Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our audited financial statements and notes thereto for the years ended December 31, 2021 and 2020 included elsewhere in this Annual Report. In addition to historical information, the following discussion contains certain forward-looking statements that involve risks, uncertainties and assumptions. Where possible, we have tried to identify these forward-looking statements by using words such as “anticipate,” “believe,” “intends,” or similar expressions. Our actual results could differ materially from those expressed or implied by the forward-looking statements due to important factors and risks including, but not limited to, those set forth under “Risk Factors” in Part I, Item 1A of this Annual Report.
Overview
We are a diversified clinical-stage company developing therapeutics in ares of high unmet need. Prior to the Acqusiition fo VCN, our focus was on developing therapeutics designed to treat gastrointestinal (GI) diseases in areas of high unmet need which included. our lead clinical development candidates: (1) SYN-004 (ribaxamase) which is designed to degrade certain commonly used intravenous (IV) beta-lactam antibiotics within the GI tract to prevent microbiome damage, Clostridioides difficile infection (CDI), overgrowth of pathogenic organisms, 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. Upon consummation of the Acquisition of VCN, described in more detail below, we are now also focused upon the development of new oncolytic adenovirus platform designed for intravenous and intravitreal delivery to trigger tumor cell death, improve access of co-administered cancer therapies to the tumor, and promote a robust and sustained anti-tumor response by the patient’s immune-system.
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.
We are continuing to assess the potential impact of the COVID-19 pandemic. We are in close contact with our clinical development partners in order to assess the impact of COVID-19 on our studies and current timelines and costs. While we currently do not anticipate any interruptions in our operations due to COVID-19, it is possible that if the COVID-19 pandemic persists for an extended period of time, we could experience significant disruptions to our clinical development timelines due to the COVID-19 pandemic, which would adversely affect our business, financial condition, results of operations and growth prospects.
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 full extent to which the COVID-19 outbreak will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted. 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.
Acquisition of VCN Biosciences, S.L
On March 10, 2022, we completed our acquisition of all the outstanding shares of VCN (the “VCN Shares”) from the shareholders of VCN.
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VCN is a private, clinical-stage biopharmaceutical company developing new oncolytic adenoviruses for the treatment of cancer. VCN’s lead product candidate, VCN-01, is being studied in clinical trials for pancreatic cancer and retinoblastoma. VCN-01 is designed to be administered systemically, intratumorally or intravitreally, either as a monotherapy or in combination with standard of care, to treat a wide variety of cancer indications. VCN-01 is designed to replicate selectively and aggressively within tumor cells, and to degrade the tumor stroma barrier that serves as a significant physical and immunosuppressive barrier to cancer treatment, Degrading the tumor stroma has been shown to improve access to the tumor by the virus and additional therapies such as chemo- and immuno-therapies. Importantly, degrading the stroma exposes tumor antigens, turning “cold” tumors “hot” and enabling a sustained anti-tumor immune response. VCN has the rights to four exclusive patents for proprietary technologies, as well as technologies developed in collaboration with the Virotherapy Group of the Catalan Institute of Oncology (ICO-IDIBELL), with a number of additional patents pending.
Our Current Product Pipeline
*Based on management’s current beliefs and expectations
aGVHD acute graft-vs-host disease; allo-HCT allogeneic hematopoietic cell transplant. IAP recombinant bovine intestinal alkaline phosphatase II. CPI immune checkpoint inhibitor. Gem/Nab Gemcitabine + Abraxane® (nab-paclitaxel). HNSCC head and neck squamous cell carcinoma. IV intravenous. IVit intravitreal. MAD multiple ascending dose. ODD Orphan Drug Designation. OV oncolytic adenovirus engineered to selectively replicate in tumors and express hyaluronidase enzyme PH20 .
¹Additional products with preclinical proof-of-concept include SYN-006 (carbapenemase) to prevent aGVHD and infection by carbapenem resistant enterococci and SYN-007 (ribaxamase) DR to prevent antibiotic associated diarrhea with oral β-lactam antibiotics.
²Depending on funding/partnership. SYN-004 may enter an FDA-agreed Phase 3 clinical trial for the treatment of Clostridioides difficile infection.
³We have an option-license agreement with Massachusetts General Hospital to develop SYN-020 in several potential indications related to inflammation and gut barrier dysfunction.
Financial Developments
B Riley and AGP Securities Sales Agreement
We entered into an Amended and Restated At Market Issuance Sales Agreement, dated February 9, 2021, with B. Riley Securities, Inc., or B. Riley, and A.G.P./Alliance Global Partners, or AGP and together with B. Riley, the sales agents (the “Amended and Restated ATM Sales Agreement”), which replaced the At Market Issuance Sales Agreement, dated August 5, 2016, with B. Riley Securities, Inc.
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(formerly known as B. Riley FBR, Inc.), as amended by amendment no. 1 thereto, dated May 7, 2018 (the “Original ATM Sales Agreement”).
During the year ending December 31, 2021, we sold approximately 78.7 million shares of our common stock and received net proceeds of approximately $66 million, pursuant to the Amended and Restated ATM Sales Agreement and during the year ended December 31, 2020 we sold approximately 9.2 million shares of our common stock and received net proceeds of approximately $3.4 million, pursuant to the Original ATM Sales Agreement and the Amended and Restated ATM Sales Agreement.
Stock Warrants
On November 16, 2020, the exercise price of warrants issued by us in October 2018 (the “2018 Warrants”) was reduced from $1.38 per Warrant per full share of the Company’s common stock, $0.001 par value per share, to $0.69 per 2018 Warrant per full share of common stock pursuant to the terms of the Warrants. The reduction was the result of the issuance of shares of common stock by the us through its “at the market offering” facility. An entry to reduce the income available to common shareholders was recorded for $880,000 to recognize the value of the effect of the change in exercise price. During January and February 2021, 11,655,747 2018 Warrants were exercised for cash proceeds of $8.0 million.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, net revenues and expenses, and related disclosures. We believe our estimates and assumptions are reasonable; however, actual results and the timing of the recognition of such amounts could differ from these estimates.
There are accounting policies, each of which requires significant judgments and estimates on the part on management, that we believe are significant to the presentation of our consolidated financial statements. The most significant accounting estimates relate to research and development costs.
Research and Development Costs
We expense research and development costs associated with developmental products not yet approved by the FDA to research and development expense as incurred. Research and development costs consist primarily of license fees (including upfront payments), milestone payments, manufacturing costs, salaries, stock-based compensation and related employee costs, fees paid to consultants and outside service providers for laboratory development, legal expenses resulting from intellectual property prosecution and other expenses relating to the design, development, testing and enhancement of our product candidates. Research and development expenses include external contract research organization (“CRO”) services. We make payments to the CROs based on agreed upon terms and may include payments in advance of study services. We review and accrue CRO expenses based on services performed and rely on estimates of those costs applicable to the stage of completion of study as provided by the CRO. Accrued CRO costs are subject to revisions as such studies progress to completion. At December 31, 2021 and 2020, we have accrued CRO expenses of $0.7 million that are included in accrued expenses. As of December 31, 2021, and 2020, we have prepaid CRO costs of $0.5 million that are included in prepaid expenses.
Results of Operations
Years Ended December 31, 2021 and 2020
General and Administrative Expenses
General and administrative expenses increased to $6.5 million for the year ended December 31, 2021, from $5.0 million for the year ended December 31, 2020. This increase of 28.7% primarily comprised of increased consulting and legal costs related to the VCN acquisition, higher insurance costs, audit fees, and public relations expenses. The charge relating to stock-based compensation expense was $0.3 million for the year ended December 31, 2021, compared to $0.3 million for the year ended December 31, 2020. In addition, we expect general and administrative expenses to increase as we increase headcount due to the Acquisition.
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Research and Development Expenses
Research and development expenses increased to $7.8 million for the year ended December 31, 2021, from $5.1 million for the year ended December 31, 2020. This increase of 53% is primarily the result of increased clinical trial expenses as we continued dosing patients in the Phase 1b/2a clinical trial of SYN-004, the dosing of healthy volunteers in the SAD and MAD Phase 1 clinical trials for SYN-020, and by higher indirect program costs for the year ended December 31, 2021, including an increase in manufacturing costs for SYN-020. We anticipate research and development expense to increase as our ongoing clinical trials continue to enroll patients. Research and development expenses also include a charge relating to non-cash stock-based compensation expense of $76,000 for the year ended December 31, 2021, compared to $66,000 for the year ended December 31, 2020. In addition, we expect research and development expenses to increase as we incur program costs for VCN’s product candidates.
The following table sets forth our research and development expenses directly related to our therapeutic areas for the years ended December 31, 2021 and 2020. These direct expenses were external costs associated with preclinical studies and clinical trials. Indirect research and development costs related to employee costs, facilities, manufacturing, stock-based compensation and research and development support services are not directly allocated to specific drug candidates.
December 31,
December 31,
2021
2020
Therapeutic Areas
(in thousands)
(in thousands)
SYN-020
$
2,431
$
—
SYN-004
1,366
245
SYN-010
—
430
Other therapeutic areas
10
40
Total direct costs
3,807
715
Total indirect costs
3,993
4,416
Total research and development
$
7,800
$
5,131
Total Other Income
Other income was $6,000 for the year ended December 31, 2021, compared to other income of $44,000 for the year ended December 31, 2020. Other income for the year ended December 31, 2021 and 2020 is primarily comprised of interest income from investments.
Net Loss
Our net loss for the year ended December 31, 2021 was $14.3 million, or ($0.19) per common share, compared to $10.0 million, or ($0.66) per common share for the year ended December 31, 2020. Net loss attributable to common stockholders for the year ended December 31, 2021 was $23.2 million and excludes net loss attributable to non-controlling interest of $1,000, and includes the accretion of the Series B preferred stock deemed dividends of $1.5 million on converted shares and Series A preferred stock accrued dividends of $24,000 and the deemed dividend for the effect of the Series A preferred shares price adjustment of $7.4 million. Net loss attributable to common stockholders for the year ended December 31, 2020 was $12.6 million, and excludes net loss attributable to non-controlling interest of $73,000 and includes the accretion of the Series B preferred stock deemed dividends of $1.4 million on converted shares, the effect of the warrant exercise price adjustment of $880,000 and Series A preferred stock accrued dividends of $254,000.
Liquidity and Capital Resources
We have experienced significant losses since inception, incurred negative cash flows from operations, and have a significant accumulated deficit. We have incurred an accumulated deficit of $271.3 million as of December 31, 2021 and expect to continue to incur losses in the foreseeable future.
Our cash and cash equivalents totaled $67.3 million as of December 31, 2021, an increase of $61.1 million from December 31, 2020. During the year ended December 31, 2021, the primary use of cash was for working capital requirements and operating activities which resulted in a net loss of $14.3 million for the year ended December 31, 2021. From January through December 31, 2021, we have raised approximately $74 million from cash received via the exercise of the 2018 Warrants and sales of our common stock through the Original ATM Sales Agreement and the Amended and Restated ATM Sales Agreement. With the cash available in mid March 2022 of $57.1 million, we believe these resources will be sufficient to fund our operations through at least the end of the fourth quarter of 2023, including the $2.4 million of obligations we agreed to assume and the $27.8 million of research and development expenses we agreed to fund over the next three years.
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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 future results of operations. We are actively monitoring the global 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 curb its spread, we are not able to estimate the future effects of the COVID-19 outbreak on our results of operations, financial condition, or liquidity.
Although we are experiencing limited, if any, adverse impact to our financial stability stemming from the global economic slowdown, the overall disruption of global healthcare systems and other risks and uncertainties associated with the COVID-19 pandemic, including uncertainty regarding our clinical trial timelines, our business, financial condition, results of operations and growth prospects could be materially adversely affected.
Historically, we have financed our operations primarily through public and private sales of our securities, and we expect to continue to seek and obtain additional capital in a similar manner. During the year ended December 31, 2021, our only source of cash was from the exercise of the 2018 Warrants and sales of our common stock through the Original ATM Sales Agreement and the Amended and Restated ATM Sales Agreement discussed above.
During the year ended December 31, 2020, our only source of financing other than warrant exercises was from sales of 9.2 million shares of our common stock utilizing our at-the-market offering program through the Original ATM Sales Agreement pursuant to which we received net proceeds of approximately $3.4 million.
There can be no assurance that we will be able to continue to raise funds through the sale of shares of common stock through the Amended and Restated ATM Sales Agreement. If we raise funds by selling additional shares of common stock or other securities convertible into common stock, the ownership interest of our existing stockholders will be diluted. If we are not able to obtain funding 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.
We have committed, and expect to continue to commit, substantial capital in order to implement our business strategy, including our planned product development efforts, preparation for our planned clinical trials, and performance of clinical trials and our research and discovery efforts. We believe our cash position of $57.1 million in mid March 2022 is sufficient to fund our operations through at least the end of the fourth quarter of 2023, including continuation of our ongoing Phase 1b/2a clinical study of SYN-004 (ribaxamase) in allogeneic HCT recipients for the prevention of aGVHD, as well as our planned Phase 1 and Phase 2 clinical programs for SYN-020 and to fund our committed obligations under the Purchase Agreement for the VCN Acquisition.
Following the anticipated completion of our ongoing Phase 1b/2a clinical study of SYN-004 (ribaxamase) in allogeneic HCT recipients, the Phase 1 SAD and MAD clinical studies and planned Phase 2a clinical trial 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 aforementioned clinical programs. 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.
As the COVID-19 coronavirus continues to spread around the globe, we have experienced disruptions that impacted our business and clinical trials, including halting the enrollment of new patients in our previous Phase 2b investigator-sponsored clinical trial of SYN-010 and postponement of clinical site initiation of the Phase 1b/2a clinical trial of SYN-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 future results of operations. We are actively monitoring the global 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 curb its spread, we are not able to estimate the future effects of the COVID-19 outbreak on our results of operations, financial condition, or liquidity.
License and Contractual Agreement Obligations
We have entered into several license and collaborative agreements for the right to use research, technology and patents. Some of these license and collaborative agreements may contain milestones. The specific timing of such milestones cannot be predicted and are dependent on future developments as well as regulatory actions which cannot be predicted with certainty (including actions which may never occur). Further, under the terms of certain licensing agreements, we may have the obligation to pay certain milestones contingent upon the achievement of specific levels of sales.
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Off-Balance Sheet Arrangements
During the years ended December 31, 2021 and 2020, we did not have, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.
Consulting Fees
In November 2017, we engaged a regulatory consultant to assist in our efforts to prepare, file and obtain FDA approval for ribaxamase. The term of the engagement was on a monthly basis, provided that either party may terminate the agreement at any time by providing the other party a six-month notice period. We were obligated to pay the consultant a monthly retainer in addition to the success fee payments of up to an aggregate of $4,500,000 for attainment of certain regulatory milestones. We do not deem the contingent fee is probable at this time.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.