on the face of the 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, 2016, the accumulated net loss attributable to
the non-controlling interest was $233,000.
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 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,
2015, included in our Annual Report on Form 10-K filed with the SEC on March 10, 2016. 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. Actual results and the timing of events could differ materially from those discussed in our forward-looking
statements as a result of many factors, including those set forth
below,
under Part II, Item 1A. “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, 2015 filed with the SEC on March 10,
2016.
Overview
We
are a clinical stage company developing therapeutics to protect the gut microbiome while targeting pathogen-specific
diseases. Our lead product candidates in Phase 2 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) beta-lactam antibiotics for the prevention of
C. difficile
infection (CDI)
and antibiotic-associated diarrhea (AAD). In collaboration with Intrexon Corporation (Intrexon), 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:
Summary of Clinical and Preclinical Programs
Therapeutic Area
|
|
Product Candidate
|
|
Status
|
Treatment of IBS-C
|
|
SYN-010
(oral modified-release
lovastatin lactone)
|
|
•
|
|
Reported positive topline data from two Phase 2 clinical trials (4Q 2015 & 1Q 2016)
|
|
|
|
|
•
|
|
Received Type C meeting responses from FDA regarding late-stage aspects of clinical pathway (2Q 2016)
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
Scheduled to present detailed data supporting previously reported positive topline data from two Phase 2 clinical trials at DDW 2016 (May 2016)
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
Intend to hold end of Phase 2 meeting with FDA (Summer 2016)
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
Plan to initiate Phase 3 clinical trial(s) (2H 2016)
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
Collaboration with Cedars-Sinai Medical Center
|
|
|
|
|
|
|
|
Prevention of CDI and AAD (Degrade IV beta-lactam antibiotics)
|
|
SYN-004
(oral enzyme)
|
|
•
|
|
Reported positive Phase 1a/1b data (1Q 2015)
|
|
|
|
|
•
|
|
Initiated Phase 2b proof-of-concept clinical trial (3Q 2015); to date, enrollment of approximately 185 patients across global sites
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
Reported supportive topline data from first Phase 2a clinical trial (4Q 2015)
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
Expect to report topline data from second Phase 2a clinical trial (2Q 2016)
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
Anticipate an interim analysis of blinded data by an
independent data monitoring committee (Summer 2016)
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
Plan to initiate Phase 3 clinical trial(s) (1H 2017)
|
|
|
|
|
|
|
|
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 positive preclinical research findings (2014)
|
|
|
|
|
•
|
|
The University of Texas at Austin (UT Austin) received a grant to support a preclinical study to evaluate the prophylactic capability of SYN-005 (4Q 2015)
|
|
|
|
|
|
|
|
|
|
|
|
•
|
|
Collaborations with Intrexon and UT Austin
|
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
95 U.S. and foreign patents and have over 65 U.S. and foreign patents pending.
Our Microbiome-Focused Pipeline
Our IBS-C and CDI/AAD programs are focused
on protecting the gut microbiome, or gut flora, which is home to billions of bacteria and composed of a natural balance of both
“good” beneficial bacteria and potentially “bad” pathogenic bacteria. When the natural balance of these
bacteria is disrupted, a person’s health can be compromised.
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 perceived as 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.
Irritable Bowel Syndrome
IBS is a functional GI disorder characterized
by gas, abdominal pain, bloating and diarrhea or constipation, or alternating episodes of both. The illness affects both men and
women; however, 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: IBS-C (constipation predominant), IBS-D (diarrhea predominant), IBS-M (mixed
diarrhea and constipation) and IBS-U (unsubtyped). According to GlobalData’s IBS Global Drug Forecast
and Market Analysis to 2023 (December 2014) stringent disease diagnosis criteria to ensure market relevance and a population most
likely to receive a diagnosis and prescription drug treatment, the prevalence of IBS in adults in the U.S., Europe and Japan was
expected to be 41.1 million in 2015, and it has been reported that up to 20 percent of all IBS patients have IBS-C.
Extensive studies conducted by Dr. Pimentel
and collaborators have shown that overproduction of methane gas is directly associated with bloating, pain and constipation in
IBS-C patients. Investigators at CSMC have discovered that inhibiting intestinal methane production may reverse constipation associated
with IBS-C, and may be beneficial in treating other major diseases such as obesity, insulin resistance and type 2 diabetes.
Limitations of Current Treatments and
Market Opportunity
Currently, the U.S. Food and Drug Administration
(FDA)-approved therapies for the treatment of IBS-C and other treatments including prescription and over-the-counter laxatives,
which provide patients with temporary symptomatic relief and often cause diarrhea, but do not treat the underlying cause of pain,
bloating and constipation associated with IBS-C. According to GlobalData, IBS — Global Drug Forecast and Market
Analysis to 2023 (December 2014), the estimated global sales for IBS therapeutics for 2015 was $669.3 million, and global sales
are expected to be greater than $1.5 billion in 2023.
First Phase 2 Clinical Trial Topline
Results (4 Week Placebo-Controlled Acute Study)
In December 2015, we reported
positive topline results from our first Phase 2 placebo-controlled, randomized clinical trial of SYN-010, including lowered
breath methane and improved stool frequency in patients with IBS-C. This first Phase 2 clinical trial was initiated in June
2015 and enrolled 63 patients who were randomized using a 1:1:1 ratio to one of three groups, including two different SYN-010
dose groups and a placebo group. Patients received single oral doses of SYN-010 or a placebo each day for 28 days. The
primary objective of this clinical trial was to evaluate the change from baseline in the area under the curve (AUC) of breath
methane, as determined by a lactulose breath test, in methane-positive patients with IBS-C after seven days of treatment with
one of two dose levels of SYN-010 as compared with a placebo. The trial’s secondary endpoints included improvement in
the number of complete spontaneous bowel movements (CSBM) per week, and improvement in abdominal pain and bloating per
standard scales required per FDA guidance. There were no serious adverse events observed.
In the first Phase 2 clinical trial of
SYN-010, 65 percent of patients had no detectable plasma trough levels of lovastatin lactone or lovastatin beta-hydroxyacid after
28 days of treatment. In the few patients with detectable trough levels at day 28, concentrations of both lovastatin lactone and
lovastatin beta-hydroxyacid were significantly lower than observed for commercial lovastatin formulations. Consistent with limited
absorption, there were no statistically significant changes in LDL-C levels relative to placebo after 28 days.
Second Phase 2 Clinical Trial Topline
Results (8 Week Open-Label Extension Study)
In January 2016, we reported positive topline
data from our second Phase 2 clinical trial of SYN-010, which was initiated in October 2015. As the patients completed the first
Phase 2 clinical trial, they were eligible to immediately rollover into the second Phase 2 clinical trial (multi-center, open-label)
of SYN-010 that evaluated the sustainability of the effect of one dose strength of SYN-010 (42 mg) on breath methane production
in 54 breath methane-positive patients with IBS-C, as well as key clinical outcomes, including frequency of CSBM, abdominal pain
and bloating.
Patients in the second Phase 2 clinical trial
reported compliance with the daily SYN-010 dosing regimen such that all patients in the second Phase 2 clinical trial
received a minimum of 8 weeks treatment with SYN-010 42 mg. Patients who completed the second Phase 2 clinical trial
demonstrated a statistically significant decrease in methane production (p=0.002) from the beginning of the first Phase 2
clinical trial (Baseline, Day 1, prior to any drug administration in the randomized study) to the end of the second Phase 2
clinical trial (12 weeks, Day 84), thus meeting the clinical trial's primary endpoint. Topline data from the second Phase 2
clinical trial also showed improvements in secondary efficacy endpoints, including: (1) a statistically significant reduction
in the mean IBS Symptom Severity Score (IBS-SSS; p<0.0001), which includes abdominal pain, bloating, stool frequency and
quality of life scores, for all patients from the first Phase 2 clinical trial baseline to the end of the second Phase 2
clinical trial, and (2) an increase in the percentage of patients identified as Monthly Responders, an FDA-defined composite
measure incorporating improvements in CSBMs and abdominal pain. There were no serious adverse events observed.
We are scheduled to present detailed data supporting previously reported positive topline data from both
SYN-010 Phase 2 clinical trials in a poster presentation at the Digestive Disease Week 2016 (DDW 2016) meeting in May 2016.
Phase 3 Planning
We received Type C meeting responses
from the FDA regarding late-stage aspects of the SYN-010 clinical pathway during the second quarter of 2016. We anticipate
holding an end of Phase 2 meeting with the FDA during summer 2016. We plan to initiate pivotal Phase 3 clinical trial(s)
during the second half of 2016.
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 (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 on the FDA’s previous findings of safety for a currently marketed product and published
clinical data. We expect to rely on published clinical trials using a similar drug product to provide support of efficacy. Consequently,
we believe we can move directly into a pivotal clinical trial.
Intellectual Property
The SYN-010 intellectual property portfolio
includes approximately 55 issued U.S. and foreign patents, and approximately 20 U.S. and foreign patents pending.
SYN-004 — Prevention
of C. difficile infections (CDI) and antibiotic-associated diarrhea (AAD)
SYN-004 is an oral prophylactic therapy
designed to degrade certain IV beta-lactam antibiotics within the GI tract and maintain the natural balance of the gut microbiome
for the prevention of CDI, AAD and emergence of antibiotic-resistant organisms. 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 (which we now refer to as SYN-004), 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 call SYN-004.
Compared to the first generation oral enzyme
candidate of P1A, we believe that the second generation candidate, SYN-004, 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, certain preclinical data collected on P1A was used in support of an IND application
for our new product candidate, SYN-004. P1A was 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.
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 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.
C. difficile
C.
difficile
is the leading type
of hospital acquired infection and is frequently associated with IV beta-lactam antibiotic treatment. According to an article published
in the New England Journal of Medicine (Leffler DA et al. N Engl J Med 2015; 372: 1539-1548), CDIs more than quadruple the cost
of hospitalizations, increasing annual expenditures by approximately $1.5 billion in the U.S. CDI is a rising global hospital acquired
infection (HAI) problem in which the toxins produced by
C. difficile
bacteria result in AAD, and in the most serious cases,
pseudomembranous colitis (severe inflammation of the lower GI tract) that can lead to death. The Centers for Disease Control and
Prevention (CDC) identified
C. difficile
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. In addition, many patients experience a recurrence of
CDI within one to three months.
Limitations of Current Treatments and
Market Opportunity
CDI is a widespread and often drug resistant
infectious disease. According to an article published in the New England Journal of Medicine (Leffler DA et al. N Engl J Med 2015;
372:1539-1548), it is estimated that 453,000 patients are infected with
C. difficile
annually in the U.S., and it has been
reported that approximately 29,000 patients die due to a CDI each year. CDI has surpassed methicillin-resistant staphylococcus
aureus (MRSA) as the most frequent hospital acquired infection. 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 with inanimate objects.
There is currently no vaccine or approved product for the prevention of CDI.
SYN-004’s significant target market
is represented by the 117 million average days SYN-004 could be administered with target IV beta-lactam antibiotics. This estimate
is based upon data derived from the following report: Arlington Medical Resources (AMR), a Decision Resources Group Company, 2014
Audits of Acute Care Hospital Antibiotic Utilization. Currently there are no approved treatments designed to protect the microbiome
from the damaging effects of IV antibiotics. The worldwide market for SYN-004 could represent a multi-billion dollar opportunity
for us.
Phase 1a and 1b Clinical Trial Pharmacokinetic
Data
In March 2015, we reported positive pharmacokinetic
data from our Phase 1a and 1b clinical trials, which suggests that SYN-004 may have no effect on the IV antibiotic in the bloodstream,
allowing the antibiotic to fight the primary infection. In February 2015, we reported positive topline results from our Phase 1b
clinical trial of escalating doses of oral SYN-004, with no safety or tolerability issues reported at dose levels and dose regimens
both meeting and exceeding those expected to be studied in upcoming clinical trials. The Phase 1a (40 participants) and 1b (24
participants) clinical trials of SYN-004 were initiated in December 2014.
First Phase 2a Clinical Trial Topline
Results
In December 2015, we reported positive
topline results from our Phase 2a clinical trial of SYN-004, including data from ten ileostomized participants that demonstrated
SYN-004 successfully degraded residual IV ceftriaxone in the chyme (digestive fluid in the small intestine) without affecting the
intended level of ceftriaxone in the bloodstream. This Phase 2a clinical trial was initiated in March 2015 to evaluate the GI antibiotic-degrading
effects and the safety of SYN-004.
Second Phase 2a Clinical Trial Topline
Results
In June 2015, we initiated a
second Phase 2a clinical trial of SYN-004 to evaluate the GI antibiotic-degrading ability and the safety of SYN-004, in the
presence of the proton pump inhibitor (PPI), esomeprazole, in healthy
participants
with functioning ileostomies. Enrollment is complete and topline
data is expected from the second Phase 2a
clinical trial during the second quarter of 2016.
Phase 2b Clinical Trial Design
In September 2015, we initiated
a Phase 2b proof-of-concept clinical trial of SYN-004. This randomized, placebo-controlled clinical trial is expected to
enroll approximately 370 patients at up to 75 global clinical sites. This clinical trial is intended to evaluate the ability
of SYN-004 to prevent CDI,
C. difficile
associated diarrhea (CDAD) and AAD in patients hospitalized for a
lower respiratory tract infection and receiving IV ceftriaxone. Once either 120 patients complete treatment and there are 10
confirmed cases of CDI, or 186 patients complete treatment, an interim analysis to evaluate baseline rate of CDI in the
placebo group is anticipated. This anticipated interim analysis is expected to be conducted during the summer of
2016 and will be performed by an independent data monitoring committee. To date, approximately 185 patients have been
enrolled into the SYN-004 Phase 2b clinical trial.
Phase 3 Planning
A Type C meeting has been requested with
the FDA. We plan to initiate a pivotal Phase 3 clinical trial during the first half of 2017.
SYN-007 — Prevention
of CDI and AAD
Preclinical work is ongoing to determine
the ability of SYN-007 to protect the gut microbiome and degrade oral beta-lactam antibiotics. 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 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.
C. difficile: Intellectual Property
The SYN-004 intellectual property portfolio
includes approximately 40 issued U.S. and foreign patents, and approximately 30 U.S. and foreign patents pending.
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.
Monoclonal Antibodies for Infectious
Diseases
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. Monoclonal antibodies (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.
SYN-005 — Pertussis
(Whooping Cough)
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. While such treatment 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 the declining effectiveness
of the acellular vaccine introduced in the 1990s, exposure of unvaccinated and under-vaccinated individuals including infants who
are not yet fully vaccinated and exposure of individuals whose immunity has diminished over time.
According to the World Health Organization
(WHO), there are 50 million cases of whooping cough, and it is estimated that
B. pertussis
infection causes up to 300,000
deaths each year worldwide, primarily among 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.
Intrexon Collaboration and The University
of Texas at Austin Agreement
In August 2012, we entered into a worldwide
exclusive channel collaboration with Intrexon through which we intend to develop 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. This
program intends to utilize Intrexon’s comprehensive suite of proprietary technologies, including the mAbLogix
TM
platform for rapid discovery of fully human mAbs and the LEAP
®
cell processing station.
To further the development of this potential
therapy for pertussis, we entered into an agreement with The University of Texas at Austin (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 defining the
key neutralizing epitopes of pertussis toxin to optimize the potential efficacy of antibody therapeutics.
Preclinical and Clinical Development
Working with our collaborator, Intrexon,
and our academic collaborator, UT Austin, we have established a humanized mAb product candidate, SYN-005, designed to neutralize
pertussis toxin, a major cause of pertussis-mediated infant morbidity and mortality. The two humanized mAbs, hu1B7 and hu11E6,
bound tightly to the toxin and potently neutralized 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.
The antibodies, alone and in combination, were compared to the WHO international pertussis human antiserum standard by ELISA. After
administration to non-human primates, SYN-005 was detectable in the blood for more than three weeks.
In April 2014, and again in September 2014,
we received positive preclinical research findings of SYN-005 for the treatment of pertussis in three non-human primate studies
(n = 19). In the latter two pertussis studies in particular, SYN-005 rapidly stopped the rise in white blood cell count that is
characteristic of the disease and accelerated its return to baseline.
In September 2014, we received U.S. Orphan
Drug Designation from the FDA for SYN-005 for the treatment of pertussis.
In April 2015, preclinical efficacy data
that support advancing SYN-005 toward clinical trials were presented in two poster presentations at the European Congress of Clinical
Microbiology and Infectious Diseases meeting (ECCMID) 2015 in Copenhagen, Denmark. The data suggest that SYN-005 has therapeutic
potential to diminish morbidity, long-term complications and mortality from pertussis in critically ill infants. In addition, the
data support a prophylactic approach for use in newborns that has the potential to save thousands of lives annually, particularly
in the developing world where the unmet need is greatest.
In October 2015, the Bill & Melinda
Gates Foundation awarded a grant to UT Austin to generate preclinical proof-of-concept data to test the hypothesis that antibody
administration at birth may also have a role in the prevention of pertussis.
In December 2015, a non-human primate prophylaxis
study was initiated by UT Austin to evaluate the potential of our monoclonal antibody, 1B7, in the prevention of pertussis. This
preclinical study is expected to provide support for the use of our 1B7 in potential clinical application.
Intellectual Property
We have patents pending on compositions
and uses of SYN-005 and we have two issued U.S. patent and patents pending on other pertussis mAbs from UT Austin.
SYN-200 — Treatment
of Phenylketonuria (PKU)
PKU is a genetic disease that begins at
birth characterized by a deficiency in the liver enzyme that breaks down the essential amino acid phenylalanine (Phe), a building
block of proteins normally obtained through the foods we eat. As a result, Phe accumulates in the body, becoming toxic and leading
to serious health consequences, including profound mental retardation, brain damage, mental illness, behavioral problems, seizures,
tremors, limited cognitive ability and hyperactivity. If left untreated, the most severe form of PKU leads to permanent cognitive
damage. PKU affects more than 14,000 people in the U.S. and 50,000 people in developed nations globally. There is no existing cure
for PKU, requiring patients to maintain a life-long treatment program and a carefully controlled diet.
Intrexon Collaboration
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 intend to utilize Intrexon’s ActoBiotics
platform to provide a proprietary method of delivering therapeutic protein and peptides to the GI tract through food-grade
microbes. This program is in the discovery stage.
SYN-020 — Oral Intestinal
Alkaline Phosphatase
The development of SYN-020 is in the discovery
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 celiac disease, inflammatory bowel disease, microbial dysbiosis and metabolic syndrome. We have identified cell systems
in which IAP can be expressed and anticipate selection of an oral formulation in 2H 2016 for evaluation in preclinical disease
models.
Multiple Sclerosis Program
We discontinued our multiple sclerosis
(MS) program in February 2016 and the development of a Phase 2 oral estriol drug for the treatment of relapsing-remitting multiple
sclerosis (RRMS) and cognitive dysfunction in MS. Previously, our drug candidate Trimesta (oral estriol) was evaluated in investigator-sponsored
Phase 2 clinical trials for RRMS in women, and cognitive dysfunction in women with MS.
On February 1, 2016, our subsidiary, Putney
Drug, Inc. provided written notice to the Regents of the University of California (Regents) that we were terminating
our (i) License Agreement with the Regents, dated as of July 11, 2005, as amended on November 8, 2005, January 3, 2007, August
29, 2007, December 31, 2012, July 25, 2014 and July 8, 2015 (License Agreement) and (ii) Clinical
Trial Agreement with the Regents, dated April 29, 2010, as amended July 8, 2015 (CTA). Pursuant
to the terms of the License Agreement, Putney Drug had licensed from the Regents certain U.S. patents for multiple sclerosis therapy
related to our drug candidate, Trimesta and Trimesta-combination therapies. Based upon the independent third party analysis of
the investigator-sponsored Phase 2 clinical trial that evaluated Trimesta as a treatment for relapsing-remitting MS in women, it
was determined that the License Agreement and the CTA should be terminated. In accordance with the termination provisions of the
License Agreement and the CTA, the License Agreement and CTA terminated on May 2, 2016.
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 under Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015.
Results of Operations
Three Months Ended March 31, 2016
and 2015
General and Administrative Expenses
General and administrative expenses
increased by 42% to $2.4 million for the three months ended March 31, 2016, from $1.7 million for the three months ended
March 31, 2015. This increase is primarily the result of increased employee costs associated with the transition of the
administrative and financial office to our Maryland headquarters, and increased legal fees and stock-based compensation. The
charge related to stock-based compensation expense was $643,000 for the three months ended March 31, 2016, compared to
$582,000 for the three months ended March 31, 2015.
Research and Development Expenses
Research and development expenses
increased by 26% to $8.2 million for the three months ended March 31, 2016, from $6.5 million for the three months ended
March 31, 2015. This increase is primarily the result of increased Phase 2 program costs associated with expanded clinical
development programs, manufacturing and research activities within our microbiome-focused pipeline. Research and development
expenses also include a charge related to non-cash stock-based compensation expense of $409,000 for the three months ended
March 31, 2016, compared to $246,000 for the three months ended March 31, 2015.
The following table sets forth our research and development expenses directly related to our therapeutic
areas for the three months ended March 31, 2016 and 2015. 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, 2016
|
|
|
March 31, 2015
|
|
SYN-004
|
|
$
|
2,480
|
|
|
$
|
4,334
|
|
SYN-010
|
|
|
2,028
|
|
|
|
229
|
|
SYN-005
|
|
|
22
|
|
|
|
524
|
|
Other therapeutic areas
|
|
|
12
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
Total direct costs
|
|
|
4,542
|
|
|
|
5,158
|
|
Total indirect costs
|
|
|
3,613
|
|
|
|
1,336
|
|
|
|
|
|
|
|
|
|
|
Total Research and Development
|
|
$
|
8,155
|
|
|
$
|
6,494
|
|
Other Income (Expense
)
Other expense was $497,000 for the three
months ended March 31, 2016, compared to $4.2 million for the three months ended March 31, 2015. Other expense for the three months
ended March 31, 2016 is due to non-cash expense of $498,000 from the change in fair value of warrants. The increase in the fair
value of the warrants was due to the increase in our stock price from the year ended December 31, 2015. Non-cash expense related
to fair value of warrants for the three months ended March 31, 2015 was $4.2 million.
Net Loss
Our net loss was $11.1 million, or $0.12
per common share for the three months ended March 31, 2016, compared to a net loss of $12.4 million, or $0.17 per common share
for the three months ended March 31, 2015.
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
$155.6 million as of March 31, 2016. 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 $15.1 million as of March
31, 2016, a decrease of $5.7 million from December 31, 2015. During the three months ended March 31, 2016, the primary use
of cash was for working capital requirements and operating activities which resulted in a net loss of $11.1 million for the three
months ended March 31, 2016.
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 or at all 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 $155.6 million through March 31, 2016. 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, we believe
that our cash
and cash equivalents will be sufficient to enable us to meet our anticipated operating
needs for at least the foreseeable future.
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:
|
·
|
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
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.
Off-Balance Sheet Arrangements
During the three months ended March 31, 2016, 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 Annual Report on Form 10-K for the year ended December 31,
2015.