ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Synthetic Biologics, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands except share and per share
amounts)
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|
September 30, 2017
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|
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December 31, 2016
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|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
21,050
|
|
|
$
|
19,055
|
|
Prepaid expenses and other current assets
|
|
|
1,263
|
|
|
|
2,515
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|
Total Current Assets
|
|
|
22,313
|
|
|
|
21,570
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|
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|
|
|
|
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Property and equipment, net
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|
|
943
|
|
|
|
905
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|
|
|
|
|
|
|
|
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|
Deposits and other assets
|
|
|
23
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|
|
|
23
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|
|
|
|
|
|
|
|
|
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Total Assets
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|
$
|
23,279
|
|
|
$
|
22,498
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|
|
|
|
|
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Liabilities and Stockholders’ (Deficit) Equity
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Current Liabilities:
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|
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|
|
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Accounts payable
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|
$
|
1,097
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|
|
$
|
1,993
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|
Accrued expenses
|
|
|
2,070
|
|
|
|
2,627
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|
Warrant liabilities
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|
|
12,664
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|
|
|
14,821
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|
Accrued employee benefits
|
|
|
1,606
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|
|
|
313
|
|
Deferred rent
|
|
|
88
|
|
|
|
3
|
|
Total Current Liabilities
|
|
|
17,525
|
|
|
|
19,757
|
|
|
|
|
|
|
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Long term deferred rent
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|
426
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|
|
|
492
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|
|
|
|
|
|
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Total Liabilities
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17,951
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20,249
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|
Series A convertible preferred stock, $0.001 par value; 10,000,000 and zero shares authorized; 120,000 and zero shares issued and outstanding
|
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11,992
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|
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|
-
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|
Stockholders’ Equity:
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|
|
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Common stock, $0.001 par value; 350,000,000 shares
authorized; 128,648,365 and 117,254,196 shares issued; and 128,566,883 and 117,172,714 shares outstanding
|
|
|
129
|
|
|
|
117
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|
Additional paid-in capital
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|
192,042
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|
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175,762
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|
Accumulated deficit
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|
(196,959
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)
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|
|
(172,034
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)
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Total Synthetic Biologics, Inc. and Subsidiaries (Deficit) Equity
|
|
|
(4,788
|
)
|
|
|
3,845
|
|
Non-controlling interest
|
|
|
(1,876
|
)
|
|
|
(1,596
|
)
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Total Stockholders’ (Deficit) Equity
|
|
|
(6,664
|
)
|
|
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2,249
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|
|
|
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Total Liabilities and Stockholders’ (Deficit) Equity
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|
$
|
23,279
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|
|
$
|
22,498
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|
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)
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For the three months ended September 30,
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For the nine months ended September 30,
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2017
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2016
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2017
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2016
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|
Operating Costs and Expenses:
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General and administrative
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$
|
1,705
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|
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$
|
2,095
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|
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$
|
5,440
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$
|
6,668
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Research and development
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4,137
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|
7,061
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15,028
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22,380
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|
Total Operating Costs and Expenses
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5,842
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|
|
9,156
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|
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20,468
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29,048
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|
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Loss from Operations
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(5,842
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)
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|
|
(9,156
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)
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(20,468
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)
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|
|
(29,048
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)
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|
|
|
|
|
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Other (Expense) Income:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liability
|
|
|
(5,092
|
)
|
|
|
666
|
|
|
|
2,157
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|
|
|
3,681
|
|
Interest income
|
|
|
4
|
|
|
|
1
|
|
|
|
7
|
|
|
|
36
|
|
Total Other
(Expense) Income
|
|
|
(5,088
|
)
|
|
|
667
|
|
|
|
2,164
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|
|
|
3,717
|
|
|
|
|
|
|
|
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Net Loss
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|
(10,930
|
)
|
|
|
(8,489
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)
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|
(18,304
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)
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|
(25,331
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)
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|
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Net Loss Attributable to Non-controlling Interest
|
|
|
(8
|
)
|
|
|
(136
|
)
|
|
|
(280
|
)
|
|
|
(451
|
)
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|
|
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|
|
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Net Loss Attributable to Synthetic Biologics, Inc. and Subsidiaries
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|
$
|
(10,922
|
)
|
|
$
|
(8,353
|
)
|
|
$
|
(18,024
|
)
|
|
$
|
(24,880
|
)
|
Series A Preferred Stock Dividends
|
|
|
(6,901
|
)
|
|
|
-
|
|
|
|
(6,901
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)
|
|
|
-
|
|
|
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|
|
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|
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Net Loss Attributable to Common Stockholders
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|
$
|
(17,823
|
)
|
|
$
|
(8,353
|
)
|
|
$
|
(24,925
|
)
|
|
$
|
(24,880
|
)
|
|
|
|
|
|
|
|
|
|
|
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Net Loss Per Share - Basic and
Dilutive
|
|
$
|
(0.14
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted average number of shares outstanding during the period - Basic and Dilutive
|
|
|
128,279,674
|
|
|
|
91,441,687
|
|
|
|
122,950,397
|
|
|
|
91,095,990
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|
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 nine months ended September 30,
|
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|
|
2017
|
|
|
2016
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(18,304
|
)
|
|
$
|
(25,331
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
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|
Stock-based compensation
|
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|
2,906
|
|
|
|
2,906
|
|
Change in fair value of warrant liabilities
|
|
|
(2,157
|
)
|
|
|
(3,681
|
)
|
Depreciation
|
|
|
172
|
|
|
|
111
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
1,251
|
|
|
|
6,428
|
|
Deposits and other assets
|
|
|
-
|
|
|
|
(12
|
)
|
Accounts payable
|
|
|
(895
|
)
|
|
|
(171
|
)
|
Accrued expenses
|
|
|
(557
|
)
|
|
|
1,193
|
|
Accrued employee benefits
|
|
|
1,293
|
|
|
|
1,063
|
|
Deferred rent
|
|
|
19
|
|
|
|
(23
|
)
|
Net Cash Used In Operating Activities
|
|
|
(16,272
|
)
|
|
|
(17,517
|
)
|
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|
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|
|
|
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Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(209
|
)
|
|
|
(199
|
)
|
Net Cash Used In Investing Activities
|
|
|
(209
|
)
|
|
|
(199
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of Series A convertible preferred stock, net of issuance cost
|
|
|
11,952
|
|
|
|
-
|
|
Proceeds from issuance of common stock for stock option exercises
|
|
|
166
|
|
|
|
814
|
|
Proceeds from “at the market” stock issuance
|
|
|
6,358
|
|
|
|
633
|
|
Net Cash Provided By Financing Activities
|
|
|
18,476
|
|
|
|
1,447
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
1,995
|
|
|
|
(16,269
|
)
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
19,055
|
|
|
|
20,818
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
21,050
|
|
|
$
|
4,549
|
|
See accompanying notes to unaudited condensed
consolidated financial statements.
Synthetic Biologics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
1. Organization, 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-004
(ribaxamase) 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), overgrowth of pathogenic organisms
and the emergence of antimicrobial resistance (AMR), and (2) 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). 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 Accounting Principles Generally Accepted in the United States
of America (“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 and nine months ended September 30, 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 may differ from the original estimates, requiring adjustments to these
balances in future periods.
Recent Accounting Pronouncements and
Developments
In May 2017, the Financial Accounting Standards
Board, (“FASB”) issued Accounting Standards Update (“ASU”) 2017-09,
Scope of Modification Accounting,
clarifies Topic 718, Compensation – Stock Compensation
, which requires a company to apply modification accounting to
changes in the terms or conditions of a share-based payment award unless all of the following criteria are met: (1)
the fair value of the modified award is the same as the fair value of the original award immediately before the modification. The
ASU indicates that if the modification does not affect any of the inputs to the valuation technique used to value the award, the
entity is not required to estimate the value immediately before and after the modification; (2) the vesting conditions of the
modified award are the same as the vesting conditions of the original award immediately before the modification; and (3) the classification
of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award
immediately before the modification. The ASU is effective for all entities for fiscal years beginning after December
15, 2017, including interim periods within those years. Early adoption is permitted, including adoption in an interim
period. The Company currently does not have any modifications to existing stock compensation agreements and will be able
to calculate the impact of the ASU once modifications arise.
In August 2016, the FASB issued 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 activities 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. 2016-15 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 from 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 for the three and nine months ended September 30, 2017.
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 and 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 from 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. Based on the Company’s initial assessment, it does not expect any material changes to the recognition of its revenue. The
Company has not yet completed its final review of the impact of this guidance, and will continue to evaluate the impacts of adoption
over the coming quarters. The Company currently expects to apply ASU 2014-09 on a modified retrospective basis as of January 1,
2018 when revenue arrangements arise in the future. The Company will continue to monitor additional changes, modifications, clarifications
or interpretations being undertaken by the FASB, which may impact its current evaluation.
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
September 30, 2017, the Company has an accumulated deficit of approximately $197.0 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 which includes the initiation and completion of its planned Phase 2b/3
and Phase 3 clinical trials. 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 and partnerships and collaborations. 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 September 30, 2017, the Company had cash
and cash equivalents of approximately $21.1 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. Commencement of planned
clinical trials is subject to the Company’s successful pursuit of opportunities that will allow it to establish the clinical
infrastructure and financial resources necessary to successfully initiate and complete its plan. 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 (including initiation of its planned clinical trials), 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. Current cash is expected to cover
overhead costs, manufacturing costs for clinical supply, commercial scale up costs and limited research efforts. If the Company
fails to obtain additional funding for its clinical trials in the next few months, whether through the sale of securities or a
partner or collaborator, 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 (including initiation of planned clinical trials) 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. Clinical
development will resume once sufficient funding is available. 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 and amount of funding received from partners and collaborators;
|
|
·
|
the 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 $0.2 million and $1.7 million as of September 30, 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)
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Clinical consulting services refund receivable
|
|
$
|
612
|
|
|
$
|
-
|
|
Prepaid conferences, travel and other expenses
|
|
|
406
|
|
|
|
295
|
|
Grant receivable
|
|
|
130
|
|
|
|
185
|
|
Prepaid insurances
|
|
|
69
|
|
|
|
358
|
|
Prepaid clinical research organizations
|
|
|
46
|
|
|
|
1,677
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,263
|
|
|
$
|
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 include 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)
|
|
September 30,
2017
|
|
|
December 31
2016
|
|
Computer and office equipment
|
|
$
|
661
|
|
|
$
|
641
|
|
Leasehold improvements
|
|
|
439
|
|
|
|
439
|
|
Construction in progress
|
|
|
190
|
|
|
|
-
|
|
Software
|
|
|
11
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,301
|
|
|
|
1,091
|
|
Less accumulated depreciation and amortization
|
|
|
(358
|
)
|
|
|
(186
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
943
|
|
|
$
|
905
|
|
Accrued expenses (in thousands)
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Accrued manufacturing costs
|
|
$
|
1,069
|
|
|
$
|
14
|
|
Accrued clinical consulting services
|
|
|
806
|
|
|
|
2,211
|
|
Accrued vendor payments
|
|
|
187
|
|
|
|
400
|
|
Other accrued expenses
|
|
|
8
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,070
|
|
|
$
|
2,627
|
|
Accrued employee benefits (in thousands)
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Accrued bonus expense
|
|
$
|
1,265
|
|
|
$
|
-
|
|
Accrued vacation expense
|
|
|
341
|
|
|
|
261
|
|
Other accrued employee benefits
|
|
|
-
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,606
|
|
|
$
|
313
|
|
5. Stock-Based Compensation
Stock Incentive Plans
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 was determined by the compensation committee of the Board of Directors and should
be equal to or greater than the fair market value of the Company’s common stock on the date the option was 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 could 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 September 30, 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. On
September 7, 2017, 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 14,000,000 to 17,500,000. 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 and ten years after the grant date. As of September 30, 2017, there were 10,475,091
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. There were no options granted during the nine months ended September 30, 2017.
The Black-Scholes assumptions used in the nine months ended September 30, 2017 and 2016 are as follows:
|
|
Nine months ended September 30,
|
|
|
2017
|
|
2016
|
Exercise price
|
|
$0.83 - $0.87
|
|
$1.08 - $2.66
|
Expected dividends
|
|
0%
|
|
0%
|
Expected volatility
|
|
90% - 92 %
|
|
102% - 117%
|
Risk free interest rate
|
|
1.67% - 1.75 %
|
|
1.40% - 1.57 %
|
Expected life of option
|
|
4.2 - 4.3 years
|
|
7.0 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 nine months ended September 30,
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 560,000 options to employees having an approximate
fair value of $962,000 based upon the Black-Scholes option pricing model.
A summary of stock option activities for the nine months ended September
30, 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
|
|
|
(450,962
|
)
|
|
|
2.00
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(91,404
|
)
|
|
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2017 - outstanding
|
|
|
11,219,015
|
|
|
$
|
1.76
|
|
|
|
5.29 years
|
|
|
$
|
548,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2017 - exercisable
|
|
|
7,205,382
|
|
|
$
|
2.02
|
|
|
|
4.77 years
|
|
|
$
|
204,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant date fair value of options granted - September 30, 2017
|
|
|
|
|
|
$
|
308,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value - September 30, 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 operating expenses related to stock options issued to employees and consultants for the three months ended September 30, 2017
and 2016 was $900,000 and $946,000 respectively, and $2,906,000 and $2,906,000 for the nine month periods ended September 30,
2017 and 2016, respectively.
As of September 30, 2017, total unrecognized
stock-based compensation expense related to stock options was $3.7 million, which is expected to be expensed through March 2019.
6. Stock Purchase Warrants
On November 18, 2016, the
Company completed a public offering of 25 million shares of common stock with accompanying warrants to purchase an aggregate
of 50 million shares of 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 was $1.43 and the per share exercise price of the Series B warrants was $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 September 30, 2017, the fair value of the warrant liability was $10.7 million, which resulted
in non-cash expense of $4.1 million for the three months ended September 30, 2017 and non-cash income of $2.0 million for the
nine months ended September 30, 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
|
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
|
Issuance
Date
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
|
Issuance
Date
|
|
Closing stock price
|
|
$
|
0.93
|
|
|
$
|
0.76
|
|
|
$
|
0.89
|
|
|
$
|
0.93
|
|
|
$
|
0.76
|
|
|
$
|
0.89
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
80
|
%
|
|
|
85
|
%
|
|
|
85
|
%
|
|
|
70
|
%
|
|
|
90
|
%
|
|
|
85
|
%
|
Risk free interest rate
|
|
|
1.64
|
%
|
|
|
1.67
|
%
|
|
|
1.58
|
%
|
|
|
1.06
|
%
|
|
|
0.85
|
%
|
|
|
0.81
|
%
|
Expected life of warrant (years)
|
|
|
3.1
|
|
|
|
3.9
|
|
|
|
4.0
|
|
|
|
0.3
|
|
|
|
1.0
|
|
|
|
1.1
|
|
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 September 30, 2017, the fair value of the warrant liability was $2.0 million, which resulted in non-cash
expense of $1.0 million for the three months ended September 30, 2017 and non-cash income of $0.2 million for nine months ended
September 30, 2017. At September 30, 2016, the fair value of the warrant liability was $6.9 million, which resulted in non-cash
income of $0.7 million and $3.7 million for the three and nine months ended September 30, 2016, respectively. In accordance
with 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:
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
|
Issuance
Date
|
|
Closing stock price
|
|
$
|
0.93
|
|
|
$
|
0.76
|
|
|
$
|
1.75
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
85
|
%
|
|
|
95
|
%
|
|
|
95
|
%
|
Risk free interest rate
|
|
|
1.48
|
%
|
|
|
1.41
|
%
|
|
|
1.39
|
%
|
Expected life of warrant (years)
|
|
|
2.0
|
|
|
|
2.8
|
|
|
|
5.0
|
|
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
|
|
|
(2,157
|
)
|
Balance at September 30, 2017
|
|
$
|
12,664
|
|
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 expired on October 25, 2017. Since these warrants were granted as part of an equity raise, the Company has treated them as
a direct offering cost. Warrants outstanding as of September 30, 2017 were 311,834.
A summary of warrant activity for the Company for the nine months ended September 30, 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 September 30, 2017
|
|
|
57,341,642
|
|
|
$
|
1.60
|
|
A summary of all outstanding and exercisable
warrants as of September 30, 2017 is as follows:
Exercise Price
|
|
|
Warrants
Outstanding
|
|
|
Warrants
Exercisable
|
|
|
Weighted Average
Remaining
Contractual Life (years)
|
|
$
|
1.43
|
|
|
|
25,000,000
|
|
|
|
25,000,000
|
|
|
|
3.14
|
|
$
|
1.60
|
|
|
|
311,834
|
|
|
|
311,834
|
|
|
|
0.07
|
|
$
|
1.72
|
|
|
|
25,000,000
|
|
|
|
25,000,000
|
|
|
|
0.25
|
|
$
|
1.75
|
|
|
|
7,029,808
|
|
|
|
7,029,808
|
|
|
|
2.03
|
|
$
|
1.60
|
|
|
|
57,341,642
|
|
|
|
57,341,642
|
|
|
|
1.73
|
|
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. Included in net loss is the deemed dividend from
preferred shares issuance of $6.9 million for the three and nine months ended September 30, 2017. The deemed dividend relates
to the discount provided to preferred stockholders upon conversion of their preferred stock to common shares and is subtracted
from net loss (see Note 9). 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 and nine months ended
September 30, 2017 were 11,219,015 and 57,341,642, respectively, and for the three and nine months ended September 30, 2016 were
8,513,552 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, Inc. and Subsidiaries for the three and nine months ended September 30, 2017 and 2016
(in
thousands except share and per share amounts)
:
|
|
Three months ended September 30, 2017
|
|
|
Nine months ended September 30, 2017
|
|
|
|
Net loss
(Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per Share
Amount
|
|
|
Net Loss
(Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per Share
Amount
|
|
Net loss - Basic
|
|
$
|
(17,823
|
)
|
|
|
128,279,674
|
|
|
$
|
(0.14
|
)
|
|
$
|
(24,925
|
)
|
|
|
122,950,397
|
|
|
$
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive shares related to warrants
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss - Dilutive
|
|
$
|
(17,823
|
)
|
|
|
128,279,674
|
|
|
$
|
(0.14
|
)
|
|
$
|
(24,925
|
)
|
|
|
122,950,397
|
|
|
$
|
(0.20
|
)
|
|
|
Three months ended September 30, 2016
|
|
|
Nine months ended September 30, 2016
|
|
|
|
Net loss
(Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per Share
Amount
|
|
|
Net Loss
(Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per Share
Amount
|
|
Net loss - Basic
|
|
$
|
(8,353
|
)
|
|
|
91,441,687
|
|
|
$
|
(0.09
|
)
|
|
$
|
(24,880
|
)
|
|
|
91,095,990
|
|
|
$
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive shares related to warrants
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss - Dilutive
|
|
$
|
(8,353
|
)
|
|
|
91,441,687
|
|
|
$
|
(0.09
|
)
|
|
$
|
(24,880
|
)
|
|
|
91,095,990
|
|
|
$
|
(0.27
|
)
|
8. Non-controlling Interest
The Company’s non-controlling interest
is accounted for under ASC 810,
Consolidation
, 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 and nine months ended September 30, 2017, the accumulated
net loss attributable to the non-controlling interest was $8,000 and $280,000, respectively.
9. Common and Preferred Stock
Series A Preferred Stock
On September 11, 2017, the Company entered into a share purchase
agreement (the “Purchase Agreement”) with an accredited investor (the “Investor”), pursuant to which the
Company offered and sold in a private placement 120,000 shares of its Series A Convertible Preferred Stock, par value $0.001 per
share (the “Series A Preferred Stock”) for an aggregate purchase price of $12 million, or $100 per share.
The Series A Preferred Stock ranks senior to the shares of the Company’s common stock, and any other
class or series of stock issued by the Company with respect to dividend rights, redemption rights and rights on the distribution
of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. Holders of Series
A Preferred Stock are entitled to a cumulative dividend at the rate of 2.0% per annum, payable quarterly in arrears, as set
forth in the Certificate of Designation of Series A Preferred Stock classifying the Series A Preferred Stock. The Series A Preferred
Stock is convertible at the option of the holders at any time into shares of common stock at an initial conversion price of $0.54
per share, subject to certain customary anti-dilution adjustments.
Any conversion of Series A Preferred Stock may be settled by the Company in shares of common stock only.
The holder’s ability to convert the Series
A Preferred Stock into common stock is subject to (i) a 19.99% blocker provision to comply with NYSE American Listing Rules,
(ii) if so elected by the Investor, a 4.99% blocker provision that will prohibit beneficial ownership of more than 4.99% of
the outstanding shares of the Company’s common stock or voting power at any time, and (iii) applicable regulatory restrictions.
In the event of any liquidation, dissolution
or winding-up of the Company, holders of the Series A Preferred Stock are entitled to a preference on liquidation equal to the
greater of (i) an amount per share equal to the stated value plus any accrued and unpaid dividends on such share of Series A Preferred
Stock (the “Accreted Value”), and (ii) the amount such holders would receive in such liquidation if they converted
their shares of Series A Preferred Stock (based on the Accreted Value and without regard to any conversion limitation) into shares
of the common stock immediately prior to any such liquidation, dissolution or winding-up (the greater of (i) and (ii), is referred
to as the “Liquidation Value”).
Except as otherwise required by law, the holders
of Series A Preferred Stock shall have no voting rights, other than customary protections against adverse amendments and issuance
of
pari passu
or senior preferred stock. Upon certain change of control events involving the Company, the Company
will be required to repurchase all of the Series A Preferred Stock at a redemption price equal to the greater of (i) the Accreted
Value and (ii) the amount that would be payable in the change of control (as defined in the Certificate of Designation) in respect
of common stock issuable upon conversion of such share of Series A Preferred Stock if all outstanding shares of Series A Preferred
Stock were converted into common stock immediately prior to the change of control.
On or at any time after (i) the VWAP (as defined
in the Certificate of Designation) for at least twenty (20) trading days in any thirty (30) trading day period is greater than
$2.00, subject to adjustment in the case of stock split, stock dividends or the like the Company has the right, after providing
notice not less than 6 months prior to the redemption date, to redeem, in whole or in part, on a pro rata basis from all holders
thereof based on the number of shares of Series A Preferred Stock then held, the outstanding Series A Preferred Stock, for cash,
at a redemption price per share of Series A Preferred Stock of $225.00, subject to appropriate adjustment in the event of
any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Convertible Preferred
Stock or (ii) the five year anniversary of the issue date, the Company shall have the right to redeem, in whole or in part, on
a pro rata basis from all holders thereof based on the number of shares of Series A Convertible Preferred Stock then held, the
outstanding Series A Preferred Stock, for cash, at a redemption price per share equal to the Liquidation Value.
The Series A Preferred Stock is classified
as temporary equity due to the shares are (i) redeemable based on contingent events outside of the Company’s control and
(ii) convertible immediately and from time to time. Since the effective conversion price of the Series A Preferred Stock is less
than the fair value of the underlying common stock at the date of issuance, there is a beneficial conversion feature (“BCF”)
at the issuance date. Because the Series A Preferred Stock has no stated maturity or redemption date and is immediately convertible
at the option of the holder, the discount created by the BCF is immediately charged to retained earnings as a “deemed dividend”
and impacts EPS. Because the Series A Preferred Stock is not currently redeemable, the discount arising from issuance costs and
allocated to temporary equity will not be accreted until such time redemption becomes probable. The stated dividend rate of 2%
per annum is cumulative, the Company will accrue the dividend on a quarterly basis (in effect accreting the dividend regardless
of declaration because it is declared). Once the dividend is declared, the Company will reclassify the declared amount from temporary
equity to a “dividends payable” liability. When the redemption of the Series A Preferred Stock becomes probable, the
temporary equity will be accreted to redemption value as a “deemed dividend.”
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 and nine months ending September 30, 2017, the Company sold through the FBR Sales
Agreement an aggregate of 0.8 million and 11.0 million shares of the Company’s common stock, and received net proceeds of
approximately $0.4 million and $6.4 million, respectively, before deducting issuance expenses.
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 nine months ended September 30, 2017 and 2016, the Company did
not pay Cedars-Sinai Medical Center for milestone payments related this license agreement.
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
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 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-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),
overgrowth of pathogenic organisms and the emergence of antimicrobial resistance (AMR), and (2) 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). 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:
C- Cedars-Sinai Medical Center Collaboration
I- Intrexon Collaboration
T- The University of Texas at Austin Collaboration
M- Scientific collaboration with Massachusetts General Hospital
Summary of Clinical and Preclinical Programs
Therapeutic Area
|
|
Product
Candidate
|
|
Status
|
|
|
|
|
|
|
|
Prevention of CDI, overgrowth of pathogenic organisms and AMR (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 SYN-004 (ribaxamase) protected and maintained the naturally occurring composition of gut microbes from antibiotic-mediated dysbiosis in treated patients (2Q 2017)
|
|
|
|
|
|
|
|
|
|
|
|
·
|
|
Announced FDA granted Breakthrough Therapy Designation for the prevention of
Clostridium difficile
infection (CDI) (May 2017)
|
|
|
|
|
|
|
|
|
|
|
|
·
|
|
Announced additional results from Phase 2b proof-of-concept
clinical trial funded by a contract awarded by the CDC, demonstrating that SYN-004 (ribaxamase) prevented significant change to
the presence of certain AMR genes in the gut resistome of patients receiving SYN-004 compared to placebo (3Q 2017)
|
|
|
|
|
|
|
|
|
|
|
|
·
|
|
Held
a Type-B multidisciplinary meeting with the FDA to discuss the high-level drug development plan and regulatory pathway
towards marketing approval for SYN-004 (ribaxamase) (3Q 2017)
|
|
|
|
|
|
|
|
|
|
|
|
·
|
|
Expect to share additional results regarding several exploratory endpoints from Phase 2b proof-of-concept clinical trial designed to evaluate SYN-004’s (ribaxamase) ability to protect the gut microbiome from opportunistic bacterial infections and prevent the emergence of antimicrobial resistance (AMR) in the gut microbiome (4Q 2017)
|
|
|
|
|
|
|
|
|
|
|
|
·
|
|
Plan
to continue collaborative discussions with the FDA to solidify details
and components of the drug development plan and regulatory pathway towards marketing approval for SYN-004
(ribaxamase) (1Q 2018)
|
|
|
|
|
|
|
|
|
|
|
|
·
|
|
Plan to initiate Phase 3 clinical trial(s) (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, overgrowth
of pathogenic organisms and AMR (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 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 over 110 U.S. and foreign patents and have over 100 U.S. and foreign patents pending. Our plan
remains focused on the advancement of our two late-stage clinical programs. We continue to actively manage resources in preparation
of the late-stage clinical advancement of our two-lead microbiome-focused clinical programs, including our pursuit of successful
and viable opportunities that will allow us to establish the clinical infrastructure and financial resources necessary to successfully
initiate and complete this plan.
SYN-004 (ribaxamase) — Prevention
of C. difficile infections (CDI), overgrowth by pathogenic organisms, and the emergence of antimicrobial resistance (AMR)
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, overgrowth of pathogenic organisms and the 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 SYN-004 or by its generic name “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 volunteers 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
SYN-004 (ribaxamase) treatment group. Patients receiving SYN-004 (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. Results from this trial also demonstrated that patients administered ribaxamase in conjunction with IV-ceftriaxone
demonstrated comparable cure rates (approximately 99%) for the treatment of primary infection compared to the placebo group.
Preliminary analysis of the data demonstrated
a significant reduction in new colonization by vancomycin-resistant enterococci (VRE) for patients receiving SYN-004 (ribaxamase)
compared to placebo (p-value=0.0002). With agreement from the FDA, the study included a secondary endpoint to assess SYN-004’s
(ribaxamase) 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 SYN-004 (ribaxamase) successfully protected and preserved the naturally
occurring composition of gut microbes in patients receiving SYN-004 (ribaxamase) from the dysbiotic effects of antibiotic-mediated
intravenous ceftriaxone compared to placebo. Results indicate that patients who were administered SYN-004 (ribaxamase) in conjunction
with IV ceftriaxone demonstrated significantly better maintenance of and recovery of the composition and diversity of the gut microbiome,
compared to patients who were administered placebo. Patients receiving SYN-004 (ribaxamase) also demonstrated lower incidences
of new colonization by opportunistic and potentially pathogenic microorganisms, such as VRE, compared to patients who received
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 the ability of SYN-004 (ribaxamase) to protect the gut microbiome from opportunistic bacterial
infections as well as prevent the emergence of antimicrobial resistance in the gut microbiome.
Under a contract funded by the Centers
for Disease Control and Prevention (CDC), we have been examining the gut resistome (the anti-microbial resistance genes of the
gut microbiome) from the patients in our Phase 2b clinical study with ribaxamase. During this study, DNA extracted from 350 longitudinal
fecal samples collected during the study were sequenced by whole genome shotgun sequencing. The DNA sequences were then interrogated
against the Comprehensive Antimicrobial Resistant Database to determine the AMR genes present in the samples. A statistical analysis
was then performed to compare the change in relative abundance of AMR genes of interest in the ribaxamase group vs. the placebo
group. This analysis identified AMR genes that significantly changed from the screening sample to the post antibiotic samples.
These changes included AMR genes that significantly increased and decreased following ceftriaxone treatment. There were approximately
four-fold more genes that changed significantly in the placebo group as compared with the ribaxamase group. Among the genes that
significantly increased in the placebo group are a family of five beta-lactamase genes which is consistent with the selective pressure
from the ceftriaxone administered during the study. There were also several vancomycin resistance genes that increased in the placebo
group which is consistent with the significant increase in colonization by vancomycin resistant enterococci seen in the placebo
patients. The genes that decreased were mostly tetracycline and erythromycin resistance genes that are associated with normal gut
flora. These data are consistent with ribaxamase degrading the ceftriaxone in the upper GI and thus relieving the selective pressure
of the antibiotics on the gut microbiome. We plan to continue collaborative efforts with the CDC to gain public health support
for SYN-004 (ribaxamase).
On May 11, 2017, we announced that the
FDA granted a Breakthrough Therapy Designation (BTD) to SYN-004 (ribaxamase) for the prevention of
Clostridium difficile
infection (CDI). The Breakthrough Therapy Designation is based on data from the successful Phase 2b clinical trial of SYN-004 (ribaxamase),
which met its primary endpoint of significantly reducing CDI. FDA Breakthrough Therapy Designation is intended to expedite development
and review timelines when preliminary clinical evidence indicates that a drug may demonstrate substantial improvement on one or
more clinically significant endpoints over available therapies for serious or life-threatening diseases. Following BTD, we engaged
in a Type-B Multidisciplinary meeting with the FDA, focused upon a high-level drug development plan and pathway to marketing approval
for SYN-004 (ribaxamase). Discussions at the meeting included, the preliminary structure of a potential Phase 3 trial(s) we anticipate
conducting as well as cGMP and CMC considerations. We plan to continue collaborative discussions with the FDA to solidify the details
and components of the Phase 3 drug development plan and regulatory pathway towards marketing approval for SYN-004 (ribaxamase),
and expect to initiate a Phase 3 trial(s) in 2018 or later, 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.
If approved by the FDA, SYN-004 (ribaxamase) would be the first available drug designed to prevent
Clostridium difficile
infection by protecting the gut microbiome from antibiotic-mediated dysbiosis.
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.
Allowance of Key U.S. Patent
On June 27, 2017, we announced that the U.S.
Patent and Trademark Office (USPTO) issued a Notice of Allowance for a patent which covers the use of the active agent of SYN-010,
our proprietary, modified-release formulation of lovastatin lactone, for the treatment of constipation. Upon issuance, this patent
will strengthen the intellectual property estate covering the use of SYN-010 for the treatment of IBS-C until at least 2034, affording
us an extended term for commercialization.
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 intended to further evaluate the efficacy and safety of SYN-010. Our
plan to initiate the Phase 2b/3 adaptive design study is 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; and
|
|
·
|
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, overgrowth of pathogenic organisms and the emergence of antimicrobial resistance (AMR)
We are currently developing two pipeline
products to expand the potential utility of our beta-lactamase strategy. The first, termed SYN-007, is a specially formulated version
of SYN-004 (ribaxamase) designed to degrade orally administered beta-lactam antibiotics to protect the gut microbiome from antibiotic-mediated
dysbiosis. SYN-007 is formulated for release in the distal small intestine to allow systemic absorption of the oral antibiotic
while still providing protection upstream of the colon and to the gut microbiome. SYN-007 is designed for patients who have been
administered SYN-004 (ribaxamase) in combination with intravenous beta-lactam antibiotics and who are then transferred to an oral
beta-lactam antibiotic, thereby extending gut microbiome protection from antibiotic-mediated dysbiosis. At the recent ID Week 2017
conference, we presented a poster demonstrating that the SYN-007 formulation in development did not substantially interfere with
amoxicillin absorption in our porcine or canine models. Preclinical work is ongoing to determine the ability of SYN-007 to degrade
oral beta-lactam antibiotics and protect the gut microbiome from antibiotic-mediated dysbiosis, including microbiome analyses from
the porcine and canine models.
SYN-006 — Prevention
of CDI, overgrowth of pathogenic organisms and the emergence of antimicrobial resistance (AMR)
The second pipeline product, termed SYN-006, has the potential to further expand the utility of our SYN-004
(ribaxamase) program to a broader spectrum of IV beta-lactam antibiotics in the GI tract to include carbapenem antibiotics. Carbapenems
are broad-spectrum beta lactam antibiotics that have been shown to significantly damage the gut microbiome, incur a high risk for
C. difficile
infection, and enable GI overgrowth with multidrug resistant organisms. Carbapenems are frequently a last line
of defense antibiotic, therefore the emergence and spread of carbapenem resistance is very worrisome. SYN-006 is a carbapenemase
designed to degrade intravenous (IV) carbapenem antibiotics within the GI tract to maintain the natural balance of the gut microbiome
for the prevention of CDI, overgrowth of pathogenic organisms and the emergence of antimicrobial resistance (AMR). It is anticipated
that, by protecting the gut microbiome from exposure to carbapenem antibiotics, SYN-006 may potentially diminish the spread of
such resistance. At the recent ID Week 2017 conference, we presented a poster demonstrating SYN-006’s broad activity against
four carbapenem antibiotics as well as efficacy in a canine model. The poster also showed that the carbapenem, ertapenem, potently
damaged gut microbiomes and mediated expansion of antibiotic resistance genes in the porcine GI tract. Preclinical work is ongoing
to determine the ability of SYN-006 to degrade intravenous carbapenem antibiotics and protect the gut microbiome from antibiotic-mediated
dysbiosis.
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 over 110 U.S. and foreign patents and over 100 U.S. and foreign patents pending. For instance, U.S. Patent Nos.
8,894,994 and 9,587,234, which include claims to compositions of matter and pharmaceutical compositions of beta-lactamases, including
SYN-004 (ribaxamase), have patent terms 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 SYN-004 (ribaxamase), in protecting the microbiome, and U.S. Patent
Nos. 9,290,754, 9,376,673, 9,404,103, 9,464,280, and 9,695,409 which, will expire in at least 2035, covers further beta-lactamase
compositions of matter related to SYN-004 (ribaxamase). Also, U.S. Patent No. 9,192,618, which expires in at least 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 at
least 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. U.S. Patent No. 9,744,208 covers methods of use of the active agent of SYN-010 for the treatment
of constipation until at least 2034. Pending applications US 14/826,115 and various foreign equivalent applications cover SYN-010
formulations and, if issued, 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 may
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 September 30, 2017
and 2016
General and Administrative Expenses
General and administrative expenses decreased
by 19% to $1.7 million for the three months ended September 30, 2017, from $2.1 million for the three months ended September 30,
2016. This decrease is primarily the result of higher salary expense and related benefits costs incurred in 2016 in connection
with the transition of the administrative and financial office to our Maryland headquarters, along with the reduction of travel,
registration fees, and legal expenses in 2017. The charge related to stock-based compensation expense was $583,000 for the three
months ended September 30, 2017, compared to $524,000 the three months ended September 30, 2016.
Research and Development Expenses
Research and development expenses
decreased by 41% to $4.1 million for the three months ended September 30, 2017, from $7.1 million for the three months ended
September 30, 2016. This decrease is primarily the result of lower SYN-004 (ribaxamase) and SYN-010 program costs. In
addition, there were reductions in our other research and development activities, offset by an increase in indirect costs for
manufacturing and medical affairs. The charge related to stock-based compensation expense was $317,000 for the three months
ended September 30, 2017, compared to $422,000 for the three months ended September 30, 2016.
The following table sets forth our research
and development expenses directly related to our therapeutic areas for the three months ended September 30, 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
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
Ribaxamase
|
|
$
|
119
|
|
|
$
|
3,190
|
|
SYN-010
|
|
|
67
|
|
|
|
1,181
|
|
SYN-005
|
|
|
17
|
|
|
|
33
|
|
Other therapeutic areas
|
|
|
(2
|
)
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
Total direct costs
|
|
|
201
|
|
|
|
4,419
|
|
Total indirect costs
|
|
|
3,936
|
|
|
|
2,642
|
|
|
|
|
|
|
|
|
|
|
Total Research and Development
|
|
$
|
4,137
|
|
|
$
|
7,061
|
|
Other Income/Expense
Other expense was $5.1 million for the three
months ended September 30, 2017, compared to other income of $0.7 million for the three months ended September 30, 2016. Other
expense for the three months ended September 30, 2017 is primarily comprised of non-cash expense of $5.1 million 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
prior quarter.
Net Loss Attributable to Common Stockholders
Our net loss attributable to common stockholders
was $17.8 million, or $0.14 per basic and dilutive common share for the three months ended September 30, 2017, compared to a net
loss of $8.4 million, or $0.09 per basic common share and dilutive common share for the three months ended September 30, 2016.
Nine Months Ended September 30, 2017
and 2016
General and Administrative Expenses
General and administrative expenses decreased
to $5.4 million for the nine months ended September 30, 2017, from $6.7 million for the nine months ended September 30, 2016. This
decrease of 18% is primarily the result of higher salary expense and related benefits costs incurred in 2016 in connection
with the transition of the administrative and financial office to our Maryland headquarters, together with a decrease in travel,
registration fees, and legal costs in 2017. The charge relating to stock-based compensation expense was $1.8 million for the nine
months ended September 30, 2017, compared to $1.7 million for the nine months ended September 30, 2016.
Research and Development Expenses
Research and development expenses
decreased to $15.0 million for the nine months ended September 30, 2016, from $22.4 million for the nine months
ended September 30, 2016. This decrease of 33% is primarily the result of lower SYN-004 (ribaxamase) and SYN-010 program
costs. In addition, there were reductions in our other research and development activities, offset by an increase in indirect
costs for manufacturing and medical affairs. Research and development expenses also include a charge relating to stock-based
compensation expense of $1.1 million for the nine months ended September 30, 2017, compared to $1.2 million for the nine
months ended September 30, 2016.
The following table sets forth our research
and development expenses directly related to our therapeutic areas for the nine months ended September 30, 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
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
Ribaxamase
|
|
$
|
1,251
|
|
|
$
|
8,453
|
|
SYN-010
|
|
|
2,437
|
|
|
|
3,916
|
|
SYN-005
|
|
|
38
|
|
|
|
45
|
|
Other therapeutic areas
|
|
|
(3
|
)
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
Total direct costs
|
|
|
3,723
|
|
|
|
12,508
|
|
Total indirect costs
|
|
|
11,305
|
|
|
|
9,872
|
|
|
|
|
|
|
|
|
|
|
Total Research and Development
|
|
$
|
15,028
|
|
|
$
|
22,380
|
|
Other Income
Other income was $2.2 million for the nine
months ended September 30, 2017, compared to other income of $3.7 million for the nine months ended September 30, 2016. Other
income for the nine months ended September 30, 2017 is primarily comprised of non-cash income of $2.2 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 December
31, 2016.
Net Loss Attributable to Common Stockholders
Our net loss attributable to common stockholders
was $24.9 million, or $0.20 per basic and dilutive common share for the nine months ended September 30, 2017, compared to a net
loss of $24.9 million, or $0.27 per basic and dilutive common share for the nine months ended September 30, 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 a private placement of our preferred
stock, and we expect to continue to seek to obtain the required capital in a similar manner. We have incurred an accumulated deficit
of $197.0 million as of September 30, 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, including our planned Phase 2b/3 and Phase
3 clinical trials. 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 $21.1
million as of September 30, 2017, an increase of $2.0 million from December 31, 2016. During the nine months ended September
30, 2017, the primary use of cash was for working capital requirements and operating activities which resulted in a net loss of
$18.3 million for the nine months ended September 30, 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 and other funding received 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.
Series A Preferred Stock Offering
On September 11, 2017, we entered into a share
purchase agreement with an accredited investor pursuant to which we offered and sold in a private placement 120,000 shares of our
Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”), for an aggregate
purchase price of $12 million, or $100 per share. The use of proceeds from the sale of the Series A Preferred Stock is for working
capital purposes.
Current and Future Financing Needs
Based on our current plans, despite the proceeds
from the sale of the Series A Preferred Stock, our cash and cash equivalents will not be sufficient to enable us to meet our financing
needs required to complete our anticipated clinical trial and other 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. Our plan to initiate
the planned clinical trials is 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 order to continue
the development of our current product candidates as currently planned, including commencing our planned Phase 2b/3 and Phase
3 clinical trials, and to continue to fund operations at the current cash expenditure levels, we are required to obtain additional
funding, although we do not currently have commitments from any third parties to provide us with capital. Potential sources of
financing that we are pursuing 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, including manufacturing activities, 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:
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the progress of our research activities;
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the number and scope of our research programs;
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the progress of our preclinical and clinical development activities;
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the progress of the development efforts of parties with whom we have entered into research and development
agreements and amount of funding received from partners and collaborators;
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our ability to maintain current research and development licensing arrangements and to establish new research and development and licensing arrangements;
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our ability to achieve our milestones under licensing arrangements;
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the costs associated with manufacturing-related services to produce material for use in our clinical trials;
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the costs involved in prosecuting and enforcing patent claims and other intellectual property rights; and
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the costs and timing of regulatory approvals.
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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. 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 net proceeds of approximately $1,550,197. During the
nine months ended September 30, 2017, we sold through the FBR Sales Agreement an aggregate of 10.9 million shares of our common
stock, and received net proceeds of approximately $6.4 million. During the nine months ended September 30, 2017, our only sources
of funding was from the sale of $12 million of our Series A Preferred Stock and sales of common stock through the FBR Sales Agreement.
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 funding 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 nine months ended September 30,
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.