UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20172020
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 |
For the transition period from ____________ to ____________
Commission File Number: 001-12584
SYNTHETIC BIOLOGICS, INC.
(Exact name of Registrant as Specified in Its Charter)
| Nevada | 13-3808303 |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
| 9605 Medical Center Drive, Suite 270 | |
| Rockville, MD | 20850 |
| (Address of Principal Executive Offices) | (Zip Code) |
(301) 417-4364
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock | SYN | NYSE American |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated file,filer, a non-accelerated file,filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer, “accelerated filer”filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large | ¨ | Accelerated | ¨ | |||
| Non-accelerated Filer | x | Smaller Reporting Company | x | |||
| Emerging growth company | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
As of October 31, 2017,November 6, 2020, the registrant had 128,566,88319,993,390 shares of common stock, $0.001 par value per share, outstanding.
SYNTHETIC BIOLOGICS, INC.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In particular, statements contained in this Quarterly Report on Form 10-Q, including but not limited to, statements regarding the timing of our clinical trials, the development and commercialization of our pipeline products, the sufficiency of our cash, our ability to finance our operations and business initiatives and obtain funding for such activities and the timing of any such financing, our future results of operations and financial position, business strategy and plan prospects, or costs and objectives of management for future research, development or operations, are forward-looking statements. These forward-looking statements relate to our future plans, objectives, expectations and intentions and may be identified by words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “seeks,” “goals,” “estimates,” “predicts,” “potential” and “continue” or similar words. Readers are cautioned that these forward-looking statements are based on our current beliefs, expectations and assumptions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below, under Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, and those identified under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20162019 (the “2019 Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on March 2, 2017 (“2016 Form 10-K”).February 20, 2020. Therefore, actual results may differ materially and adversely from those expressed, projected or implied in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.
NOTE REGARDING COMPANY REFERENCES
Throughout this Quarterly Report on Form 10-Q, “Synthetic Biologics,” the “Company,” “we,” “us” and “our” refer to Synthetic Biologics, Inc.
NOTE REGARDING TRADEMARKS
All trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.
SYNTHETIC BIOLOGICS, INC.
FORM 10-Q
TABLE OF CONTENTS
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Synthetic Biologics, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands except share and per sharepar value amounts)
| September 30, 2017 | December 31, 2016 | September 30, 2020 | December 31, 2019 | |||||||||||||
| Assets | ||||||||||||||||
| Current Assets: | ||||||||||||||||
| Current Assets | ||||||||||||||||
| Cash and cash equivalents | $ | 21,050 | $ | 19,055 | $ | 6,005 | $ | 15,045 | ||||||||
| Prepaid expenses and other current assets | 1,263 | 2,515 | 657 | 1,381 | ||||||||||||
| Total Current Assets | 22,313 | 21,570 | 6,662 | 16,426 | ||||||||||||
| Property and equipment, net | 943 | 905 | 202 | 367 | ||||||||||||
| Right of use asset | 316 | 419 | ||||||||||||||
| Deposits and other assets | 23 | 23 | 23 | 23 | ||||||||||||
| Total Assets | $ | 23,279 | $ | 22,498 | $ | 7,203 | $ | 17,235 | ||||||||
| Liabilities and Stockholders’ (Deficit) Equity | ||||||||||||||||
| Liabilities and Stockholders' Deficit | ||||||||||||||||
| Current Liabilities: | ||||||||||||||||
| Accounts payable | $ | 1,097 | $ | 1,993 | $ | 992 | $ | 2,315 | ||||||||
| Accrued expenses | 2,070 | 2,627 | 988 | 1,776 | ||||||||||||
| Warrant liabilities | 12,664 | 14,821 | ||||||||||||||
| Accrued employee benefits | 1,606 | 313 | 752 | 935 | ||||||||||||
| Deferred rent | 88 | 3 | ||||||||||||||
| Lease liability | 278 | 249 | ||||||||||||||
| Total Current Liabilities | 17,525 | 19,757 | 3,010 | 5,275 | ||||||||||||
| Long term deferred rent | 426 | 492 | ||||||||||||||
| Lease liability - Long term | 261 | 473 | ||||||||||||||
| Total Liabilities | 17,951 | 20,249 | 3,271 | 5,748 | ||||||||||||
| Series A convertible preferred stock, $0.001 par value; 10,000,000 and zero shares authorized; 120,000 and zero shares issued and outstanding | 11,992 | - | ||||||||||||||
| Stockholders’ Equity: | ||||||||||||||||
| 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 | ||||||||||||||
| Series A convertible preferred stock, $0.001 par value; 10,000,000 shares authorized; 120,000 issued and outstanding | 12,733 | 12,544 | ||||||||||||||
| Stockholders' Deficit: | ||||||||||||||||
| Series B convertible preferred stock, $1,000 par value; 10,000,000 shares authorized, 4,146 issued and outstanding and 7,638 issued and outstanding | 2,584 | 4,761 | ||||||||||||||
| Common Stock, $0.001 par value; 200,000,000 shares authorized, 19,845,283 and 16,808,758 issued and 19,842,955 and 16,806,430 outstanding | 20 | 17 | ||||||||||||||
| Additional paid-in capital | 192,042 | 175,762 | 236,320 | 232,580 | ||||||||||||
| Accumulated deficit | (196,959 | ) | (172,034 | ) | (244,975 | ) | (235,537 | ) | ||||||||
| Total Synthetic Biologics, Inc. and Subsidiaries (Deficit) Equity | (4,788 | ) | 3,845 | |||||||||||||
| Total Synthetic Biologics, Inc. and Subsidiaries Deficit | (6,051 | ) | 1,821 | |||||||||||||
| Non-controlling interest | (1,876 | ) | (1,596 | ) | (2,750 | ) | (2,878 | ) | ||||||||
| Total Stockholders’ (Deficit) Equity | (6,664 | ) | 2,249 | |||||||||||||
| Total Stockholders' Deficit | (8,801 | ) | (1,057 | ) | ||||||||||||
| Total Liabilities and Stockholders’ (Deficit) Equity | $ | 23,279 | $ | 22,498 | ||||||||||||
| Total Liabilities and Stockholders' Deficit | $ | 7,203 | $ | 17,235 | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
Synthetic Biologics, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
| For the three months ended September 30, | For the nine months ended September 30, | For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
| Operating Costs and Expenses: | ||||||||||||||||||||||||||||||||
| General and administrative | $ | 1,705 | $ | 2,095 | $ | 5,440 | $ | 6,668 | $ | 1,197 | $ | 1,098 | $ | 3,876 | $ | 3,297 | ||||||||||||||||
| Research and development | 4,137 | 7,061 | 15,028 | 22,380 | 914 | 4,144 | 4,152 | 9,156 | ||||||||||||||||||||||||
| Total Operating Costs and Expenses | 5,842 | 9,156 | 20,468 | 29,048 | 2,111 | 5,242 | 8,028 | 12,453 | ||||||||||||||||||||||||
| Loss from Operations | (5,842 | ) | (9,156 | ) | (20,468 | ) | (29,048 | ) | (2,111 | ) | (5,242 | ) | (8,028 | ) | (12,453 | ) | ||||||||||||||||
| Other (Expense) Income: | ||||||||||||||||||||||||||||||||
| Change in fair value of warrant liability | (5,092 | ) | 666 | 2,157 | 3,681 | |||||||||||||||||||||||||||
| Other Income: | ||||||||||||||||||||||||||||||||
| Interest income | 4 | 1 | 7 | 36 | - | 92 | 44 | 217 | ||||||||||||||||||||||||
| Total Other (Expense) Income | (5,088 | ) | 667 | 2,164 | 3,717 | |||||||||||||||||||||||||||
| Total Other Income | - | 92 | 44 | 217 | ||||||||||||||||||||||||||||
| Net Loss | (10,930 | ) | (8,489 | ) | (18,304 | ) | (25,331 | ) | (2,111 | ) | (5,150 | ) | (7,984 | ) | (12,236 | ) | ||||||||||||||||
| Net Loss Attributable to Non-controlling Interest | (8 | ) | (136 | ) | (280 | ) | (451 | ) | (8 | ) | (30 | ) | (50 | ) | (73 | ) | ||||||||||||||||
| Net Loss Attributable to Synthetic Biologics, Inc. and Subsidiaries | $ | (10,922 | ) | $ | (8,353 | ) | $ | (18,024 | ) | $ | (24,880 | ) | $ | (2,103 | ) | $ | (5,120 | ) | $ | (7,934 | ) | $ | (12,163 | ) | ||||||||
| Series A Preferred Stock Dividends | (6,901 | ) | - | (6,901 | ) | - | (64 | ) | (63 | ) | (189 | ) | (185 | ) | ||||||||||||||||||
| Series B Preferred Stock Dividends | (519 | ) | (70 | ) | (1,315 | ) | (585 | ) | ||||||||||||||||||||||||
| Net Loss Attributable to Common Stockholders | $ | (17,823 | ) | $ | (8,353 | ) | $ | (24,925 | ) | $ | (24,880 | ) | $ | (2,686 | ) | $ | (5,253 | ) | $ | (9,438 | ) | $ | (12,933 | ) | ||||||||
| Net Loss Per Share - Basic and Dilutive | $ | (0.14 | ) | $ | (0.09 | ) | $ | (0.20 | ) | $ | (0.27 | ) | $ | (0.14 | ) | $ | (0.31 | ) | $ | (0.52 | ) | $ | (0.79 | ) | ||||||||
| Weighted average number of shares outstanding during the period - Basic and Dilutive | 128,279,674 | 91,441,687 | 122,950,397 | 91,095,990 | 19,398,339 | 16,805,257 | 18,302,585 | 16,313,326 | ||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 4 |
Synthetic Biologics, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders Equity (Deficit)
(In thousands, except share and par value amounts)
| Common Stock | Series B Preferred | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | APIC | Accumulated Deficit | Non- Controlling Interest | Total Stockholders' Equity (Deficit) | |||||||||||||||||||||||||
| Balance at December 31, 2019 | 16,806,430 | $ | 17 | 7,638 | $ | 4,761 | $ | 232,580 | $ | (235,537 | ) | $ | (2,878 | ) | $ | (1,057 | ) | |||||||||||||||
| Stock-based compensation | - | - | - | - | 83 | - | - | 83 | ||||||||||||||||||||||||
| Series A Preferred Stock Dividends ($0.01 per share) | - | - | - | - | - | (62 | ) | - | (62 | ) | ||||||||||||||||||||||
| Issuance of SYN Biomics Stock | - | - | - | - | - | 26 | 26 | |||||||||||||||||||||||||
| Conversion of Series B Preferred Stock to Common ($0.03 per share) | 933,045 | 1 | (1,073 | ) | (669 | ) | 1,072 | (404 | ) | - | - | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (2,964 | ) | - | (2,964 | ) | ||||||||||||||||||||||
| Non-controlling interest | - | - | - | - | - | - | (26 | ) | (26 | ) | ||||||||||||||||||||||
| Balance at March 31, 2020 | 17,739,475 | $ | 18 | 6,565 | $ | 4,092 | $ | 233,735 | $ | (238,967 | ) | $ | (2,878 | ) | $ | (4,000 | ) | |||||||||||||||
| Stock-based compensation | - | - | - | - | 86 | - | - | 86 | ||||||||||||||||||||||||
| Series A Preferred Stock Dividends ($0.01 per share) | - | - | - | - | - | (63 | ) | - | (63 | ) | ||||||||||||||||||||||
| Issuance of SYN Biomics Stock | - | - | - | - | - | - | 10 | 10 | ||||||||||||||||||||||||
| Conversion of Series B Preferred Stock to Common ($0.03 per share) | 904,349 | 1 | (1,040 | ) | (648 | ) | 1,039 | (392 | ) | - | - | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (2,867 | ) | - | (2,867 | ) | ||||||||||||||||||||||
| Non-controlling interest | - | - | - | - | - | - | (16 | ) | (16 | ) | ||||||||||||||||||||||
| Balance at June 30, 2020 | 18,643,824 | $ | 19 | 5,525 | $ | 3,444 | $ | 234,860 | $ | (242,289 | ) | $ | (2,884 | ) | $ | (6,850 | ) | |||||||||||||||
| Stock-based compensation | - | - | - | - | 82 | - | - | 82 | ||||||||||||||||||||||||
| Series A Preferred Stock Dividends ($0.01 per share) | - | - | - | - | - | (64 | ) | - | (64 | ) | ||||||||||||||||||||||
| Issuance of SYN Biomics Stock | - | - | - | - | - | - | 142 | 142 | ||||||||||||||||||||||||
| Conversion of Series B Preferred Stock to Common ($0.03 per share) | 1,199,131 | 1 | (1,379 | ) | (860 | ) | 1,378 | (519 | ) | - | - | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (2,103 | ) | - | (2,103 | ) | ||||||||||||||||||||||
| Non-controlling interest | - | - | - | - | - | - | (8 | ) | (8 | ) | ||||||||||||||||||||||
| Balance at September 30, 2020 | 19,842,955 | $ | 20 | 4,146 | $ | 2,584 | $ | 236,320 | $ | (244,975 | ) | $ | (2,750 | ) | $ | (8,801 | ) | |||||||||||||||
| Common Stock | Series B Preferred | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | APIC | Accumulated Deficit | Non- Controlling Interest | Total Stockholders' Equity (Deficit) | |||||||||||||||||||||||||
| Balance at December 31, 2018 | 15,482,083 | $ | 15 | 9,161 | $ | 5,760 | $ | 230,754 | $ | (219,461 | ) | $ | (2,909 | ) | $ | 14,159 | ||||||||||||||||
| Stock-based compensation | - | - | - | - | 64 | - | - | 64 | ||||||||||||||||||||||||
| Series A Preferred Stock Dividends ($0.01 per share) | - | - | - | - | - | (61 | ) | - | (61 | ) | ||||||||||||||||||||||
| Issuance of SYN Biomics Stock | - | - | - | - | (36 | ) | - | 53 | 17 | |||||||||||||||||||||||
| Conversion of Series B Preferred Stock to Common ($0.03 per share) | 900,869 | 1 | (1,036 | ) | (638 | ) | 1,035 | (398 | ) | - | - | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (3,512 | ) | - | (3,512 | ) | ||||||||||||||||||||||
| Non-controlling interest | - | - | - | - | - | - | (16 | ) | (16 | ) | ||||||||||||||||||||||
| Balance at March 31, 2019 | 16,382,952 | $ | 16 | 8,125 | $ | 5,122 | $ | 231,817 | $ | (223,432 | ) | $ | (2,872 | ) | $ | 10,651 | ||||||||||||||||
| Stock-based compensation | - | - | - | - | 91 | - | - | 91 | ||||||||||||||||||||||||
| Series A Preferred Stock Dividends ($0.01 per share) | - | - | - | - | - | (61 | ) | - | (61 | ) | ||||||||||||||||||||||
| Issuance of SYN Biomics Stock | - | - | - | - | - | - | 45 | 45 | ||||||||||||||||||||||||
| Conversion of Series B Preferred Stock to Common ($0.03 per share) | 262,608 | 1 | (302 | ) | (187 | ) | 303 | (117 | ) | - | - | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (3,531 | ) | - | (3,531 | ) | ||||||||||||||||||||||
| Non-controlling interest | - | - | - | - | - | - | (27 | ) | (27 | ) | ||||||||||||||||||||||
| Balance at June 30, 2019 | 16,645,560 | $ | 17 | 7,823 | $ | 4,935 | $ | 232,211 | $ | (227,141 | ) | $ | (2,854 | ) | $ | 7,168 | ||||||||||||||||
| Stock-based compensation | - | - | - | - | 91 | - | - | 91 | ||||||||||||||||||||||||
| Series A Preferred Stock Dividends ($0.01 per share) | - | - | - | - | - | (63 | ) | - | (63 | ) | ||||||||||||||||||||||
| Issuance of SYN Biomics Stock | - | - | - | - | - | - | 43 | 43 | ||||||||||||||||||||||||
| Conversion of Series B Preferred Stock to Common ($0.03 per share) | 160,870 | (185 | ) | (113 | ) | 183 | (70 | ) | - | - | ||||||||||||||||||||||
| Net loss | - | - | - | - | - | (5,120 | ) | - | (5,120 | ) | ||||||||||||||||||||||
| Non-controlling interest | - | - | - | - | - | - | (30 | ) | (30 | ) | ||||||||||||||||||||||
| Balance at September 30, 2019 | 16,806,430 | $ | 17 | 7,638 | $ | 4,822 | $ | 232,485 | $ | (232,394 | ) | $ | (2,854 | ) | $ | 2,089 | ||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 5 |
Synthetic Biologics, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands except share and per share amounts)thousands)
(Unaudited)
| For the nine months ended September 30, | ||||||||
| 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: | ||||||||
| Stock-based compensation | 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 | ) | ||||
| 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 | ||||
For the nine months ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | $ | (7,984 | ) | $ | (12,236 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | 251 | 246 | ||||||
| Subsidiary stock issued to vendor | 178 | 104 | ||||||
| Depreciation | 169 | 182 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | 724 | (600 | ) | |||||
| Right of use asset | 103 | 86 | ||||||
| Accounts payable | (1,324 | ) | 1,419 | |||||
| Accrued expenses | (788 | ) | 1,403 | |||||
| Accrued employee benefits | (182 | ) | (713 | ) | ||||
| Lease liability | (183 | ) | (159 | ) | ||||
| Net Cash Used In Operating Activities | (9,036 | ) | (10,268 | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Purchase of property and equipment | (4 | ) | - | |||||
| Net Cash Used In Investing Activities | (4 | ) | - | |||||
| Net Cash From Financing Activities | - | - | ||||||
| Net decrease in cash and cash equivalents | (9,040 | ) | (10,268 | ) | ||||
| Cash and cash equivalents at beginning of period | 15,045 | 28,918 | ||||||
| Cash and cash equivalents at end of period | $ | 6,005 | $ | 18,650 | ||||
| Noncash Financing Activities: | ||||||||
| Conversion of Series B Preferred Stock | $ | 2,177 | $ | 938 | ||||
| Deemed dividends for accretion of Series B Preferred Stock discount | $ | 1,315 | $ | 585 | ||||
| In-kind dividends paid in preferred stock | $ | 189 | $ | 185 | ||||
| Right of use asset from operating lease | $ | - | $ | 538 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 6 |
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 clinicaldiversified clinical-stage company developing therapeutics designed to preserve the microbiome to protectprevent and restore the healthtreat gastrointestinal (GI) diseases in areas of patients.high unmet need. The Company’s lead clinical development 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 ofdegrade certain commonly used intravenous (IV) beta-lactam antibiotics forwithin the prevention ofgastrointestinal (GI) tract to prevent (a) microbiome damage, (b) C.Clostridioides difficile infection (CDI), (c) overgrowth of pathogenic organisms, and(d) the emergence of antimicrobial resistance (AMR), and (e) acute graft-versus-host-disease (aGVHD) in allogeneic hematopoietic cell transplant (HCT) recipients, and (2) SYN-020, a recombinant oral formulation of the enzyme intestinal alkaline phosphatase (IAP) produced under cGMP conditions and intended to treat both local GI and systemic diseases. .
The Company was also developing 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),On September 30, 2020, Cedars Sinai Medical Center’s (CSMC) (the Company’s SYN-010 clinical development partner) informed the Company that it agreed to discontinue the ongoing Phase 2b investigator-sponsored clinical study of SYN-010 IBS-C patients. Based on the results of a planned interim futility analysis, it was concluded that although SYN-010 was well tolerated, it was unlikely to meet its primary endpoint by the time enrollment 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).completed.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SECSecurities and Exchange Commission (“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 20162019 Form 10-K. The interim results for the three and nine months ended September 30, 20172020 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,August 2020, the Financial Accounting Standards Board, (“FASB”)FASB issued Accounting Standards Update (“ASU”) 2017-09,2020-06 Scope of ModificationDebt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (subtopic 815-40): Accounting clarifies Topic 718, Compensation – Stock Compensation, which requires a company to apply modification accounting to changesfor Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the terms or conditions of a share-based payment award unless all ofguidance on convertible instruments and the following criteria are met: (1)derivatives scope exception for contracts in an entity’s own equity and improves and amends the fair value of the modified award is the same as the fair value of the original award immediately before the modification.related EPS guidance for both Subtopics. 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 iswill be effective for all entities for fiscal years beginningannual reporting periods after December 15, 2017, including2023 and interim periods within those years. Earlyannual periods and early adoption is permitted including adoption in an interim period.annual reporting periods ending after December 15, 2020. The Company is currently does not have any modificationsassessing the impact of ASU 2020-06 on our consolidated financial statements.
On January 30, 2020, the World Health Organization (WHO) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the COVID-19 outbreak or “COVID-19”) and the risks to existing stock compensation agreementsthe international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.
On March 27, 2020, the Coronavirus Aid, Relief and will be ableEconomic Security Act (CARES Act) was enacted. The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to calculatestrengthen the United States’ economy and fund a nationwide effort to curtail the effect of COVID-19. While the CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions include removal of certain limitations on utilization of net operating losses, increasing the loss carryback period for certain losses to five years, and increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act. The Company has assessed the impact of the ASU once modifications arise.CARES Act and, based upon our initial assessment, we do not believe that it will have a significant effect on our financial position, results of operations or cash flows. The Company continues to evaluate its impact as new information becomes available.
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.
| 7 |
Synthetic Biologics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Impairment of Long-Lived Assets
Long-lived assets include property, equipment and right-of-use assets. In March 2016,accordance with Accounting Standards Codification (“ASC”) 360 - Property, Plant and Equipment (“ASC 360”), management reviews the FASB issued ASU, No. 2016-09,Compensation - Stock Compensation (Topic 718),Company’s recorded long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The Company determines the extent to which is partan asset may be impaired based upon its expectation of the FASB’s Simplification Initiative.asset’s future usability as well as whether there is reasonable assurance that the future cash flows associated with the asset will be in excess of its carrying amount. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between fair value and the carrying value of the asset. During the quarter ending March 31, 2020 the Company identified COVID-19 as a triggering event and performed a qualitative assessment of the fair value of its long-lived assets. The updated guidance simplifiesresults from this analysis determined that it is still more likely than not that 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 notfair value of its long-lived assets remain higher than the carrying value of these assets. As a result, in significant changes to the recognition and disclosure of stock-based compensation forno impairment charges were recorded during 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:
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.2020.
2. Going Concern
The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has recurringcontinues to incur losses and, as of September 30, 2017,2020, the Company hashad an accumulated deficit of approximately $197.0$245 million. Since inception, the Company has financed its activities principally withprimarily from the proceeds from the issuance of equity securities.
The Company does not have sufficient capital to fund its operations for the next twelve months following the issuance date of its Quarterly Report on Form 10-Q. The Company’s ability to continue as a going concern, address its capital needs, and execute the required clinical trials, is therefore dependent upon the Company’s ability to raiseobtain capital through the issuance of debt and/or additional equity offerings. The Company is actively pursuing additional equity or debt financing in the form of either a private placement or equity capital. Therea public offering and the Company continues ongoing discussions with strategic institutional investors and investment banks with respect to such possible offerings. Included in these options is utilizing the “at-the-market” Issuance Sales Agreement (the “FBR Sales Agreement”) that the Company entered into with B. Riley Securities (formerly FBR Capital Markets & Co.) in August 2016. Nonetheless, there can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to the Company.Company when and if needed or that the Company will meet the requirements for use of the FBR Sales Agreement.
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. These factors individually and collectively, including the Company’s dependence on its ability to raise additional capital to fund its operations for the next twelve months following the issuance date of these financial statements 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.
TheIn January 2020, the World Health Organization declared a global pandemic for the novel strain of coronavirus, COVID-19. Since then, COVID-19 has spread to the United States and countries worldwide. As COVID-19 continues to spread around the globe, the Company does not have sufficient capital to fund its plan of operations over the next twelve months which includes the initiationhas experienced disruptions that impact our business 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, including the Company is actively pursuing additional equity or debt financingtemporary halt of the enrollment of new patients 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 ofits SYN-010 Phase 2b clinical study during the quarter ended June 30, 2010,2020_and the postponement of clinical site initiation for its SYN-004 Phase 1b/2a clinical study. While the Company has incurred negative cash flow fromexperienced limited financial impact at this time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, the Company’s business, financial condition, results of operations since its inception. The Company has spent, and expects to continue to spend, substantial amounts in connection with implementing its business strategy,growth prospects could be materially adversely affected, including its planned product development efforts,ability to raise capital. To maximize patient participation and safeguard the trial’s integrity and patient safety, initiation of the Company’s Phase 1b/2a clinical trials, and research and discovery efforts.study of SYN-004 to be conducted by Washington University in Allogeneic HCT Recipients is deferred until Q1 2021, pandemic conditions permitting.
At September 30, 2017,2020, the Company had cash and cash equivalents of approximately $21.1$6.0 million. Based uponManagement has been able to extend its cash runway since its clinical development partners CSMC and Washington University continued to limit non-essential activities during the Company’sthird quarter, which included the SYN-010 Phase 2b clinical study and SYN-004 Phase 1b/2a clinical study. The Company anticipates its current business plans, managementcash will allow it to cover overhead costs, manufacturing costs for clinical supply, commercial scale up costs and limited research efforts, including funding requirements to initiate its planned Phase 1b/2a clinical study of SYN-004 in allogeneic HCT recipients and Phase 1-enabling assay development and manufacturing of drug supply in support of the planned Phase 1 single ascending dose (SAD) study of SYN-020 intestinal alkaline phosphatase (IAP).
The Company does not believe thatanticipate any additional expense related to the Company’s current cash on hand will be sufficient to execute its near term plans.Phase 1b/2a SYN-004 (ribaxamase) clinical trial until the trial is cleared for commencement by Washington University (expected Q1 2021). Commencement of plannedthe FDA-agreed Phase 3 clinical trialstrial of SYN-004 for the prevention of C. difficile infection in the future 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 ofbeyond its planned Phase 1b/2a clinical trials), if at all,study of SYN-004 in allogeneic HCT recipients, its planned Phase 1 SAD study of SYN-020 IAP in healthy volunteers, 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 fully execute its business plan as planned and will be forced to cease certain development activities (including initiation of planned clinical trials) until funding is receivedreceived.
| 8 |
Synthetic Biologics, Inc. and its business will suffer, which would have a material adverse effectSubsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
2. Going Concern – (continued)
Further, on its financial position,September 30, 2020, the Company and CSMC agreed to discontinue the ongoing Phase 2b investigator -sponsored clinical study of SYN-010 following the results of operations and cash flows. Clinicala planned interim futility analysis. Although it was concluded that SYN-010 was well tolerated, it was also concluded that SYN-010 is unlikely to meet its primary endpoint by the time enrollment is completed. The Company anticipates additional reductions in clinical development will resume once sufficient funding is available. These factors raise doubt regardingexpense during the Company’s ability to continueremainder of 2020 as a going concern. The condensed consolidated financial statements do not include any adjustments that might result fromof the outcomediscontinuation of this uncertainty.clinical program.
The actual amount of funds the Company will need to operate is subject to many factors, some of which are beyond the Company’sits control. These factors include the following:
| · | the progress of its research activities; |
| · | the number and scope of its research programs; | |
| · | the ability to recruit patients for clinical studies in a timely manner; |
| · | the progress of its 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 manufacturing-related services to produce material for use in |
| · | the costs involved in prosecuting and enforcing patent claims and other intellectual property rights; |
| · | the costs and timing of regulatory |
| · | the ability to commence or complete clinical trials due to the ongoing impact of the COVID-19 global pandemic. |
The Company has based its estimates of funding requirements 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 stockCommon Stock or other securities convertible into common stock,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.
| 9 |
Synthetic Biologics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
3. Fair Value of Financial Instruments
ASC 820, Fair Value of Financial InstrumentsMeasurement
The fair value accounting standards define, defines 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, |
| · | 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$114,000 as of September 30, 20172020 and $98,000 as of December 31, 2016, respectively,2019 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 | September 30, 2020 | December 31, 2019 | |||||||||||||
| Clinical consulting services refund receivable | $ | 612 | $ | - | ||||||||||||
| Prepaid clinical research organizations | $ | 471 | $ | 48 | ||||||||||||
| Prepaid consulting, subscriptions and other expenses | 74 | 134 | ||||||||||||||
| Prepaid insurances | 73 | 549 | ||||||||||||||
| Prepaid manufacturing expenses | 39 | 622 | ||||||||||||||
| Prepaid conferences, travel and other expenses | 406 | 295 | - | 25 | ||||||||||||
| Grant receivable | 130 | 185 | ||||||||||||||
| Prepaid insurances | 69 | 358 | ||||||||||||||
| Prepaid clinical research organizations | 46 | 1,677 | ||||||||||||||
| Other receivables | - | 3 | ||||||||||||||
| Total | $ | 1,263 | $ | 2,515 | $ | 657 | $ | 1,381 | ||||||||
PrepaidAmounts prepaid to clinical research organizations expense is(CROs) were classified as a current asset.assets. The Company makes payments to the clinical research organizationsCROs 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.
| 10 |
Synthetic Biologics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
4. Selected Balance Sheet Information – (continued)
Property and equipment, net (in thousands)
| September 30, 2017 | December 31 2016 | September 30, 2020 | December 31, 2019 | |||||||||||||
| Computer and office equipment | $ | 661 | $ | 641 | ||||||||||||
| Computers and office equipment | $ | 808 | $ | 804 | ||||||||||||
| Leasehold improvements | 439 | 439 | 439 | 439 | ||||||||||||
| Construction in progress | 190 | - | ||||||||||||||
| Software | 11 | 11 | 11 | 11 | ||||||||||||
| 1,258 | 1,254 | |||||||||||||||
| 1,301 | 1,091 | |||||||||||||||
| Less accumulated depreciation and amortization | (358 | ) | (186 | ) | ||||||||||||
| Less: accumulated depreciation and amortization | (1,056 | ) | (887 | ) | ||||||||||||
| Total | $ | 943 | $ | 905 | $ | 202 | $ | 367 | ||||||||
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 | ||||
| September 30, 2020 | December 31, 2019 | |||||||
| Accrued clinical consulting services | $ | 660 | $ | 684 | ||||
| Accrued vendor payments | 309 | 456 | ||||||
| Accrued manufacturing costs | 18 | 635 | ||||||
| Other accrued expenses | 1 | 1 | ||||||
| Total | $ | 988 | $ | 1,776 | ||||
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 | ||||
| September 30, 2020 | December 31, 2019 | |||||||
| Accrued bonus expense | $ | 594 | $ | 858 | ||||
| Accrued vacation expense | 158 | 77 | ||||||
| Total | $ | 752 | $ | 935 | ||||
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 2,500,00071,429 shares of common stockCommon 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, directors 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 wasis determined by the compensation committee of the Board of Directors and shouldmay be equal to or greater than the fair market value of the Company’s common stockCommon Stock on the date the option wasis 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 couldplan shall not exceed 250,000.7,143. Options become exercisable over various periods from the date of grant, and generally expire ten years after the grant date. As of September 30, 2017,2020, there were 743,9247,052 options issued and outstanding under the 2007 Stock Plan.
| 11 |
Synthetic Biologics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
5. Stock-Based Compensation – (continued)
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 3,000,00085,714 shares of common stockCommon 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, directors and consultants of the Company and its subsidiaries. On October 22, 2013, the stockholders approved and adopted an amendment to the Company’s 2010 Stock Plan to increase the number of shares of the Company’s common stockCommon Stock reserved for issuance under the 2010 Stock Plan from 3,000,00085,714 to 6,000,000.171,429. On May 15, 2015, the stockholders approved and adopted an amendment to the Company’s 2010 Stock Plan to increase the number of shares of the Company’s common stockCommon Stock reserved for issuance under the 2010 Stock Plan from 6,000,000171,429 to 8,000,000.228,572. 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 stockCommon Stock reserved for issuance under the 2010 Stock Plan from 8,000,000228,572 to 14,000,000.400,000. 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 stockCommon Stock reserved for issuance under the 2010 Stock Plan from 14,000,000400,000 to 17,500,000.500,000. On September 24, 2018, 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 500,000 to 1,000,000. On September 5, 2019, the stockholders approved and adopted an amendment to the 2010 Stock Plan to increase the number of shares of the Common Stock reserved for issuance under the 2010 Stock Plan from 1,000,000 to 4,000,000. The exercise price of stock options under the 2010 Stock Plan is determined by the compensation committee of the Board of Directors and may be equal to or greater than the fair market value of the Company’s common stockCommon 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, 2017,2020, there were 10,475,0912,453,273 options issued and outstanding under the 2010 Stock Plan.
On September 17, 2020, the stockholders approved and adopted the 2020 Stock Incentive Plan (“2020 Stock Plan”) for the issuance of up to 4,000,000 shares of Common Stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors and consultants of the Company and its subsidiaries. As of September 30, 2020, there were no options issued and outstanding under the 2020 Stock Plan.
In the event of an employee’s termination, the Company will cease to recognize compensation expense for that employee. Stock forfeitures are recognized as incurred. There is no deferred compensation recorded upon initial grant date; instead,date. Instead, the fair value of the stock-based payment is recognized ratablyas compensation expense 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 three and nine months ended September 30, 2017. The Black-Scholes assumptions used in the nine months ended September 30, 20172020 and 2016 are as follows:2019.
| 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 | ||
| 12 |
Synthetic Biologics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
5. Stock-Based Compensation – (continued)
The Company records stock-based compensation based upon the stated vestedvesting provisions in the related agreements. The vesting provisions for these agreements have various terms as follows:
| · | immediate vesting; |
| · |
| · | in full on one-year anniversary of grant date; |
| · | quarterly over three years; |
| · | annually over three years; |
| · | one-third immediate vesting and remaining annually over two years; | |
| · | 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.
| 13 |
Synthetic Biologics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
5. Stock-Based Compensation – (continued)
A summary of stock option activity for the nine months ended September 30, 2020 and the year ended December 31, 2019 is as follows:
| Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||
| Balance - December 31, 2018 | 938,982 | $ | 15.18 | 6.19 years | $ | - | ||||||||
| Granted | 1,725,000 | 0.42 | ||||||||||||
| Exercised | - | - | ||||||||||||
| Expired | (94,738 | ) | 58.25 | |||||||||||
| Forfeited | (67,232 | ) | 5.95 | |||||||||||
| Balance - December 31, 2019 | 2,502,012 | 3.62 | 6.51 years | 153,353 | ||||||||||
| Granted | - | - | ||||||||||||
| Exercised | - | - | ||||||||||||
| Expired | (12,037 | ) | 10.89 | |||||||||||
| Forfeited | (29,650 | ) | 0.55 | |||||||||||
| Balance – September 30, 2020 - outstanding | 2,460,325 | $ | 3.62 | 5.79 years | $ | 96,106 | ||||||||
| Balance – September 30, 2020 - exercisable | 747,781 | $ | 10.80 | 5.14 years | $ | 13,196 | ||||||||
| Grant date fair value of options granted – nine months ended September 30, 2020 | $ | - | ||||||||||||
| Weighted average grant date fair value – nine months ended September 30, 2020 | $ | - | ||||||||||||
| Grant date fair value of options granted – year ended December 31, 2019 | $ | 470,000 | ||||||||||||
| Weighted average grant date fair value – year ended December 31, 2019 | $ | 0.27 | ||||||||||||
Stock-based compensation expense included in general and administrative expenses relating to stock options issued to employees for the three and nine months ended September 30, 2020 was $41,000 and $120,000, respectively, and $59,000 and $165,000 for the three and nine months ended September 30, 2019, respectively. Stock-based compensation expense included in research and development expenses relating to stock options issued to employees for the three and nine months ended September 30, 2020 was $14,000 and $45,000, respectively, and $22,000 and $52,000 for the three and nine months ended September 30, 2019, respectively.
Stock-based compensation expense included in general and administrative expenses relating to stock options issued to consultants for the three and nine months ended September 30, 2020 was $26,000 and $79,000, respectively, and $9,000 and $28,000 for the three and nine months ended September 30, 2019, respectively. Stock-based compensation expense included in research and development expenses relating to stock options issued to consultants for the three and nine months ended September 30, 2020 was $1,000 and $7,000, respectively, and $1,000 for the three and nine months ended September 30, 2019.
| 14 |
Synthetic Biologics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
5. Stock-Based Compensation – (continued)
As of September 30, 2020, total unrecognized stock-based compensation expense related to stock options was $406,000, which is expected to be expensed through August 2022.
The FASB’s guidance for stock-based payments requires cash flows from excess tax benefits to be classified as a part of cash flows from operating activities. Excess tax benefits are realized tax benefits from tax deductions for exercised options in excess of the deferred tax asset attributable to stock compensation costs for such options. The Company did not record any excess tax benefits during the three and nine months ended September 30, 2020 and 2019.
6. Stock Purchase Warrants
On October 15, 2018, the Company closed its underwritten public offering pursuant to which it received gross proceeds of approximately $18.6 million before deducting underwriting discounts, commissions and other offering expenses payable by the Company and sold an aggregate of (i) 2,520,000 Class A Units (the “Class A Units”), with each Class A Unit consisting of one share of Common Stock, and one five-year warrant to purchase one share of Common Stock at an exercise price of $1.38 per share (each a “Warrant” and collectively, the “Warrants”), with each Class A Unit to be offered to the public at a public offering price of $1.15, and (ii) 15,723 Class B Units (the “Class B Units”, and together with the Class A Units, the “Units”), with each Class B Unit offered to the public at a public offering price of $1,000 per Class B Unit and consisting of one share of the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”), with a stated value of $1,000 and convertible into shares of Common Stock at the stated value divided by a conversion price of $1.15 per share, with all shares of Series B Preferred Stock convertible into an aggregate of 13,672,173 shares of Common Stock, and issued with an aggregate of 13,672,173 Warrants. In addition, pursuant to the underwriting agreement that the Company had entered into with A.G.P./Alliance Global Partners (the “Underwriters”), as representative of the underwriters, the Company granted the Underwriters a 45 day option (the “Over-allotment Option”) to purchase up to an additional 2,428,825 shares of Common Stock and/or additional Warrants to purchase an additional 2,428,825 shares of Common Stock. The Underwriters partially exercised the Over-allotment Option by electing to purchase from the Company additional Warrants to purchase 1,807,826 shares of Common Stock.
The Warrants are immediately exercisable at a price of $1.38 per share of Common Stock (which is 120% of the public offering price of the Class A Units) and expire on October 15, 2023. If, at the time of exercise, there is no effective registration statement registering, or no current prospectus available for, the issuance of the shares of Common Stock to the holder, then the Warrants may only be exercised through a cashless exercise. No fractional shares of Common Stock will be issued in connection with the exercise of a Warrant. In lieu of fractional shares, the holder will receive an amount in cash equal to the fractional amount multiplied by the fair market value of any such fractional shares. The Company has concluded that the Warrants are required to be equity classified. The Warrants were valued on the date of grant using Monte Carlo simulations.
On November 18, 2016, the Company completed a public offering of 25 million714,286 shares of common stockCommon Stock in combination with accompanying warrants to purchase an aggregate of 50 million1,428,571 shares of common stock.Common Stock. The stock and warrants were sold in combination, with two warrants for each share of common stockCommon Stock sold, a Series A warrant and a Series B warrant, each representing the right to purchase one share of common stock.Common Stock. The purchase price for each share of common stock and accompanying warrants was $1.00.$35.00. The shares of common stockCommon Stock were immediately separable from the warrants and were issued separately. The initial per share exercise price of the Series A warrants was $1.43is $50.05 and the per share exercise price of the Series B warrants was $1.72,is $60.20, each subject to adjustment as specified in the warrants.warrant agreements. 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 yearfour-year anniversary of the issuance date. The Series B warrants are exercisable untilexpired on December 31, 2017.2017 and none were exercised prior to expiration. 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 wasof $15.7 million and changes in estimated fair value will beare being recorded as non-cash income or expense in the Company’s statementCondensed Consolidated Statements of operationsOperations at each subsequent period. At September 30, 2017,2020 and September 30, 2019, the fair value of the warrant liability was $10.7 million, which resulted in non-cash expensenominal. In 2020 and 2019, the Monte Carlo simulations were not used as the value 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 valueddeemed to be minimal based on the datehistorical fair value of grant using a Monte Carlo simulation.
The assumptions used by the Company are summarized inwarrants and the following table:Company’s current stock price.
| 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 | ||||||||||||||||||
| 15 |
Synthetic Biologics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
6. Stock Warrants – (continued)
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 stockCommon Stock and a warrant to purchase 0.50.50 shares of common stock.Common Stock. The warrants, exercisable for an aggregate of 7,029,808200,852 shares of common stock, haveCommon Stock, had an exercise price of $1.75$61.25 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 311,834.10, 2019.
A summary of all warrant activity for the Company for the nine months ended September 30, 20172020 and for the year ended December 31, 20162019 is as follows:
| Number of Warrants | Weighted Average Exercise Price | Number of Warrants | Weighted Average Exercise Price | |||||||||||||
| Balance at December 31, 2015 | 7,908,899 | $ | 1.79 | |||||||||||||
| Balance at December 31, 2018 | 18,915,851 | $ | 3.85 | |||||||||||||
| Granted | 50,000,000 | 1.58 | - | - | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Forfeited | (567,257 | ) | 2.35 | (200,852 | ) | 61.25 | ||||||||||
| Balance at December 31, 2016 | 57,341,642 | 1.60 | ||||||||||||||
| Balance at December 31, 2019 | 18,714,999 | 3.24 | ||||||||||||||
| Granted | - | - | - | - | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Forfeited | - | - | - | - | ||||||||||||
| Balance at September 30, 2017 | 57,341,642 | $ | 1.60 | |||||||||||||
| Balance at September 30, 2020 | 18,714,999 | $ | 3.24 | |||||||||||||
On December 26, 2017, the Company entered into a consulting agreement for advisory services for a period of six months. As compensation for such services, the consultant was paid an upfront payment, was paid a monthly fee, and on January 24, 2018 was issued a warrant exercisable for 714 shares of the Company’s Common Stock on the date of issuance. The warrant is equity classified and the fair value of the warrant approximated $9,000 on the date of grant and was measured using the Black-Scholes option pricing model. This entire expense was recorded in the quarter ended March 31, 2018.
A summary of all outstanding and exercisable warrants as of September 30, 20172020 is as follows:
| Exercise Price | Exercise Price | Warrants Outstanding | Warrants Exercisable | Weighted Average Remaining Contractual Life (years) | Exercise Price | Warrants Outstanding | Warrants Exercisable | Weighted Average Remaining Contractual Life | ||||||||||||||||||
| $ | 1.43 | 25,000,000 | 25,000,000 | 3.14 | 1.38 | 17,999,999 | 17,999,999 | 3.03 years | ||||||||||||||||||
| 18.20 | 714 | 714 | 2.24 years | |||||||||||||||||||||||
| 50.05 | 714,286 | 714,286 | 0.13 years | |||||||||||||||||||||||
| $ | 1.60 | 311,834 | 311,834 | 0.07 | 3.24 | 18,714,999 | 18,714,999 | 2.92 years | ||||||||||||||||||
| $ | 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 | ||||||||||||||||||||||
Synthetic Biologics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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. Net loss attributable to common stockholders for the three and nine months ended September 30, 2020 excludes net loss attributable to non-controlling interest of $0.1 million and includes the accretion of Series B preferred discount of $0.5 million and $1.3 million, respectively, on converted shares and Series A preferred stock accrued dividends of $0.1 million and $0.2 million, respectively. Net loss attributable to common stockholders for the three and nine months ended September 30, 2019 excludes net loss attributable to non-controlling interest of $0.1 million and includes the accretion of Series B preferred discount of $0.1 million and $0.6 million, respectively, on converted shares and Series A preferred stock accrued dividends of $0.1 million and $0.2 million, respectively. The number of shares of common stock underlying Series B Preferred shares convertible to common stock that were excluded from the computations of net loss per common share for the three and nine months ended September 30, 2020 and 2019 were 3,605,217 and 6,641,739, respectively. The number of options and warrants for the purchase of common stock that were excluded from the computations of net loss per common share and for the three and nine months ended September 30, 20172020 were 11,219,0152,460,325 and 57,341,642,18,714,999, respectively, and for the three and nine months ended September 30, 20162019 were 8,513,552803,577 and 7,858,899, respectively.
18,915,851, respectively, because their effect is anti-dilutive.
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(“ASC 810”), and represents the minority shareholder’s ownership interest related to the Company’s subsidiary, Synthetic Biomics, Inc. (“SYN Biomics”). In accordance with ASC 810, the Company reports its non-controlling interest in subsidiaries as a separate component of equity in the condensed consolidated balance sheetsConsolidated Balance Sheets and reports both net loss attributable to the non-controlling interest and net loss attributable to the Company and its subsidiariesCompany’s common stockholders on the face of the condensed consolidated statementsConsolidated Statements of operations.Operations. On September 5, 2018, the Company entered into an agreement with Cedars-Sinai Medical Center (CSMC) for an investigator-sponsored Phase 2b clinical study of SYN-010 to be co-funded by the Company and CSMC (the “Study”). The Study was to provide further evaluation of the efficacy and safety of SYN-010, the Company’s modified-release reformulation of lovastatin lactone, which is exclusively licensed to the Company by CSMC. SYN-010 was designed to reduce methane production by certain microorganisms (M. smithii) in the gut to treat an underlying cause of irritable bowel syndrome with constipation (IBS-C). After the 2018 transaction with CSMC, the Company’s equity interest in SYN Biomics is 88.5%was 83% and the non-controlling stockholder’s interest is 11.5%17%. For the three and nine months endedAs of September 30, 2017,2020, the accumulated net loss attributable to the non-controlling interest was $8,000 and $280,000, respectively.is $2.8 million.
In consideration of the support provided by CSMC for the Study, the Company agreed to pay $441,000 to support the Study and the Company entered into a Stock Purchase Agreement with CSMC pursuant to which the Company, upon the approval of the Study protocol by the Institutional Review Board (IRB): (i) issued to CSMC fifty thousand (50,000) shares of common stock of the Company; and (ii) transferred to CSMC an additional two million four hundred twenty thousand (2,420,000) shares of common stock of its subsidiary SYN Biomics, Inc. (“Synbiomics”) owned by the Company, such that after such issuance CSMC owns an aggregate of seven million four hundred eighty thousand (7,480,000) shares of common stock of SYN Biomics, representing seventeen percent (17%) of the issued and outstanding shares of SYN Biomics’ common stock. The services rendered are recorded to research and development expense in proportion with the progress of the study and based overall on the fair value of the shares ($285,000) as determined at the date of IRB approval. During the three and nine months ended September 30, 2020, research and development expense recorded related to this transaction approximated $134,000 and $225,000, respectively. During the three and nine months ended September 30, 2019, research and development expense recorded related to this transaction approximated $108,000 and $318,000, respectively. On September 30, 2020, CSMC MAST formally agreed to discontinue the ongoing Phase 2b investigator-sponsored clinical study of SYN-010 following the results of a planned interim futility analysis. Although it was concluded that SYN-010 was well tolerated, it was also concluded that SYN-010 is unlikely to meet its primary endpoint by the time enrollment is completed. As a result, the Company anticipates additional reductions in clinical development expense during the remainder of 2020 resulting from the discontinuation of this clinical program.
The Agreement also provides CSMC with a right, commencing on the six month anniversary of issuance of the stock under certain circumstances in the event that the shares of stock of SYN Biomics are not then freely tradeable, and subject to NYSE American, LLC approval, to exchange its SYN Biomics shares for unregistered shares of the Company’s common stock, with the rate of exchange based upon the relative contribution of the valuation of SYN Biomics to the public market valuation of the Company at the time of each exchange. The Stock Purchase Agreement also provides for tag-along rights in the event of the sale by the Company of its shares of SYN Biomics.
Synthetic Biologics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
9. Common and Preferred Stock
Series B Preferred Stock
On October 15, 2018, the Company closed its underwritten public offering pursuant to which it received gross proceeds of approximately $18.6 million before deducting underwriting discounts, commissions and other offering expenses payable by the Company and sold an aggregate of (i) 2,520,000 Class A Units, with each Class A Unit offered to the public at a public offering price of $1.15, and (ii) 15,723 Class B Units, with each Class B Unit offered to the public at a public offering price of $1,000 per Class B Unit and consisting of one share of the Company’s Series B Preferred Stock, with a stated value of $1,000 and convertible into shares of Common Stock at the stated value divided by a conversion price of $1.15 per share, with all shares of Series B Preferred Stock convertible into an aggregate of 13,672,173 shares of Common Stock, and issued with an aggregate of 13,672,173 October 2018 Warrants. Since the above units are equity instruments, the proceeds were allocated on a relative fair value basis which created the Series B Preferred Stock discount.
In addition, pursuant to the Underwriting Agreement that the Company entered into with the Underwriters on October 10, 2018, the Company granted the Underwriters a 45 day option (the “Over-allotment Option”) to purchase up to an additional 2,428,825 shares of Common Stock and/or additional warrants to purchase an additional 2,428,825 shares of Common Stock. Each Warrant is exercisable for one share of common stock. The Underwriters partially exercised the Over-allotment Option by electing to purchase from the Company additional Warrants to purchase 1,807,826 shares of Common Stock.
The Units were offered by the Company pursuant to a registration statement on Form S-1 (File No. 333-227400), as amended, filed with the SEC, which was declared effective by the SEC on October 10, 2018.
The conversion price of the Series B Preferred Stock and exercise price of the October 2018 Warrants are subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting the Common Stock. The exercise price of the Warrants is subject to adjustment in the event of certain dilutive issuances.
During the three and nine months ended September 30, 2020, 1,379 and 3,492 Series B shares, respectively, have been converted into common stock resulting in the recognition of $519,000 and $1,315,000, respectively, of unamortized discount from the conversion. During the three and nine months ended September 30, 2019, 185 and 1,523 Series B shares, respectively, have been converted into common stock resulting in the recognition of $71,000 and $585,000, respectively, of unamortized discount from the conversion. As of September 30, 2020, 11,577 shares have been converted resulting in the recognition of $4.4 million of unamortized discount. This is recorded as a deemed dividend in accumulated deficit.
The October 2018 Warrants are immediately exercisable at a price of $1.38 per share of common stock (which is 120% of the public offering price of the Class A Units) and will expire on October 15, 2023. If, at the time of exercise, there is no effective registration statement registering, or no current prospectus available for, the issuance of the shares of common stock to the holder, then the October 2018 warrants may only be exercised through a cashless exercise. No fractional shares of common stock will be issued in connection with the exercise of any October 2018 warrants. In lieu of fractional shares, the holder will receive an amount in cash equal to the fractional amount multiplied by the fair market value of any such fractional shares.
The Company may not effect, and the holder will not be entitled to, exercise any Warrants or conversion of the Series B Preferred Stock, which, upon giving effect to such exercise, would cause (i) the aggregate number of shares of Common Stock beneficially owned by the holder (together with its affiliates) to exceed 4.99% (or, at the election of the holder, 9.99%) of the number of shares of Common Stock outstanding immediately after giving effect to the exercise, or (ii) the combined voting power of the Company’s securities beneficially owned by the holder (together with its affiliates) to exceed 4.99% (or, at the election of the holder, 9.99%) of the combined voting power of all of the Company’s securities then outstanding immediately after giving effect to the exercise or conversion, as such percentage ownership is determined in accordance with the terms of the October 2018 Warrants or Series B Preferred Stock. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99% upon at least 61 days’ prior notice from the holder to the Company. The holders of the Series B Preferred will participate, on an as-if-converted-to-common stock basis, in any dividends to the holders of common stock. Upon a defined Fundamental Transaction, the holders of the Series B Preferred Stock are entitled to the same consideration as are holders of Common Stock. The Series B Preferred Stock ranks junior to existing Series A Preferred Stock but on parity with common stock. Liquidation preference is equal to an amount pari passu with the common stock on an as converted basis (i.e., there is no preference to common stock).
| 18 |
Synthetic Biologics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
9. Common and Preferred Stock – (continued)
Since the effective conversion price of the Series B Preferred Stock was less than the fair value of the underlying common stock at the date of issuance, there was a beneficial conversion feature (“BCF”) at the issuance date. Because the Series B Preferred Stock had no stated maturity or redemption date and was immediately convertible at the option of the holder, the discount created by the BCF is immediately charged to accumulated deficit as a “deemed dividend” and impacts earnings per share. During the year ended December 31, 2018, the Company recorded a discount of $9.1 million and immediately amortized the discount to record the deemed dividend.
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 onupon 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$18.90 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)20 trading days in any thirty (30)30 trading day period is greater than $2.00,$70.00, 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,$7,875, 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 issueissuance date, the Company shall havehas 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.Value (as defined in the Certificate of Designations).
The Series A Preferred Stock is classified as temporary equity due to the shares are (i)being redeemable based on contingent events outside of the Company’s control and (ii) convertible immediately and from time to time.control. 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 earningsaccumulated deficit as a “deemed dividend” and impacts EPS.earnings per share. During the year ended December 31, 2017, the Company recorded a discount of $6.9 million. Because the Series A Preferred Stock is not currently redeemable, the discount arising from issuance costs andwas allocated to temporary equity and will not be accreted until such time that redemption becomes probable. The stated dividend rate of 2% per annum is cumulative and the Company will accrueaccrues the dividend on a quarterly basis (in effect accreting the dividend regardless of declaration because itthe dividend is declared)cumulative). During the three and nine months ended September 30, 2020, the Company accrued dividends of $64,000 and $189,000, respectively. During the three and nine months ended September 30, 2019, the Company accrued dividends of $63,000 and $185,000, respectively. Once the dividend is declared, the Company will reclassify the declared amount from temporary equity to a “dividends payable”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 “deemeddeemed dividend.”
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Synthetic Biologics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
9. Common and Preferred Stock – (continued)
B. Riley FBR Sales Agreement
On August 5, 2016, the Company entered into the B. Riley FBR Sales Agreement with FBR Capital Markets & Co. (now known as B. Riley Securities), 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 B. Riley FBR, Capital Markets & Co.Inc. as the Company’s sales agent. Sales of common stock under the B. Riley 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.Act. B. Riley FBR, Capital Markets & Co.Inc. 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. ForThe Company has not sold any shares during 2020 and 2019 through the three and nine months endingB. Riley FBR Sales Agreement.
10. Related Party Transactions
On September 30, 2017,5, 2018, the Company sold throughentered into an agreement with CSMC for an investigator-sponsored Phase 2b clinical study of SYN-010 to be co-funded by the FBR SalesCompany and CSMC (the “Study”). The Study was intended to provide further evaluation of the efficacy and safety of SYN-010, the Company’s modified-release reformulation of lovastatin lactone, which is exclusively licensed to the Company by CSMC. SYN-010 was designed to reduce methane production by certain microorganisms (M. smithii) in the gut to treat an underlying cause of irritable bowel syndrome with constipation (IBS-C).
In consideration of the support provided by CSMC for the Study, the Company entered into a Stock Purchase Agreement with CSMC pursuant to which the Company, upon the approval of the Study protocol by the Institutional Review Board (IRB) to: (i) issued to CSMC fifty thousand (50,000) shares of common stock of the Company; and (ii) transferred to CSMC an additional two million four hundred twenty thousand (2,420,000) shares of common stock of its subsidiary Synthetic Biomics, Inc. (“SYN Biomics”) owned by the Company, such that after such issuance CSMC owns an aggregate of 0.8seven million four hundred eighty thousand (7,480,000) shares of common stock of SYN Biomics, representing seventeen percent (17%) of the issued and 11.0 millionoutstanding shares of SYN Biomics’ common stock.
The Agreement also provides CSMC with a right, commencing on the six month anniversary of issuance of the stock under certain circumstances in the event that the shares of stock of SYN Biomics are not then freely tradeable, and subject to NYSE American, LLC approval, to exchange its SYN Biomics shares for unregistered shares of the Company’s common stock, and received net proceedswith the rate of approximately $0.4 million and $6.4 million, respectively, before deducting issuance expenses.exchange based upon the relative contribution of the valuation of SYN Biomics to the public market valuation of the Company at the time of each exchange. The Stock Purchase Agreement also provides for tag-along rights in the event of the sale by the Company of its shares of SYN Biomics.
10. Related Party TransactionsOn September 30, 2020, CSMC MAST formally agreed to discontinue the ongoing Phase 2b investigator-sponsored clinical study of SYN-010 following the results of a planned interim futility analysis. Although it was concluded that SYN-010 was well tolerated, SYN-010 is unlikely to meet its primary endpoint by the time enrollment is completed. The Company anticipates additional reductions in clinical development expense during the remainder of 2020 and an acceleration of expense recognition of $141,000 as a result of the discontinuation of this clinical program.
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”)CSMC and acquired the rights to develop products for therapeutic and prophylactic treatments of acute and chronic diseases, including the development of SYN-010 to target IBS-C. The Company licensed from CSMC a portfolio of intellectual property comprised of several U.S. and foreign patents and pending patent applications for various fields of use, including IBS-C, obesity and diabetes. An investigational team led by Mark Pimentel, M.D. at CSMC discovered that these products may reduce the production of methane gas by certain GI microorganisms. During the three and nine months ended September 30, 20172020 and 2016,2019, the Company did not owe and did not pay Cedars-Sinai Medical CenterCSMC for milestone payments related this license agreement.
Synthetic Biologics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
11. Commitments and Contingencies
Leases
All of the Company’s existing leases as of September 30, 2020 are classified as operating leases. As of September 30, 2020, the Company has one material operating lease for facilities with a remaining term expiring in 2022. The existing lease has fair value renewal options, none of which are considered certain of being exercised or included in the minimum lease term. The discount rate used in the calculation of the lease liability was 9.9%. The rates implicit within the Company's leases are generally not determinable, therefore, the Company's incremental borrowing rate is used to determine the present value of lease payments. The determination of the Company’s incremental borrowing rate requires judgment. Because the Company currently has no outstanding debt, the incremental borrowing rate for each lease is primarily based on publicly-available information for companies within the same industry and with similar credit profiles. The rate is then adjusted for the impact of collateralization, the lease term and other specific terms included in the Company’s lease arrangements. The incremental borrowing rate is determined at lease commencement, or as of January 1, 2019 for operating leases in existence upon adoption of ASC 842, Leases (ASC 842). The incremental borrowing rate is subsequently reassessed upon a modification to the lease arrangement. ROU assets are subsequently assessed for impairment in accordance with the Company’s accounting policy for long-lived assets. Operating lease costs are presented as part of general and administrative expenses in the condensed consolidated statements of operations, and for the three and nine months ended September 30, 2020 approximated $50,000 and $151,000, respectively, and for three and nine months ended September 30, 2019 approximated $50,000 and $151,000, respectively. For the three and nine months ended September 30, 2020, operating cash flows used for operating leases approximated $77,000 and $231,000, respectively, and for three and nine months ended September 30, 2019 approximated $75,000 and $224,000, respectively.
A maturity analysis of our operating leases as of September 30, 2020 is as follows (amounts in thousands of dollars):
| Future undiscounted cash flow for the years ending December 31: | ||||
| 2020 | $ | 79 | ||
| 2021 | 321 | |||
| 2022 | 192 | |||
| Total | 592 | |||
| Discount factor | (53 | ) | ||
| Lease liability | 539 | |||
| Amount due within 12 months | (278 | ) | ||
| Lease liability – long term | $ | 261 |
Risks and Uncertainties
On January 30, 2020, the World Health Organization (WHO) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the COVID-19 outbreak) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.
As the COVID-19 continued to spread around the globe, the Company experienced disruptions that impact its business and clinical trials, including halting the postponement of clinical site initiation of the Phase 1b/2a clinical trial of SYN-004. The extent to which the COVID-19 pandemic impacts the Company’s business, the clinical development of SYN-004 (ribaxamase) and SYN-020, the business of the Company’s suppliers and other commercial partners, the Company’s corporate development objectives and the value of and market for the Company’s common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the United States, Europe and other countries, and the effectiveness of actions taken globally to contain and treat the disease. The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects. In addition, to the extent the ongoing COVID-19 pandemic adversely affects the Company’s business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties which the Company faces.
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Synthetic Biologics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
12. Subsequent Events
On November 9, 2020, the Company and its subsidiary, Synthetic Biomics, Inc. and CSMC mutually agreed to terminate the exclusive license agreement dated December 5, 2013 and all amendments thereto and the clinical trial agreement relating to SYN-010. The determination to terminate the SYN-010 license agreement was agreed following the completion of a planned interim futility analysis of the Phase 2b investigator-sponsored clinical trial of SYN-010. On September 30, 2020, CSMC (the Company’s SYN-010 clinical development partner) informed the Company that it discontinued the ongoing Phase 2b investigator-sponsored clinical study of SYN-010 IBS-C patients. Based on the results of a planned interim futility analysis, it was concluded that although SYN-010 was well tolerated, it was unlikely to meet its primary endpoint by the time enrollment is completed. The patent rights previously licensed to the Company covering the use of SYN-010 will remain the property of CSMC.
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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, 20162019 included in our Annual Report on2019 Form 10-K filed with the SEC on March 2, 2017.10-K. 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 on2019 Form 10-K for10-K. All share and per share numbers set forth in this Management’s Discussion and Analysis of Financial Conditions and Results of Operations reflect the year ended December 31, 2016 filed with the SEC on March 2, 2017.one-for-thirty five reverse stock split effected August 10, 2018.
Overview
We are a late-stage clinicaldiversified clinical-stage company focused on developing therapeutics designed to preserve the microbiome to protect and restore the healthtreat gastrointestinal (GI) diseases in areas of patients.high unmet need. Our lead clinical development candidates poised for Phase 3 development are: (1) SYN-004 (ribaxamase) which is designed to protect the gut microbiome from the effects ofdegrade certain commonly used intravenous (IV) beta-lactam antibiotics forwithin the prevention ofGI tract to prevent microbiome damage, C.Clostridioides difficile infection (CDI), overgrowth of pathogenic organisms, and the emergence of antimicrobial resistance (AMR), and acute graft-versus-host-disease (aGVHD) in allogeneic hematopoietic cell transplant (HCT) recipients, and (2) SYN-020, a recombinant oral formulation of the enzyme intestinal alkaline phosphatase (IAP) produced under cGMP conditions and intended to treat both local GI and systemic diseases.
We were also developing 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). On September 30, 2020, Cedars Sinai Medical Center’s (CSMC) (the Company’s SYN-010 clinical development partner) informed the Company that it agreed to discontinue the ongoing Phase 2b investigator-sponsored clinical study of SYN-010 in IBS-C patients. Based on the results of a planned interim futility analysis, it was concluded that although SYN-010 was well tolerated, it was unlikely to meet its primary endpoint by the time enrollment is completed.
As a result of the decision to discontinue the ongoing Phase 2b investigator-sponsored clinical study of SYN-010, we plan to explore and evaluate a range of strategic options, which may include: in-licensing opportunities; evaluation of potential acquisitions; or other potential strategic transactions. In the meantime, we remain focused on working with our clinical development partners to advance the planned Phase 1b/2a clinical trial of SYN-004 (ribaxamase) in allogeneic hematopoietic cell transplant (HCT) patients, and advancing the clinical development program for SYN-020 intestinal alkaline phosphatase (IAP) in multiple potential indications. Both of these programs are unrelated to SYN-010, and therefore, we remain encouraged by the outlook and potential for these programs in addressing large, underserved markets.
We are also developing preclinical stage monoclonal antibody therapiesin close contact with our clinical sites and are assessing the impact of COVID-19 on our studies and current timelines and costs. To maximize patient participation and safeguard the trials integrity and patient safety, initiation of the Company’s Phase 1b/2a clinical study of SYN-004 to be conducted by Washington University in Allogeneic HCT Recipients is deferred until Q1 2021, pandemic conditions permitting. If the COVID-19 pandemic continues and persists for an extended period of time, we could experience significant disruptions to our clinical development timeline, which would adversely affect our business, financial condition, results of operations and growth prospects.
In response to the preventionspread of COVID-19 as well as public health directives and treatmentorders, we have implemented a number of pertussis,measures designed to ensure employee safety and novel discovery stage biotherapeutics forbusiness continuity. We have limited access to our offices and are allowing our administrative employees to continue their work outside of our offices in order to support the treatmentcommunity efforts to reduce the transmission of phenylketonuria (PKU). COVID-19 and protect employees, complying with guidance from federal, state and local government and health authorities. The effects of the governmental orders and our work-from-home policies may negatively impact productivity, disrupt our business and delay our clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course.
Our Product Pipeline:
aGVHD acute graft-vs-host disease; allo-HCT allogeneic hematopoietic cell transplant patients; AMR antimicrobial resistance; CDI Clostridioides difficile infection. SAD single ascending dose
C- Cedars-Sinai Medical Center Collaboration
I- Intrexon Collaboration¹Additional products with preclinical proof-of-concept include SYN-006 (carbapenemase) to prevent aGVHD and infection by vancomycin resistant enterococci and SYN-007 (ribaxamase) DR to prevent antibiotic associated diarrhea with oral β-lactam antibiotics.
T- The University of Texas at Austin Collaboration²Dependent on funding/partnership.
M- Scientific collaboration³Announced option-license agreement with Massachusetts General Hospital to develop SYN-020 in several potential indications related to inflammation and gut barrier dysfunction.
*Based on management’s current beliefs and expectations.
Summary of Current Clinical and Preclinical Programs
| Therapeutic Area | Product Candidate | |||||
| Prevention of microbiome damage, CDI, overgrowth of pathogenic organisms, AMR, and | SYN-004 (ribaxamase) (oral enzyme) | · | ||||
| (Q4 2018) · | ||||||
· Clarified market/potential partner needs and identified potential additional indications in specialty patient populations such as allogeneic hematopoietic cell transplant patients · Announced clinical trial · Received official meeting minutes from FDA Type-C meeting held on December 2, 2019 to discuss development in allogeneic HCT recipients who are administered IV beta-lactam antibiotics in response to fever (Q1 2020) · Received written notification from the FDA informing the Company that the FDA determined the Phase 1b/2a clinical program in adult allogeneic hematopoietic cell transplant (HCT) recipients may proceed per the submitted clinical program protocol (Q3 2020) · Proposed Phase 1b/2a clinical trial to be conducted by | ||||||
| ||||||
| Treatment of IBS-C | SYN-010 (oral modified-release lovastatin lactone) | · | ||||
| Confirmed key elements of Pivotal Phase 2b/3 clinical trial design pursuant to consultations with FDA | ||||||
· | · Patient recruitment and enrollment in the Phase 2b investigator-sponsored clinical study recommenced following a temporary halt in Q1 and Q2 due to the COVID-19 global pandemic (Q3 2020) · Announced results from a planned interim futility analysis which concluded that although SYN-010 was well-tolerated, it was unlikely to meet its primary objective by the time enrollment is completed. As a result, CSMC has agreed to discontinue the trial and will conduct a comprehensive review of the final data set and publish its findings (Q3 2020) |
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| Preserve gut barrier, treat local GI inflammation, and restore gut microbiome | SYN-020 (oral IAP enzyme) | · Generated high expressing manufacturing cell lines for intestinal alkaline phosphatase (IAP) (1H 2017) · Identified basic drug supply manufacturing process and potential tablet and capsule formulations (2H 2017) · Identified potential clinical indications with unmet medical need including enterocolitis associated with radiation therapy for cancer (Q1 2019) · Completed pre-IND (Investigational New Drug) meeting with the FDA to clarify requirements for IND-enabling toxicology studies and manufacturing requirements (Q2 2019) · Entered into an agreement with Massachusetts General Hospital (“MGH”) granting the Company an option for an exclusive license to intellectual property and technology related to the use of IAP to maintain GI and microbiome health, diminish systemic inflammation, and treat age-related diseases (Q2 2020) · Submitted IND application with U.S. FDA supporting an initial indication for the treatment of radiation enteropathy secondary to pelvic cancer therapy (Q2 2020) · Received study-may-proceed letter from U.S. FDA to conduct a Phase 1 single ascending dose study in healthy volunteers, designed to evaluate SYN-020 for safety, tolerability, and pharmacokinetic parameters (Q3 2020) | ||
| Prevention of CDI, overgrowth of pathogenic organisms and AMR (Degrade IV carbapenem antibiotics) | SYN-006 (oral enzyme) | · Identified P2A as a potent carbapenemase that is stable in the GI tract · Manufactured a formulated research lot for oral delivery (2017) · Demonstrated microbiome protection in a pig model of ertapenem administration (Q1 2018) · Reported supporting data demonstrating SYN-006 attenuated emergence of antibiotic resistance genes in a pig model, including those encoding beta-lactamases and genes conferring resistance to a broad range of antibiotics such as aminoglycosides and macrolides (Q1 2019) |
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| Prevention of CDI, overgrowth of pathogenic organisms and AMR (Degrade oral beta-lactam antibiotics) | SYN-007 (oral enzyme) | · | Preclinical work ongoing to · Reported supportive data from a second canine animal model demonstrating that when co-administered with oral amoxicillin and oral Augmentin, oral SYN-007 · Reported supportive data demonstrating SYN-007 mitigated antibiotic-mediated gut microbiome alterations and maintained gut microbiome integrity when co-administered with oral amoxicillin in a dose-response canine study (Q2 2019) · Reported supportive data demonstrating SYN-007 protected the gut microbiome of dogs from amoxicillin and | |||
| Prevention and | SYN-005 (monoclonal antibody therapies) | · | ||||
| Reported supportive preclinical data demonstrating that an extended half-life version of hu1B7, a component of SYN-005, provided protection from pertussis for five weeks in a neonatal non-human primate study | ||||||
Our Gastrointestinal (GI) and Microbiome-Focused Pipeline
Our IBS-CSYN-004 (ribaxamase) and CDISYN-020 clinical programs are focused on protecting the healthy function ofgastrointestinal tract (GI) and 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.
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Recent Developments
Clinical and Pre-Clinical Update
SYN-004 (ribaxamase) — Prevention of antibiotic-mediated microbiome damage, C. difficile infections (CDI), overgrowth byof pathogenic organisms, and the emergence of antimicrobial resistance (AMR) and acute graft-versus-host disease (aGVHD) in allogeneic HCT recipients
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 releasedPhase 1b/2a Clinical Study 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.Allogeneic HCT Recipients
In November 2012,August 2019, we acquiredentered into 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)Clinical Trial Agreement (CTA) with the FDA. Utilizing this portfolioWashington University School of assets, we developed a proprietary, second generation oral beta-lactamase enzyme product candidate that we now referMedicine (Washington University) 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 inconduct a Phase 11b/2a 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). Under the terms of this agreement, we will serve as the sponsor of the study and AADsupply SYN-004 (ribaxamase). Dr. Erik R. Dubberke, Professor of Medicine and Clinical Director, Transplant Infectious Diseases at Washington University and a member of the SYN-004 (ribaxamase) steering committee will serve as the principal investigator of the clinical trial in patients hospitalized for a lower respiratory tract infectioncollaboration with his Washington University colleague Dr. Mark A. Schroeder, Associate Professor of Medicine, Division of Oncology, Bone Marrow Transplantation and receiving IV ceftriaxone.Leukemia.
On January 5, 2017,7, 2020, we announced positive topline data from our Phase 2b clinical trial demonstrating SYN-004 (ribaxamase) achieved its primary endpointthe receipt 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 agreementofficial meeting minutes from the FDA following a Type-C meeting held on December 2, 2019 at our request to discuss the study included a secondary endpointdevelopment of SYN-004 (ribaxamase) for treatment of allogeneic HCT recipients who are administered IV beta-lactam antibiotics in response to assess SYN-004’s (ribaxamase) capacity to decreasefever. Based on the incidence of antibiotic-associated diarrhea from all causes. Preliminary analysis offinal meeting minutes, 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-concept1b/2a clinical trial demonstrating SYN-004 (ribaxamase) successfully protected and preserved the naturally occurring compositionwill comprise a single center, randomized, double-blinded, placebo-controlled clinical trial 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 administeredoral SYN-004 (ribaxamase) in conjunction withup to 36 evaluable adult allogeneic HCT recipients. The goal of this study is to evaluate the safety, tolerability and potential absorption into the systemic circulation (if any) of 150 mg oral SYN-004 (ribaxamase) administered to allogeneic HCT recipients four times per day who receive an IV ceftriaxone demonstrated significantly better maintenancebeta-lactam antibiotic to treat fever. Study participants will be enrolled into three sequential cohorts administered a different study-assigned IV beta-lactam antibiotic. Eight participants in each cohort will receive SYN-004 (ribaxamase) and four will receive placebo. On July 30, 2020 we received written notification from the FDA informing us that they determined the Phase 1b/2a clinical program in adult allogeneic HCT recipients may proceed per the submitted clinical program protocol.
Safety and pharmacokinetic data for each cohort will be reviewed by an independent Data and Safety Monitoring Committee (DSMC), which will make a recommendation on whether to proceed to the next IV beta-lactam antibiotic. The clinical trial will also evaluate potential protective effects of and recovery of the composition and diversity ofSYN-004 (ribaxamase) on the gut microbiome compared to patients who were administered placebo. Patients receiving SYN-004 (ribaxamase) also demonstrated lower incidences of new colonization by opportunisticas well as generate preliminary information on potential therapeutic benefits 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 abilitypatient outcomes 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.
allogeneic HCT recipients.
Under a contract fundedDue to the unique challenges posed by the Centers for Disease Controlglobal COVID-19 pandemic, Washington University continues to evaluate non-essential activities, which may have a direct impact on planned 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 2bongoing 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 ofClostridium 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 componentstrials. Initiation of the Phase 3 drug development plan1b/2a clinical trial remains largely at their discretion and regulatory pathway towards marketingis contingent upon Washington University’s ability to conduct this clinical program free from the impact of COVID-19, and approval for SYN-004 (ribaxamase),from their IRB and expectthe FDA. At this time, we have determined that postponing the initiation of the planned Phase 1b/2a clinical trial in allogeneic HCT recipients until at least the first quarter of 2021 remains the appropriate course of action in the current operating environment. We remain in close contact with Washington University and are actively monitoring the crisis caused by the spread of COVID-19 and its impact 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,development plans for our SYN-004 (ribaxamase) would be the first available drug designed to preventClostridium difficile infection by protecting the gut microbiome from antibiotic-mediated dysbiosis.
program.
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 byM. 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),On September 5, 2018, we entered into a worldwide exclusive licensean agreement with Cedars-Sinai Medical Center (CSMC) and acquired the rights to develop productsCSMC for therapeutic and prophylactic treatments of acute and chronic diseases, including the developmentan investigator-sponsored Phase 2b clinical study of SYN-010 to target IBS-C. We licensed from CSMC a portfoliobe co-funded by us and CSMC. The Phase 2b study was being conducted out of intellectual property comprised of several U.S.the Medically Associated Science 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.Technology (MAST) Program at CSMC discovered that these products may reduce the productionand was a 12-week, placebo-controlled, double-blind, randomized clinical trial to evaluate two dose strengths 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 comparingoral 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) inas many as 150 patients diagnosed with IBS-C and withusing a 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) issuedscreening level as a Notice of Allowancecriterion 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.patient enrollment.
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:
Consistent with FDA written guidance, theThe primary objective for thisthe study iswas to determine the efficacy of SYN-010, measured as an improvement from baseline in the percentageweekly average number of overall weekly responderscomplete spontaneous bowel movements (CSBMs) during the 12-week treatment period for SYN-010 21 mg and 42 mg daily doses comparedrelative to placebo. Secondary efficacy endpoints for both dose strengths of SYN-010 willwere intended measure changes from baseline in abdominal pain, bloating, bowel movementstool frequency and stool consistency.as well as the use of rescue medication relative to placebo. Exploratory outcomes include adequate reliefincluded Adequate Relief and quality of life measures using the well-validated EQ-5D-5L and PAC-SYM patient questionnaires.
Anticipated Regulatory Strategy Importantly, this study was intended to generate a comprehensive and meaningful data set to provide additional insights and address specific queries into potential SYN-010 clinical efficacy, including dose response, length of treatment and microbiome effects, intended to be evaluated in the FDA-agreed Phase 2b/3 adaptive design clinical program.
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 forC. 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 decliningEnrollment in this study commenced in January 2019 and was temporarily halted during the first and second quarter of 2020 due to widespread multidrug-resistant bacteria, increasing numbers of immuno-compromised patients (e.g., the elderlyunique challenges posed by the global COVID-19 pandemic which required CSMC to temporarily limit all non-essential activities, directly impacting their ability to actively recruit and cancer patients) andscreen new patients. During this time, active study participants who did not complete the isolation of new pathogens.study prior to the decision to halt all non-essential activities were given the opportunity to complete the study as CSMC took steps to ensure data from this group was collected in accordance with the clinical trial protocol.
SYN-005 — Pertussis (Whooping Cough)
Intrexon Collaboration and The UniversityDuring the third quarter of Texas (UT) at Austin Agreement
In August 2012, we entered into2020, a worldwide exclusive channel collaboration with Intrexon through which we intend to develop monoclonal antibody (mAb) therapies forplanned interim futility analysis of 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 inScience 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 prophylaxisPhase 2b investigator-sponsored clinical 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 withBordetella 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,completed. Based on 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 sevenreview of the animalsinterim analysis, it was concluded that received prophylactic hu1B7 appeared healthyalthough SYN-010 was well-tolerated, it failed to meet the prespecified efficacy criteria and none exhibited any behavioral signswas unlikely to meet the primary objective of pertussis. Building on this early success, we have initiated preclinical testingthe study by the time enrollment is completed. On September 30, 2020 CSMC formally agreed to discontinue the study. CSMC has been unblinded and intends to conduct a comprehensive review of a modified version of hu1B7 that has the potential to extend the plasma half-lifedata set 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.publish its findings.
SYN-020 — Oral Intestinal Alkaline Phosphatase
SYN-020 is a quality-controlled, recombinant version of bovine Intestinal Alkaline Phosphatase (IAP) produced under cGMP conditions and formulated for oral delivery. The published literature indicates that IAP functions to diminish GI inflammation, tighten the gut barrier to diminish “leaky gut,” promote a healthy microbiome, and diminish GI and systemic inflammation. Based on these known mechanisms as well as our own supporting animal model data, we are initially developing SYN-020 to mitigate the intestinal damage caused by radiation therapy that is routinely used to treat pelvic cancers, including the treatment and prevention of radiation enteropathy secondary to cancer therapy. Despite its broad therapeutic potential, a key hurdle to commercialization has been the high cost of IAP manufacture which is commercially available for as much as $10,000 per gram. We believe we have developed technologies to traverse this hurdle and now have the ability to produce more than 3 grams per liter of SYN-020 for roughly a few hundred dollars per gram at commercial scale.
On June 30, 2020, we submitted an Investigational New Drug (IND) application to the FDA in support of an initial indication for the treatment of radiation enteropathy secondary to pelvic cancer therapy. On July 30, 2020 we announced that we received a study-may-proceed letter from the FDA to conduct a Phase 1 single ascending dose study in healthy volunteers designed to evaluate SYN-020 for safety, tolerability and pharmacokinetic parameters. The Phase 1 clinical program is anticipated to commence during the first quarter of 2021 and is intended to support the clinical development of SYN-020 for multiple indications.
During the second quarter of 2020, we also announced that we entered into an agreement with Massachusetts General Hospital (“MGH”) granting us an option for an exclusive license to intellectual property and technology related to the use of IAP to maintain GI and microbiome health, diminish systemic inflammation, and treat age-related diseases. Research published by a team of investigators led by Richard Hodin, MD, Chief of the Massachusetts General Hospital Division of General and Gastrointestinal Surgery and Professor of Surgery, Harvard Medical School, evaluated long-term oral supplementation of IAP, including SYN-020, in mice. Dr. Hodin’s research demonstrated that IAP administration, starting at 10 months of age, slowed the microbiome changes, gut-barrier dysfunction, and gastrointestinal and systemic inflammation that normally accompany aging. Additionally, the IAP administration resulted in improved metabolic profiles in the preclinicalaged mice, diminished frailty, and extended lifespan. Under the terms of the agreement, we are granted exclusive rights to negotiate a worldwide license with MGH to commercially develop SYN-020 to treat and prevent metabolic and inflammatory diseases associated with aging. If executed, we plan to use this license in the advancement of an expanded clinical development stage. SYN-020 is being developed as a modified-release oral dosage form ofprogram for SYN-020. In addition, we continue to explore and evaluate potential future indications that have been associated with decreased IAP expression and 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 therapeuticbarrier dysfunction. Such potential indications includinginclude inflammatory bowel disease microbial dysbiosis(IBD) and celiac disease, as well as metabolic syndrome. We have generated manufacturing cell linessyndrome and processes, and are initiating preclinical animal modeling for multiple novel indications.associated non-alcoholic fatty liver-disease (NAFLD).
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. The SYN-004 (ribaxamase) program is supported by IP that is assigned to Synthetic Biologics, namely U.S. patents and foreign patents (in most major markets, e.g. Europe (including Germany, Great Britain and France), Japan, China and Canada, among others) and U.S. and foreign patents pending in most major markets, e.g. Europe (including Germany, Great Britain and France), Japan, China and Canada, among others). 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,The SYN-010 program is supported by IP that is exclusively licensed to (and, in some cases co-owned by) Synthetic Biologics, namely U.S. patents and foreign patents (in most major markets, e.g. Europe (including Germany, Great Britain and France), and Canada, among others) and U.S. and foreign patents pending in most major markets, e.g. Europe (including Germany, Great Britain and France), Japan, China and Canada, among others). For instance, 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 14/826,115U.S. Patent No. 9,956,292 includes claims related to composition of matter of anti-methanogenic compositions that find use in treating IBS-C and various foreign equivalent applications cover SYN-010 formulations and, if issued, are expected to have a term towill expire in at least 2035. Further, U.S. Patent No. 10,328,151, covers the composition of matter of the SYN-010 clinical agent and U.S. Patent 10,519,515covers methods of treating IBS-C with a statin, inclusive of SYN-010, in a selected patient population.
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 requirerequires 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 consolidated 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 20162019 Form 10-K.
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Results of Operations
Three Months Ended September 30, 20172020 and 20162019
General and Administrative Expenses
General and administrative expenses decreasedincreased by 19%9% to $1.7$1.2 million for the three months ended September 30, 2017,2020, from $2.1$1.1 million for the three months ended September 30, 2016.2019. This decreaseincrease is primarily the result of higher salary expensedue to increased insurance costs 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,stock registration fees, andoffset by a decrease in legal expenses in 2017.costs. The charge related to stock-based compensation expense was $583,000$67,000 for the three months ended September 30, 2017,2020, compared to $524,000$68,000 the three months ended September 30, 2016.2019.
Research and Development Expenses
Research and development expenses decreased by 41%78% to $0.9 million for the three months ended September 30, 2020, from $4.1 million for the three months ended September 30, 2017, from $7.1 million for the three months ended September 30, 2016.2019. This decrease is primarily the result of lowerthe response to the global COVID-19 pandemic by our clinical development partners which led to the postponement of the Phase 1b/2a clinical trial of 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.allogeneic HCT recipients as well as the discontinuation of the Phase 2b investigator sponsored clinical trial of SYN-010. The charge related to stock-based compensation expense was $317,000$15,000 for the three months ended September 30, 2017,2020, compared to $422,000$23,000 for the three months ended September 30, 2016.2019.
The following table sets forth our research and development expenses directly related to our therapeutic areas for the three months ended September 30, 20172020 and 2016.2019. 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 | ||||||||||||
| Therapeutic Areas (in thousands) | September 30, 2020 | September 30, 2019 | ||||||||||||||
| SYN-004 (ribaxamase | $ | 76 | $ | 73 | ||||||||||||
| SYN-010 | 67 | 1,181 | 45 | 174 | ||||||||||||
| SYN-005 | 17 | 33 | 1 | 7 | ||||||||||||
| Other therapeutic areas | (2 | ) | 15 | |||||||||||||
| Total direct costs | 201 | 4,419 | 122 | 254 | ||||||||||||
| Total indirect costs | 3,936 | 2,642 | 792 | 3,890 | ||||||||||||
| Total Research and Development | $ | 4,137 | $ | 7,061 | ||||||||||||
| Total | $ | 914 | $ | 4,144 | ||||||||||||
Other Income/Expense
Other expenseincome was $5.1 million$134 for the three months ended September 30, 2017,2020, compared to other income of $0.7 million$92,000 for the three months ended September 30, 2016.2019. Other expenseincome for the three months ended September 30, 20172020 and 2019 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.interest income.
Net Loss Attributable to Common Stockholders
Our net loss attributable to common stockholders was $17.8$2.7 million, or $0.14 per basic and dilutive common share for the three months ended September 30, 2017,2020, compared to a net loss of $8.4$5.3 million, or $0.09$0.31 per basic common share and dilutive common share for the three months ended September 30, 2016.2019. Net loss attributable to common stockholders for the three months ended September 30, 2020 excludes net loss attributable to non-controlling interest of $8,000 and includes the accretion of Series B preferred discount of $519,000 on converted shares and Series A Preferred Stock accrued dividends of $64,000. Net loss attributable to common stockholders for the three months ended September 30, 2019 excludes net loss attributable to non-controlling interest of $30,000 and includes the accretion of Series B preferred discount of $70,000 on converted shares and $63,000 of Series A accrued dividends.
Nine Months Ended September 30, 20172020 and 20162019
General and Administrative Expenses
General and administrative expenses decreasedincreased by 18% to $5.4$3.9 million for the nine months ended September 30, 2017,2020, from $6.7$3.3 million for the nine months ended September 30, 2016.2019. This decrease of 18%increase 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 officedue to our Maryland headquarters, together with a decrease in travel, registration fees, andincreased legal costs in 2017.related to business development, patent execution, employee contract matters, vacation expense, insurance costs and registration fees. The charge relatingrelated to stock-based compensation expense was $1.8 million$199,000 for the nine months ended September 30, 2017,2020, compared to $1.7 million$193,000 for the nine months ended September 30, 2016.2019.
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Research and Development Expenses
Research and development expenses decreased by 55% to $15.0$4.1 million for the nine months ended September 30, 2016,2020, from $22.4$9.2 million for the nine months ended September 30, 2016.2019. This decrease of 33% is primarily the result of lowerthe response to the global COVID-19 pandemic by our clinical development partners which led to the postponement of the Phase 1b/2a clinical trial of SYN-004 (ribaxamase) in allogeneic HCT recipients 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.a temporary the discontinuation of the Phase 2b investigator sponsored clinical trial of SYN-010. Research and development expenses also include a charge relating to stock-based compensation expense of $1.1 million$52,000 for the nine months ended September 30, 2017,2020, compared to $1.2 million$53,000 for the nine months ended September 30, 2016.2019.
The following table sets forth our research and development expenses directly related to our therapeutic areas for the nine months ended September 30, 20172020 and 2016.2019. 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 | ||||||||||||
| Therapeutic Areas (in thousands) | September 30, 2020 | September 30, 2019 | ||||||||||||||
| SYN-010 | 2,437 | 3,916 | $ | 293 | $ | 426 | ||||||||||
| SYN-005 | 38 | 45 | ||||||||||||||
| SYN-004 (ribaxamase) | 181 | 185 | ||||||||||||||
| Other therapeutic areas | (3 | ) | 94 | 30 | 23 | |||||||||||
| Total direct costs | 3,723 | 12,508 | 504 | 634 | ||||||||||||
Total indirect costs | 11,305 | 9,872 | 3,648 | 8,522 | ||||||||||||
| Total Research and Development | $ | 15,028 | $ | 22,380 | ||||||||||||
| Total | $ | 4,152 | $ | 9,156 | ||||||||||||
Other Income
Other income was $2.2 million$44,000 for the nine months ended September 30, 2017,2020, compared to other income of $3.7 million$217,000 for the nine months ended September 30, 2016.2019. Other income for the nine months ended September 30, 20172020 and 2019 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.interest income.
Net Loss Attributable to Common Stockholders
Our net loss attributable to common stockholders was $24.9$9.4 million, or $0.20$0.52 per basic and dilutive common share for the nine months ended September 30, 2017,2020, compared to a net loss of $24.9$12.9 million, or $0.27$0.79 per basic common share and dilutive common share for the nine months ended September 30, 2016.2019. Net loss attributable to common stockholders for the nine months ended September 30, 2020 excludes net loss attributable to non-controlling interest of $50,000 and includes the accretion of Series B preferred discount of $1.3 million on converted shares and Series A Preferred Stock accrued dividends of $189,000. Net loss attributable to common stockholders for the nine months ended September 30, 2019 excludes net loss attributable to non-controlling interest of $73,000 and includes the accretion of Series B preferred discount of $585,000 on converted shares and $185,000 of Series A accrued dividends.
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Liquidity and Capital Resources
With the exception of the three months ended June 30, 2010 and the three months ended December 31, 2017, we have experienced significant losses since inception, incurred negative cash flows from operations, and have a significant accumulated deficit. To date,We have incurred an accumulated deficit of $245 million as of September 30, 2020 and expect to continue to incur losses in the foreseeable future. Our ability to continue as a going concern is dependent upon our ability to raise additional debt and equity capital. There can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to us. These factors raise substantial doubt about our ability to continue as a going concern.
We do not have sufficient capital to fund our operations beyond the next twelve months. In order to address our capital needs, including our planned clinical trials, we are actively pursuing additional equity or debt financing in the form of either a private placement or a public offering. We have been in ongoing discussions with strategic institutional investors and investment banks with respect to such possible offerings. Such additional financing opportunities might not be available to us when and if needed, on acceptable terms or at all. If we are unable to obtain additional financing in sufficient amounts or on acceptable terms under such circumstances, our operating results and prospects will be adversely affected.
Our cash and cash equivalents totaled $6.0 million as of September 30, 2020, a decrease of $9.0 million from December 31, 2019. During the three months ended September 30, 2020, the primary use of cash was for working capital requirements and operating activities which resulted in a net loss of $2.1 million for the three months ended September 30, 2020. With the cash available in early November 2020, we believe these resources will be sufficient to fund our operations through at least the end of the first quarter of 2021.
As a result of the global COVID-19 pandemic, management has been able to further extend our cash runway since our clinical development partners CSMC and Washington University) reduced their operating capacity when necessary during 2020 to include only essential activities, which excluded all planned and ongoing clinical trials of SYN-004 and SYN-010. However, this reduction in operating activity has adversely impacted our planned clinical trial timelines. We anticipate reduced research and development costs through the end of the year, since we anticipate that our proposed Phase 1b/2a clinical trial to be conducted by Washington University will be postponed until 2021, subject to further COVID-19 developments.
On September 30, 2020, CSMC agreed to discontinue the ongoing Phase 2b investigator-sponsored clinical study of SYN-010 following the results of a planned interim futility analysis. Although it was concluded that SYN-010 was well tolerated, it was also concluded that SYN-010 is unlikely to meet its primary endpoint by the time enrollment is completed. As a result, the Company anticipates additional reductions in clinical development expense during the remainder of 2020 due to the discontinuation of this clinical study.
We anticipate our current cash will allow us to cover overhead costs, manufacturing costs for clinical supply, commercial scale up costs and limited research efforts, including completing our funding requirements for the initiation of the Phase 1b/2a SYN-004 (ribaxamase) clinical trial and the planned Phase 1 single ascending dose (SAD) study of SYN-020. Due to the unique challenges posed by the global COVID-19 pandemic, we have determined that postponing the commencement of the planned Phase 1b/2a clinical study of SYN-004 (ribaxamase) in allogeneic HCT recipients until the first quarter of 2021 remains the appropriate response to the novel coronavirus pandemic. We do not anticipate any additional expense related to the Phase 1b/2a SYN-004 (ribaxamase) clinical trial until the trial is cleared for commencement by Washington University. Commencement of a future Phase 3 clinical trial of SYN-004 remains 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 our plan. We will be required to obtain additional funding in order to continue the development of our current product candidates beyond our planned Phase 1b/2a clinical study of SYN-004 in allogeneic HCT recipients, the planned Phase 1 SAD study of SYN-020 in healthy volunteers within the anticipated time periods, if at all, and to continue to fund operations at the current cash expenditure levels. Currently, we do not have commitments from any third parties to provide us with capital. If we fail to obtain additional funding for our clinical trials, whether through the sale of securities or a partner or collaborator, and otherwise when needed, we will not be able to fully execute our business plan as planned and we will be forced to cease certain development activities until funding is received and our business will suffer, which would have a material adverse effect on our financial position, results of operations and cash flows.
While we are experiencing limited financial impacts at this time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the COVID-19 pandemic, including uncertainty regarding our clinical timelines, our business, financial condition, results of operations and growth prospects could be materially adversely affected.
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Historically, we have financed our operations primarily through public and private sales of our common stock and a private placement of our preferred stock,securities, and we expect to continue to seek to obtain theour required capital in a similar manner. We have incurred an accumulated deficit of $197.0 million as ofDuring the year ended December 31, 2019 and the nine months ended September 30, 20172020, we did not engage in any financing activity as our financings conducted during the year ended December 31, 2018 were sufficient to satisfy our cash needs during 2019 and expectthe nine months ended September 30, 2020. During the year ended December 31, 2018, our only sources of funding were from our underwritten public offering (the “Offering”) described below pursuant to continuewhich we received net proceeds of approximately $16.7 million and sales of 3.5 million shares of our Common Stock in our at-the-market offering program through the FBR Sales Agreement pursuant to incur losseswhich we received net proceeds of approximately $12.2 million. The FBR Sales Agreement enables us to offer and sell shares of our Common Stock from time to time through FBR Capital Markets & Co. as our sales agent, provided that we meet certain conditions. 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 future. WithSecurities Act. FBR Capital Markets & Co. is entitled to receive a commission rate of up to 3.0% of gross sales in connection with the exceptionsale of our Common Stock sold on our behalf.
On October 15, 2018, we closed the quarter ended June 30, 2010,Offering pursuant to which we received gross proceeds of approximately $18.6 million before deducting underwriting discounts, commissions and other offering expenses payable by us and sold an aggregate of (i) 2,520,000 Class A Units (the “Class A Units”), with each Class A Unit consisting of one share of Common Stock, and one five-year warrant to purchase one share of Common Stock at an exercise price of $1.38 per share (the “October 2018 Warrants”), with each Class A Unit offered to the public at a public offering price of $1.15, and (ii) 15,723 Class B Units (the “Class B Units), with each Class B Unit offered to the public at a public offering price of $1,000 per Class B Unit and consisting of one share of our Series B Convertible Preferred Stock (the “Series B Preferred Stock”), with a stated value of $1,000 and convertible into shares of Common Stock at the stated value divided by a conversion price of $1.15 per share, with all shares of Series B Preferred Stock convertible into an aggregate of 13,672,173 shares of Common Stock, and issued with an aggregate of 13,672,173 October 2018 Warrants. A.G.P./Alliance Global Partners (the “Underwriters”) acted as sole book-running manager for the Offering. In addition, pursuant to the Underwriting Agreement that we entered into with the Underwriters on October 10, 2018, we granted the Underwriters a 45 day option (the “Over-allotment Option”) to purchase up to an additional 2,428,825 shares of Common Stock and/or additional October 2018 Warrants to purchase an additional 2,428,825 shares of Common Stock. The Underwriters partially exercised the Over-allotment Option by electing to purchase from us additional October 2018 Warrants to purchase 1,807,826 shares of Common Stock. The Units were offered by us pursuant to a registration statement on Form S-1 (File No. 333-227400), as amended, filed with the SEC, which was declared effective by the SEC on October 10, 2018. As of December 31, 2019, 8,085 shares of Series B Preferred Stock have incurred negative cash flow from operations since our inception. been converted to Common Stock and 7,638 shares of Series B Preferred Stock remain outstanding.
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, preparation for our planned clinical trials, performance of 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 termlong-term expected plans includingas it is anticipated that we will not have enough cash to continue our planned Phase 2b/3operations beyond the next twelve months. We will be required to obtain additional funding in order to continue the development of certain product candidates within the anticipated time periods, if at all, and Phase 3 clinical trials. Our notes to continue to fund operations at the condensed consolidated financial statements contain an explanatory paragraph referring to our recurring and continuing losses from operations and expressing substantial doubt in ourcurrent cash expenditure levels.
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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 ondependent upon 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, ourOur cash and cash equivalents will not be sufficient to enable us to meet our financing needs required to complete our anticipated clinical trial and otherlong-term expected plans. Our notes to the condensed consolidated financial statements contain an explanatory paragraph referring to our recurring and continuing losses from operations and expressing substantial doubt in our ability to continue asplans, including initiation or completion of 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 andfuture potential Phase 3 clinical program of SYN-004 (ribaxamase) for prevention of CDI and/or the prevention of aGVHD in allogeneic HCT recipients, or later-stage clinical trials andof SYN-020. Therefore, we do not intend to continue to fund operations atcommence future Phase 3 clinical programs of SYN-004 (ribaxamase) for prevention of CDI and/or the current cash expenditure levels,prevention of aGVHD in allogeneic HCT recipients, or later-stage clinical trials of SYN-020 until we are requiredconfident that we have funding necessary to obtaincomplete such trials. We are actively pursuing additional funding, althoughequity or debt financing, in the form of either a private placement or a public offering and have been in ongoing discussions with strategic institutional investors and investment banks with respect to such possible offerings. However, 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)Agreement) or debt and other sources. Such additional financing opportunities might not be available to the Company when and if needed, on acceptable terms or at all. We cannot assure that we will meet the requirements for use of the FBR Sales Agreement orespecially in light of the fact that additional funding willwe are currently limited by rules of the SEC as to the number of shares of Common Stock that we can sell pursuant to the FBR Sales Agreement due to the market value of our Common Stock held by non-affiliates. Even if we meet the requirements for use of the FBR Sales Agreement, there can be available on favorable terms, or at all. If we fail to obtain additional funding in the next few monthsno assurance that 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 forcedcontinue 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, resultsraise funds through the sale of operations and cash flows.
The actual amountshares 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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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 (includingCommon Stock through the FBR Sales Agreement, if we meet the conditions for sale thereunder) or debt and other sources.Agreement. Additionally, we may seek to access the public or private equity markets when conditions are favorable due to our long-term capital requirements. If we are unable to obtain additional capital (which is not assured at this time), our long-term business plan may not be accomplished and we may be forced to cease certain development activities. More specifically, the completion of future Phase 3 and/or registrational clinical studies will require significant financing or a significant partnership. 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 for future clinical trials when needed, we will be unable to carry out our business plan and we will be forced to delay the initiation of future clinical trials until such time as we obtain adequate financing and our operating results and prospects will be adversely affected.
Following the completion of our planned Phase 1b/2a clinical study of SYN-004 (ribaxamase) in allogeneic HCT recipients and planned Phase 1 SAD study of SYN-020, we will need to obtain additional funds for future clinical trials. We anticipate that our future clinical trials will be much larger in size and require larger cash expenditures than the current planned Phase 1b/2a clinical trial of SYN-004 (ribaxamase) to be conducted by Washington University and Phase 1 SAD study of SYN-020 IAP. We do not have any committed sources of financing for future clinical trials 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,
On January 30, 2020, the World Health Organization (WHO) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the COVID-19 outbreak) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. As the COVID-19 coronavirus continues to spread around the globe, we sold throughhave experienced disruptions that impact our business and clinical trials, including halting the FBR Sales Agreement an aggregateenrollment 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 securitiesnew patients in our public offeringongoing Phase 2b investigator-sponsored clinical trial of 25 million sharesSYN-010 clinical study and postponement of common stock in combination with accompanying warrants to purchase an aggregate of 50,000,000 sharesclinical site initiation of the common stock for gross proceedsPhase 1b/2a clinical trial of $25,000,000SYN-004. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on our financial condition, liquidity, and salesfuture results of common stock throughoperations. We are actively monitoring the FBR Sales Agreement. However, there can be no assurance that we will be ableglobal situation and its potential impact on our financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses 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. Ifcurb its spread, we are not able to obtain funding when needed, we will be unable to carry outestimate the future effects of the COVID-19 outbreak on 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.financial condition, or liquidity.
Off-Balance Sheet Arrangements
During the three and nine months ended September 30, 2017,2020, we did not have, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.
Contractual Obligations
ThereLeases
At the inception of a contract we determine if the arrangement is, or contains, a lease. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.
We have been no material changes tomade certain accounting policy elections whereby we (i) do not recognize ROU assets or lease liabilities for short-term leases (those with original terms of 12-months or less) and (ii) combine lease and non-lease elements of our contractual obligations during the period covered by this report from those disclosedoperating leases. ROU assets are included in other noncurrent assets and lease liabilities are included in other current and non-current liabilities in our 2016 Form 10-K.condensed consolidated balance sheets. As of September 30, 2020, we did not have any material finance leases.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The primary objective of our investment activities is to preserve our capital to fund operations. We also seek to maximize income from our investments without assuming significant risk. Our exposure to market risk is confined to our cash and cash equivalents. As of September 30, 2017,2020, our cash and cash equivalents consisted primarily of money marketinvestments in treasury securities. We do not engage in any hedging activities against changes in interest rates. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates or credit conditions on our securities portfolio. We may, however, require additional financing to fund future obligations and no assurance can be given that the terms of future sources of financing will not expose us to material market risk.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures
The Company has adopted and maintains disclosure controls and procedures (as defined Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is collected, recorded, processed, summarized and reported within the time periods specified in the rules of the SEC. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. As required under Exchange Act Rule 13a-15, the Company’s management, including the Chief Executive Officer, andwho also serves as the Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures as of September 30, 2017,2020, the end of the period covered by this Quarterly Report on Form 10-Q, havehas concluded that based on such evaluation, the Company’s disclosure controls and procedures are effective as of September 30, 20172020 to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control over Financial Reporting
There have not been any changes in our internal controls over financial reporting during the three and nine months ended September 30, 20172020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
The following information updates, and should be read in conjunction with, the information disclosed in Part 1,I, Item 1A, “Risk Factors,” contained in our 20162019 Form 10-K. Except as disclosed below, there have been no material changes from the risk factors disclosed in our 20162019 Form 10-K.
RISKS RELATING TO OUR BUSINESS
Our auditor’s report on our consolidated financial statements for the years ended December 31, 2019 and 2018 contains an explanatory paragraph regarding our ability to continue as a going concern and the notes to our financial statements for the quarter ended September 30, 2020 mention there being substantial doubt about our ability to continue as a going concern.
Our consolidated financial statements as of December 31, 2019 have been prepared under the assumption that we will continue as a going concern for the next twelve months. In addition, our independent registered public accounting firm has issued a report that includes an explanatory paragraph referring to our recurring losses from operations (anticipated continued losses in the future) and net capital deficiency that raise substantial doubt about our ability to continue as a going concern without additional capital becoming available. Our consolidated financial statements as of December 31, 2019 did not include any adjustments that might result from the outcome of this uncertainty.
The consolidated financial statements for the quarter ended September 30, 2020 have been prepared assuming we will continue as a going concern. We continue to incur losses and, as of September 30, 2020, we had an accumulated deficit of approximately $245 million. Our consolidated financial statements as of September 30, 2020 do not include any adjustments that might result from the outcome of this uncertainty.
Our ability to continue as a going concern is dependent upon our ability to raise additional debt and equity capital. There can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to us. These factors raise substantial doubt about our ability to continue as a going concern.
We will need to raise additional capital to operate our business and our failure to obtain funding when needed may force us to delay, reduce or eliminate our development programs or commercialization efforts.
During the nine months ended September 30, 2017,2020, our operating activities used net cash of approximately $16.3$9.0 million and as of September 30, 2017 our cash and cash equivalents were $21.1 million.$6.0 million as of September 30, 2020. With the exception of the three months ended June 30, 2010 and the three months ended December 31, 2017, we have experienced significant losses since inception and have a significant accumulated deficit. As of September 30, 2017,2020, our accumulated deficit totaled approximately $197.0$245 million on a consolidated basis. We do not have sufficient capital to fund our operations beyond twelve months following the issuance date of this Quarterly Report on Form 10-Q. We expect to incur additional operating losses in the future and therefore expect our cumulative losses to increase. With the exception of the quarter ended JuneSeptember 30, 2010, and limited laboratory revenues from Adeona Clinical Laboratory, which we sold in March 2012, we have generated very minimal revenues. We do not expect to derive significant revenue from any source in the near future until we or our potential partners successfully commercialize our products. We expect our expenses to increase in connection with our ongoinganticipated activities, particularly as we continue research and development, initiate and conduct clinical trials, recommence clinical trials that have been postponed and seek marketing approval for our product candidates. Until such time as we receive approval from the FDA and other regulatory authorities for our product candidates, we will not be permitted to sell our products and therefore we will not have product revenues from the sale of products. For the foreseeable future we will have to fund all of our operations and capital expenditures from equity and debt offerings, cash on hand, licensing and collaboration fees and development funding received from third partiesgrants, if any.
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We will need to raise additional capital to fund our operations and grants. Based upon our business plans, we do not believe thatmeet our current timelines and we cannot be certain that funding will be available on acceptable terms on a timely basis, or at all. Based on our current plans, our cash and cash equivalents and short-term investments will not be sufficient to sustaincomplete our operations as currently planned including initiationPhase 3 clinical trial for SYN-004 or post-Phase 1 future clinical programs for SYN-020, which are expected to require significant cash expenditures. In addition, based on the anticipated significant cost of planneda Phase 3 clinical trials. Our plan to initiate the planned clinical trials is subject to our successful pursuit of opportunities thatprogram in a broad indication for SYN-004, we expect it will allownot be feasible for us to establish the clinical infrastructure and financial resources necessary to successfully initiate and complete this plan. Therefore,trial at this time without a partner given the capital constraints tied to our current market cap and share price. To the extent that we will needraise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that may impact our ability to seekconduct our business and also have a dilutive effect on our stockholders. A failure otherwise to secure additional sources of funding, such as additionalfunds when needed in the future whether through an equity or debt financing or grant funding, as well as license fees from potential corporate partners, joint ventures and additional financing may not be available on favorable terms, if at all. If we do not succeeda sufficient amount of capital without a strategic partnership could result in raising additional funds on acceptable terms or in a timely manner, we will beus being unable to commence orcomplete planned preclinical and clinical trials in the periods anticipated, if at all, or obtain approval of our product candidates from the FDA and other regulatory authorities. In addition, if we do not raise additional capital in the next few months or otherwise in the future when needed we willcould be forced to delay, discontinue or curtail product development, including product manufacturing, forego sales and marketing efforts, and forego licensing in attractive business opportunities. Any delayOur ability to raise capital through the sale of securities is currently limited by the rules of the SEC and NYSE American that place limits on the number and dollar amount of securities that may be sold. There can be no assurances that we will be able to raise the funds needed, especially in manufacturing timelineslight of the fact that our ability to sell securities registered on registration statement Form S-3 will be limited until such time the market value of our voting securities held by non-affiliates is $75 million or more. We also may be required to seek collaborators for our product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available.
The COVID-19 global health crisis has impacted our planned operations, including our clinical studies
In January 2020, the World Health Organization declared a global pandemic for the novel strain of coronavirus, COVID-19. Since then, the COVID-19 coronavirus has spread to multiple countries, including throughout the United States. We have experienced disruptions that have impacted our business and clinical trials and expect to experience additional disruptions as the pandemic continues, including:
| • | postponement in clinical site initiation for our SYN-004 clinical study; | |
| • | postponement of the initiation of our SYN-020 single ascending dose (SAD) study |
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Our business and the business of the suppliers of our clinical product candidates has been and is expected to continue to be materially and adversely affected by the pandemic. Such events could result in the complete or partial closure of clinical trials. Any additional sources of financing will likely involve the issuancetrial sites or one or more manufacturing facilities which could impact our supply of our equityclinical product candidates. In addition, it could impact economies and financial markets, resulting in an economic downturn that could impact our ability to raise capital or debt securities,slow down potential partnering relationships.
In response to the spread of COVID-19 as well as public health directives and orders, we have implemented a number of measures designed to ensure employee safety and business continuity. We have limited access to our offices and are allowing our administrative employees to continue their work outside of our offices in order to support the community efforts to reduce the transmission of COVID-19 and protect employees, complying with guidance from federal, state and local government and health authorities. The effects of the governmental orders and our work-from-home policies may negatively impact productivity, disrupt our business and delay our clinical programs and timelines, the magnitude of which will have a dilutive effectdepend, in part, on the length and severity of the restrictions and other limitations on our stockholders.ability to conduct our business in the ordinary course.
In addition. the COVID-19 outbreak could disrupt our operations due to absenteeism by infected or ill members of management or other employees, or absenteeism by members of management and other employees who elect not to come to work due to the illness affecting others in our office, or due to quarantines. The COVID-19 illness could also impact members of our Board of Directors resulting in absenteeism from meetings of the directors or committees of directors, and making it more difficult to convene the quorums of the full Board of Directors or its committees needed to conduct meetings for the management of our affairs.
The global outbreak of the virus continues to rapidly evolve. The extent to which the virus may impact our business and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. We do not yet know the full extent of potential delays or impacts on our business, operations, or the global economy as a whole. While the spread of COVID-19 may eventually be contained or mitigated, there is no guarantee that a future outbreak of this or any other widespread epidemics will not occur, or that the global economy will recover, either of which could seriously harm our business.
Difficulties enrolling patients in our clinical trials or delays in enrollment are expected to result in our clinical development activities being delayed or otherwise adversely affected.
Delays in patient enrollment may result in increased cost or may adversely affect timing or outcome of planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of our product candidates. In some cases, generating meaningful clinical data may require rigorous screening criteria which may result in unintended and higher than anticipated patient-related screen-fail rates, as had occurred with our current investigator-sponsored Phase 2b clinical study conducted by CSMC. This can lead to delays in completion of clinical trials as well as additional expense for recruitment of patients. In addition, the COVID-19 pandemic may result in fewer technicians being available to conduct clinical testing for patients currently enrolled in our clinical trial.
Delays in clinical testing could result in increased costs to us and delay our ability to generate revenue.
We recently have experienced delays in clinical testing of our product candidates due to COVID-19 and may in the future experience other delays. We do not know when the planned SYN-004 clinical trial or planned SYN-020 SAD study will initiate. These delays may result in the need for trials to be redesigned and will impact whether they will be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including the COVID-19 pandemic, delays in obtaining regulatory approval to commence a clinical trial, in securing clinical trial agreements with prospective sites with acceptable terms, in obtaining institutional review board approval to conduct a clinical trial at a prospective site, in recruiting patients to participate in a clinical trial or in obtaining sufficient supplies of clinical trial materials. Manufacturing considerations for clinical development candidates may include an expected several month lead time following a decision to commence any clinical trial(s) and capacity considerations of our third-party contract manufacturers to provide clinical supply of our product candidates could cause delays in clinical trials. Many factors affect patient enrollment, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the clinical trial, competing clinical trials and new drugs approved for the conditions we are investigating. Clinical investigators will need to decide whether to offer their patients enrollment in clinical trials of our product candidates versus treating these patients with commercially available drugs that have established safety and efficacy profiles. Any delays in completing our clinical trials will increase our costs, slow down our product development and timeliness and approval process and delay our ability to generate revenue.
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RISKS RELATING TO OUR STOCKSECURITIES
We cannot assure you that the common stockour Common Stock will be liquid or that it will remain listed on the NYSEAmerican. A failure to regain compliance with the NYSE American stockholders’ equity listing requirements or failure to continue to meet the other listing requirements could result in a de-listing of our Common Stock.
Our common stockCommon Stock is listed on the NYSE American. The NYSE American’s listing standards generally mandate that we meet certain requirements relating to stockholders’ equity, stock price, market capitalization, aggregate market value of publicly held shares and distribution requirements. We cannot assure you that we will be able to maintain the continued listing standards of the NYSE American. TheMore specifically, the NYSE American requires companies to meet certain continued listing criteria including a minimum stockholders’ equity of $6.0 million if an issuer has sustained losses from continuing operations and/or net losses in its five most recent years, as outlined in the NYSE American Exchange Company Guide. At September 30, 2017,2020, we had a stockholders’ deficit of $6.7$8.8 million. The NYSE American Exchange Company Guide also states that the NYSE normally will not consider removing from listing securities of an issuer with total value of market capitalization of at least $50.0 million and 1,100,000 shares publicly held, a market value of publicly held shares of at least $15.0 million and 400 round lot shareholders. Although the total value of our market capitalization today exceeds $50.0 million and we have more than 1,100,000 shares publicly held a market value of publicly held shares of at least $15.0 million and 400 round lot shareholders, our stock price is volatile and, a decrease induring the first two quarters of 2018, the price of our stock could resultCommon Stock experienced a sustained decrease resulting in a period where our market capitalization fell below $50.0 million. Our market capitalization is currently below $50.0 million
On November 25, 2019, we announced that we received written communication from the NYSE American stating we were no longer in compliance with certain continued listing standards as set forth in the NYSE American Company Guide relating to stockholders’ equity as of September 30, 2019. Specifically, the Deficiency Letter stated that we were not in compliance with Section 1003(a)(iii) (requiring stockholders’ equity of $6.0 million or more if the Company has reported losses from continuing operations and/or net losses in its five most recent fiscal years). The Deficiency Letter noted that the Company had stockholders’ equity of $4.9 million as of September 30, 2019 and had reported net losses in its five most recent fiscal years. On December 20, 2019, we submitted a plan of compliance to the NYSE American outlining our plan to regain compliance with certain continued listing standards as set forth in Part 10, Section 1003(iii) of the NYSE American Company Guide by November 25, 2020, the conclusion of the compliance plan period. On February 7, 2020, we received notice from the NYSE American that it had accepted our plan and granted a plan period through November 25, 2020 to regain compliance. On July 30, 2020 we received written communication from NYSE American stating that in addition to Section 1003(iii), we were also not in compliance with Section 1003(i) and Section 1003(ii) of the NYSE American Company Guide since we reported a stockholders’ deficit of ($4.0) million as of March 31, 2020 and losses from continuing operations and/or net losses in its five most recent fiscal years ended December 31, 2019. As a result, the Company is now subject to the procedures and requirements set forth in Section 1009 of the Company Guide. The Company remains subject to the conditions set forth in the Exchange’s letter dated November 25, 2019 for the initial equity noncompliance. The NYSE Regulation staff will review our company periodically for compliance with the initiatives outlined in the plan. If we are not in compliance with the continued listing standards by November 25, 2020 or if we do not make progress consistent with the plan during the plan period, NYSE Regulation staff may initiate a delisting proceeding as appropriate.
There can be no assurance that we can regain compliance with the listing standards of the NYSE American, or that the NYSE American will continue to list our common stockCommon Stock if we regain compliance, or if we should continue to fail to maintain the minimum stockholders’ equity. In addition, in the future we may not be able to maintain such minimum stockholders’ equity and/or issue additional equity securities in exchange for cash or other assets, if available, to maintain certain minimum stockholders’ equity required by the NYSE American. If we are delisted from the NYSE American then our common stockCommon Stock will trade, if at all, only on the over-the-counter market, such as the OTC Bulletin Board securities market, and then only if one or more registered broker-dealer market makers comply with quotation requirements. If our Common Stock is delisted from the NYSE American due to our failure to regain compliance with the listing standards by the end of the compliance period or for any other reason, and the market value of our shares of Common Stock held by non-affiliates remains below $75 million, we will likely no longer be eligible to sell Common Stock pursuant to the B. Riley FBR Sales Agreement or otherwise utilize our shelf registration statement. In addition, delisting of our common stockCommon Stock could depress our stock price, substantially limit liquidity of our common stockCommon Stock and materially adversely affect our ability to raise capital on terms acceptable to us, or at all. Delisting from the NYSE American could also have other negative results, including the potential loss of confidence by suppliers and employees, the loss of institutional investor interest and fewer business development opportunities.
The issuance of shares of the Series A Preferred Stock would reduce the relative voting power of holders of We cannot assure you that our common stock, would dilute the ownership of such holders and may adversely affect the market price of our common stock.
The conversion of the Series A Preferred Stock to common stock would dilute the ownership interest of existing holders of our common stock, and any sales in the public market of the common stock issuable upon conversion of the Series A Preferred Stock could adversely affect prevailing market prices of our common stock. Sales by such holders of a substantial number of shares of our common stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of our common stock.
The holders of shares of the Series A Preferred Stock may exercise significant influence over us.
The holders of the Series A Preferred Stock will own approximately 15% of our shares of common stock on a fully diluted as-converted basis based on the number of shares of common stock outstanding as of the date hereof.
In addition, under the terms of the Certificate of Designation that governs the Series A Preferred Stock, the Series A Preferred Stock generally ranks, with respect to liquidation, dividends and redemption, senior to other securities and, so long as any shares of Series A Preferred Stock remain outstanding, the approval of the holders of a majority of the Series A Preferred Stock outstanding at the time of approval is required in order for us to, among other things,(i) alter or change adversely the powers, preferences or rights given to the Series A Preferred Stock or alter or amend the Certificate of Designation; (ii) amend our Articles of Incorporation or bylaws in any manner that adversely affects any powers, preferences or rights of the Series A Preferred Stock; (iii) authorize or create any series or class of stock ranking as to redemption, distribution of assets upon a Liquidation Event (as defined in the Certificate of Designation) or dividends senior to, or otherwise pari passu with, the Series A Preferred Stock; (iv) declare or make any dividends other than dividend payments on the Series A Preferred Stock or other distributions payable solely in common stock; (v) authorize any increase in the number of shares of Series A Preferred Stock or issue any additional shares of Series A Preferred Stock; or (vi) enter into any agreement with respect to any of the foregoing.
The holders of Series A Preferred Stock will have rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stockholders.
Upon our liquidation, dissolution or winding up, the holders of the Series A PreferredCommon Stock will be entitledliquid or that it will remain listed on the NYSE American. A failure to receive outregain compliance with the NYSE American stockholders’ equity requirements or failure to continue to meet the other listing requirements could result in a de-listing of our assets, in preference to the holders of the common stock and any junior preferred stock, an amount per share equal to the greater of (i) the sum of the Accreted Value (as defined in the Certificate of Designation) plus an amount equal to all accrued or declared and unpaid dividends on the Series A Preferred Stock that have not previously been added to the Accrued Value, or (ii) the amount that such shares would have been entitled to receive if they had converted into common stock immediately prior to such liquidation, dissolution or winding up. In addition, upon consummation of a specified change of control transaction, each holder of Series A Preferred Stock will be entitled to have us redeem the Series A Preferred Stock at a price specified in the Certificate of Designation. These provisions may make it more costly for a potential acquirer to engage in a business combination transaction with us. Provisions that have the effect of discouraging, delaying or preventing a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock. If there are insufficient assets to pay in full such amounts, then the available assets will be ratably distributed to the holders of the Series A Preferred Stock in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. This will reduce the remaining amount of our assets, if any, available to distribute to holders of our common stock. The holders of Series A Preferred Stock also have a preferential right to receive cumulative dividends on the Accreted Value of each share of Series A Preferred Stock at an initial rate of 2% per annum, compounded quarterly.Common Stock.
In addition, the holders of the Series A Preferred Stock also have certain redemption and conversion rights.
Our obligations to the holders of Series A Preferred Stock could limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition. These preferential rights could also result in divergent interests between the holders of shares of the Series A Preferred Stock and holders of our common stock.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
We did not sell any equity securities during the quarterthree and nine months ended September 30, 20172020 in transactions that were not registered under the Securities Act, other than as previously disclosed in our filings with the SEC.Act.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
Not applicableOn November 9, 2020, we and CSMC mutually agreed to terminate the exclusive license agreement that we and our subsidiary, Synthetic Biomics, Inc. entered into with CSMC date December 5, 2013 and all amendments thereto and the clinical trial agreement relating to SYN-010. The determination to terminate the SYN-010 license agreement was agreed following the completion of a planned interim futility analysis of the Phase 2b investigator-sponsored clinical trial of SYN-010. On September 30, 2020, CSMC informed us that it discontinued the ongoing Phase 2b investigator-sponsored clinical study of SYN-010 IBS-C patients. Based on the results of a planned interim futility analysis, it was concluded that although SYN-010 was well tolerated, it was unlikely to meet its primary endpoint by the time enrollment is completed. The patent rights previously licensed to us covering the use of SYN-010 will remain the property of CSMC.
The exhibits filed or furnished as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which Exhibit Index is incorporated herein by reference.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SYNTHETIC BIOLOGICS, INC. | ||
| By: | /s/ | |
| Steven A. Shallcross | ||
| Chief Executive Officer, Chief Financial Officer | ||
| (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | ||
| Date: November | ||
EXHIBIT INDEX
| Exhibit Number | Exhibit Title |
*Filed herewith.