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Item 7. Management’s Discussion and Analysis

2024-03-25 compared with 2023-03-30 · 96 added, 150 removed, 108 unchanged (69% of the section changed)

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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.

We are a diversified clinical-stage company developing therapeutics in areas of high unmet need.

As a result of the Acquisition of VCN (now Theriva Biologics S.L.), described in more detail below, we began transitioning our strategic focus to oncology through the development of VCN’s 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.

Prior to the Acquisition, our focus was on developing therapeutics designed to treat gastrointestinal (GI) diseases which included.

our lead clinical development candidates:

We are a diversified clinical-stage company developing therapeutics designed to treat cancer and related diseases in areas of high unmet need.

As a result of the acquisition in March 2022 of Theriva Biologics, S.L.

(“VCN”, formerly named VCN Biosciences, S.L.), described in more detail below (the “Acquisition”), we began transitioning our strategic focus to oncology, which is now our primary focus, through the development of VCN’s new oncolytic adenovirus platform designed for intravenous and intravitreal delivery to trigger tumor cell death, to improve access of co-administered cancer therapies to the tumor, and to promote a robust and sustained anti-tumor response by the patient’s immune system.

Our lead product candidate, VCN-01, a clinical stage oncolytic human adenovirus that is modified to express an enzyme, PH20 hyaluronidase, is currently being administered in a Phase 2 clinical study for the treatment of pancreatic cancer, a Phase 1 clinical study for the treatment of retinalblastoma, a Phase 1 clinical study for the treatment of head and neck squamous cell carcinoma and a Phase 1 clinical study for the treatment of solid tumors.

Prior to the Acquisition, our focus was on developing therapeutics designed to treat gastrointestinal (GI) diseases which included our 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, thereby preventing overgrowth and infection by pathogenic organisms such Clostridioides difficile infection (CDI) and vancomycin resistant Enterococci (VRE), and reducing the incidence and severity of 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.

As part of our strategic transformation into an oncology focused company, we are exploring value creation options around our SYN-004 and SYN-020 assets.

SYN-004 and SYN-020 both have significant potential opportunity in non-oncology related indications.

Advancement of these products may be better achieved through out-licensing or partnering and we will explore opportunities for both SYN-004 and SYN-020 moving forward.

Effective October 12, 2022, we changed our name to Theriva Biologics, Inc.

by filing a Certificate of Amendment to its Articles of Incorporation (the “Certificate of Amendment”) with the Secretary of State of the State of Nevada on October 11, 2022.

In addition, effective October 12, 2022, we amended and restated our Amended and Restated Bylaws (the “Bylaws”) to reflect the Name Change (the “Amended and Restated Bylaws”).

The Amended and Restated Bylaws contain no other changes.

In connection with the Name Change, our Common Stock began trading on the NYSE American LLC under the new ticker symbol “TOVX” effective as of the opening of trading hours on October 13, 2022.

Effective November 15, 2022, our acquired subsidiary VCN Biosciences S.L.

rebranded to Theriva Biologics S.L.

without other changes to its corporate structure.

Acquisition of VCN Biosciences, S.L (now Theriva Biologics S.L.)

On March 10, 2022, pursuant to the terms of the Share Purchase Agreement (“Purchase Agreement”) we entered into with VCN and the shareholders of VCN Biosciences S.L.

(the “Sellers”), we completed our acquisition of all the outstanding shares of VCN (the “VCN Shares”) from the shareholders of VCN.

Pursuant to the Purchase Agreement, as consideration for the purchase of the VCN Shares of capital stock, we paid $4,700,000 (the “Closing Cash Consideration”) to Grifols Innovation and New Technologies Limited (“Grifols”),

the owner of approximately 86% of the equity of VCN, and issued to the remaining Sellers 2,639,530 shares of our Common Stock, (the “Closing Shares”), representing 19.99% of the outstanding shares of our common stock on December 14, 2021, the date of the Purchase Agreement.

As additional consideration for the purchase of the VCN Shares held by Grifols, we also agreed to make certain milestone payments to Grifols.

In September 2022, we received approval from the FDA to proceed with our Phase 2 clinical trial of VCN-01.

Due to this approval we paid Grifols $3.0 million in Q4 2022.

Pursuant to the terms of the Purchase Agreement we loaned VCN $417,000 to help finance the costs of certain of VCN’s research and development activities.

In addition, at Closing VCN and Grifols entered into a sublease agreement for the sublease by VCN of the laboratory and office space as well as a transitional services agreement.

We agreed as a post- Closing covenant to commit to fund VCN’s research and development programs, including but not limited to VCN-01 PDAC Phase 2 trial, VCN-01 RB trial and necessary G&A within a budgetary plan of approximately $27.8 million.

VCN (now known as Theriva Biologics S.L.) is a clinical-stage biopharmaceutical company developing new oncolytic adenoviruses for the treatment of cancer.

Theriva’s lead product candidate, VCN-01, is being studied in clinical trials for pancreatic cancer and retinoblastoma with additional investigator sponsored trials in indications including head and neck squamous cell carcinoma (HNSCC) and brain tumors.

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.

Theriva has the exclusive rights to four patent families for proprietary technologies, as well as technologies developed in collaboration with the Virotherapy Group of the Catalan Institute of Oncology (ICO-IDIBELL) and with Hospital Sant Joan de Deu (HSJD), with a number of additional patents pending.

As part of our strategic transformation into an oncology focused company, we are exploring value creation options for our SYN-004 and SYN-020 assets, including out-licensing or partnering.

Financial Developments

Reverse Stock Split

On July 15, 2022, we announced a reverse stock split (the “Reverse Stock Split”) of our issued and outstanding Common Stock, at a ratio of one (1) share of Common Stock for every ten (10) shares of Common Stock, effective July 25, 2022 (the “Effective Date”).

Our Common Stock began trading on a split-adjusted basis on the NYSE American when the market opened on July 25, 2022.

The Reverse Stock Split was authorized by our Board of Directors on July 11, 2022.

Private Placement Offering

On July 29, 2022, we closed a private placement offering pursuant to the terms of a Securities Purchase Agreement (the “Purchase Agreement”) dated as of July 28, 2022 entered into with MSD Credit Opportunity Master Fund, L.P.

(the “Investor”), pursuant to which we issued and sold (the “Offering”) 275,000 shares of the Company’s Series C Convertible Preferred Stock, par value $0.001 per share (the “Series C Preferred Stock”), and 100,000 shares of the Company’s Series D Convertible Preferred Stock, par value $0.001 per share (the “Series D Preferred Stock,” and together with the Series C Preferred Stock, the “Preferred Stock”), at an offering price of $8.00 per share, for gross proceeds of approximately $3.0 million in the aggregate, before the deduction of discounts, fees and offering expenses.

The shares of Preferred Stock will be convertible, at a conversion price (the “Conversion Price”) of $1.22 per share (subject in certain circumstances to adjustments), into an aggregate of 2,459,016 shares of Common Stock, at the option of the holders of the Preferred Stock and, in certain circumstances, by the Company.

The Purchase Agreement contains customary representations, warranties and agreements by the Company and customary conditions to closing.

Stock Repurchase

On December 22, 2022, we repurchased an aggregate of 720,000 shares of Common Stock from three founders of its subsidiary Theriva Biologics S.L.

(formerly known as VCN Biosciences S.L.) in a privately negotiated transaction pursuant to the terms of a Share Repurchase Agreement (the “Share Repurchase Agreement”) entered into on December 20, 2022 with each of the Selling Stockholders.

The price per share was $0.4001, which was the closing price of the Common Stock on the day prior to the closing for an aggregate purchase price was $288,072.

The closing was subject to fulfillment of certain conditions, including delivery of certain closing documents.

The Share Repurchase Agreement contains customary representations, warranties and covenants of the parties.

The repurchase was funded from our cash on hand and the shares to be repurchased will be held as treasury stock.

The Selling Stockholders acquired the shares of Common Stock as consideration for the sale of their shares of the subsidiary to the Company in March 2022.

Stock Warrants

On August 3, 2022, we announced the exercise price of warrants issued in October 2018 was reduced from $6.90 per Warrant per full share of our Common Stock to $1.22 per Warrant per full share of Common Stock.

The reduction was the result of the issuance of shares of Preferred Stock in a private placement.

The effect of the change in the exercise price of the warrants as a result of the triggering of the down round protection clause in the Warrants was recorded as a deemed dividend of $340,000 during the year ended December 31, 2022, which reduces the income available to common stockholders.

During January and February 2021, 1,165,575 of the 2018 Warrants were exercised for cash proceeds of $8.0 million.

Recent Clinical Developments

On July 8, 2022, we were notified of the clearance of the safety evaluation period by the first patient that had been dosed in the investigator sponsored Phase 1 clinical trial evaluating VCN-01 (NCT05057715), an intravenous oncolytic adenovirus, in combination with mesothelin-directed lentiviral transduced human chimeric antigen receptor modified T cells (huCART-meso) for patients with pancreatic and serious epithelial ovarian cancers.

On September 5, 2022, we issued a press release announcing presentation of a poster entitled “A Phase I Study to Evaluate the Safety, Tolerability, and Efficacy of VCN-01 in Combination with Durvalumab (MEDI4736) in Subjects with Recurrent/ Metastatic Squamous Cell Carcinoma of the Head and Neck (R/M HNSCC)” at the European Society for Medical Oncology (ESMO) Congress of initial data from a Phase 1 investigator-sponsored study evaluating VCN-01 in combination with durvalumab for patients with recurrent/metastatic squamous cell carcinoma of the head and neck (R/M HNSCC).

We also issued a press release on September 12, 2022,

Key data and conclusions featured in the ESMO presentation included:

Treatment with VCN-01 had an acceptable safety profile when administered with durvalumab in the sequential regimen (single dose of VCN-01 administered 14 days prior to the first dose of durvalumab;

o The most common treatment-related adverse events (TRAEs) were pyrexia, flu-like symptoms and increases in liver transaminases.

o TRAEs were dose-dependent, reversible and consistent with TRAEs previously described for other adenovirus-based products.

● Pharmacokinetics (PK) and pharmacodynamics (PD) :

Based on toxicology and PK/PD analysis the recommended Phase 2 dose is 1x10 13 viral particles (vp)/patient.

● Biological activity :

Sustained blood levels of VCN-01 viral genomes and increased serum hyaluronidase levels were maintained for over six weeks.

o Observed an increase in CD8 T cells, a marker of tumor inflammation and an upregulation of PD-L1 in tumors.

o Analysis of serial tumor biopsies revealed differential gene expression profiles and downregulation of matrix-related pathways after VCN-01 administration.

On September 27, 2022, we issued a press release announcing positive outcome from the DSMC review of results from the first Cohort of our Phase 1b/2a randomized, double-blinded, placebo-controlled clinical trial of SYN-004 (ribaxamase) in allogeneic hematopoietic cell transplant (HCT) recipients for the prevention of acute graft-versus-host-disease (aGVHD;

NCT04692181).

Cohort 1 enrolled 19 patients who received at least 1 dose of study drug (SYN-004 or Placebo randomized 2:1).

Sixteen patients received at least one dose of intravenous (IV) meropenem and 12 of these patients completed sufficient doses of IV meropenem to be evaluable towards the study endpoints.

The study is on-going and remains blinded;

however, key findings from blinded data for Cohort 1 are included below:

● Adverse events (AEs) and serious adverse events (SAEs) observed in Cohort 1 were typical of those observed in allo-HCT patients and no AEs or SAEs were determined to be related to study drug treatment by the investigators.

o A total of 13 SAEs were reported among 10 patients, with the most common SAE being infections and infestations including sepsis.

o One patient died 14 days after the last dose of study drug (within the 30-day reporting period) due to sepsis that was not related to study drug.

● Consistent with previous studies of SYN-004 in healthy volunteers, SYN-004 was not observed in blood samples from the majority of the evaluable patients.

o A total of 3 plasma samples (~2% of all analyzed samples) had low but quantifiable levels of SYN-004 using a sensitive ECL assay.

o None of the 3 ECL positive plasma samples was found to contain active SYN-004 using a functional enzyme activity assay.

● Meropenem pharmacokinetics were as expected for this patient population.

Based on a review of the safety and pharmacokinetic data, the DSMC recommended that the study may proceed to enroll Cohort 2 in which study drug (SYN-004 or Placebo) will be administered in combination with the IV beta-lactam antibiotic piperacillin/tazobactam.

On September 30, 2022, we issued a press release announcing an oral presentation entitled “Topotecan enhances oncolytic adenovirus infection, replication and antitumor activity in retinoblastoma,” featuring Dr.

Victor Burgueño, Professor at Fundació Sant Joan de Déu at the SIOP 2022 Congress of the International Society of Pediatric Oncology, being held in Barcelona, Spain from September 28-October 1, 2022.

The new data from the study for which Dr.

Victor Burgueño is the lead investigator further support evaluation of VCN-01, an oncolytic adenovirus expressing hyaluronidase, and topotecan for the treatment of refractory retinoblastoma.

Key data and conclusions showcased in the SIOP presentation included:

● VCN-01 treatment in combination with topotecan, but not with carboplatin or melphalan, significantly increased VCN-01 infection and replication in retinoblastoma cells (p=0.0007) in vitro.

● In athymic mice engrafted with human retinoblastomas, topotecan administered systemically after intratumoral VCN-01 increased viral genome replication and the number of VCN-01 infected cells when compared to administration of VCN-01 alone (p = 0.0002).

● Sequential administration of intratumoral VCN-01 followed by systemic topotecan significantly increased median ocular survival, compared to VCN-01 alone (p =0.0364).

On November 3, 2022, we issued a press release announcing the first patient has been dosed in Cohort 2 of its Phase 1b/2a randomized, double-blinded, placebo-controlled clinical trial of SYN-004 (ribaxamase) in allogeneic hematopoietic cell transplant (HCT) recipients for the prevention of acute graft-versus-host-disease (aGVHD).

On January 9, 2023, we issued a press release announcing that the first patient has been dosed in the Phase 1 investigator sponsored clinical trial of intravenous VCN-01 in patients with high-grade brain tumors who are scheduled for surgical resection.

On January 17, 2023, we issued a press release announcing the first patient has been dosed in VIRAGE, the Phase 2b randomized, open-label, placebo-controlled, multicenter clinical trial of systemically administered VCN-01 in combination with standard-of-care (SoC) chemotherapy (gemcitabine/nab-paclitaxel) as a first line therapy for patients with newly-diagnosed metastatic pancreatic ductal adenocarcinoma (PDAC;

NCT05673811).

Tax Credit Receivable

During the year ended December 31, 2023, we recognized a $1.8 million tax credit receivable and offsetting deferred R&D tax credit.

We participate in a research and development program sponsored by the Spanish government.

The program provides for reimbursement of certain expenses incurred in research and development efforts we incur in Spain.

The reimbursements can be through either tax credits or direct refunds.

The program provides for certain limits on the types and amounts of expenses and requires participants to complete a certification and apply for the refund annually.

Subsequent to the period in which expenses are incurred, the program requires participants to maintain certain workforce levels and research and development expenditures over a 24-month period.

In the quarter ended June 30, 2023, we completed the certification and applied for direct reimbursement, for our qualifying research and development expenses incurred in the year ended December 31, 2022.

We received approvals from the Spanish government in September and October 2023.

The credit will be amortized as a contra-expense over the two-year period 2024 and 2025.

B Riley and AGP Securities Sales Agreement

During the year ended December 31, 2023, we sold an aggregate of 2.0 million shares of our common stock and received net proceeds of approximately $2.2 million before deducting issuance expenses.

During the quarter ended December 31, 2023, we sold an aggregate of 105,284 shares of our common stock and received net proceeds of approximately $62,000.

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.

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IVit intravitreal.

MAD multiple ascending dose.

ODD Orphan Drug Designation.

OV oncolytic adenovirus engineered to selectively replicate in tumors and express hyaluronidase enzyme PH20 .

For other abbreviations see the text.

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.

SYN-004 may enter an FDA-agreed Phase 3 clinical trial for the treatment of CDI.

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.

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The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S.

GAAP) which requires 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 condensed 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;

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Business Combination

The Company accounts for acquisitions using the acquisition method of accounting, which requires that all identifiable assets acquired, and liabilities assumed be recorded at their estimated fair values.

We account for acquisitions using the acquisition method of accounting, which requires that all identifiable assets acquired, and liabilities assumed be recorded at their estimated fair values.

The excess of the fair value of purchase consideration over the fair values of identifiable assets and liabilities is recorded as goodwill.

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Management’s estimates of fair value are based upon assumptions believed to be reasonable, but are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

The Company classifies intangible assets into two categories:

As a result of the acquisition of VCN (see Note 5), we recorded two intangible assets:

in-process research and development (“IPR&D”) and goodwill.

The IPR&D and goodwill are deemed to have indefinite lives and therefore not amortized.

Goodwill and IPR&D

We classify intangible assets into two categories:

(1) intangible assets with indefinite lives not subject to amortization and (2) goodwill.

Intangible assets that are deemed to have indefinite lives, including goodwill, are reviewed for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired.

The impairment test for indefinite-lived intangibles, other than goodwill, consists of a comparison of the fair value of the intangible asset with its carrying amount.

The impairment test for indefinite-lived intangibles, other than goodwill, consists of a comparison of the fair value of the intangible asset with their carrying amount.

If the carrying amount exceeds the fair value, an impairment charge is recognized in an amount equal to that excess.

Indefinite-lived intangible assets, such as goodwill, are not amortized.

The Company tests the carrying amounts of goodwill for recoverability on an annual basis or when events or changes in circumstances indicate evidence a potential impairment exists, using a fair value-based test.

If a reporting unit’s carrying value exceeds its fair value, then the Company will record a goodwill impairment charge for the excess amount.

In-process research and development, or IPR&D, assets are considered to be indefinite-lived until the completion or abandonment of the associated research and development projects.

IPR&D assets represent the fair value assigned to technologies that the Company acquires, which at the time of acquisition have not reached technological feasibility and have no alternative future use.

During the period that the assets are considered indefinite-lived, they are tested for impairment on an annual basis, or more frequently if the Company becomes aware of any events occurring or changes in circumstances that indicate that the fair value of the IPR&D assets are less than their carrying amounts.

We test the carrying amounts of goodwill for recoverability on an annual basis or when events or changes in circumstances indicate evidence a potential impairment exists, using a fair value-based test.

If a reporting unit’s carrying value exceeds its fair value, then we will record a goodwill impairment charge for the excess amount.

IPR&D assets are considered to be indefinite-lived until the completion or abandonment of the associated research and development projects.

IPR&D assets represent the fair value assigned to technologies that we acquire, which at the time of acquisition have not reached technological feasibility and have no alternative future use.

During the period that the assets are considered indefinite-lived, they are tested for impairment on an annual basis, or more frequently if we become aware of any events occurring or changes in circumstances that indicate that the fair value of the IPR&D assets are less than their carrying amounts.

If and when development is complete, which generally occurs upon regulatory approval and the ability to commercialize products associated with the IPR&D assets, these assets are then deemed definite-lived and are amortized based on their estimated useful lives at that point in time.

If development is terminated or abandoned, the Company may have a full or partial impairment charge related to the IPR&D assets, calculated as the excess of carrying value of the IPR&D assets over fair value.

Goodwill represents the excess of the purchase price paid when the Company acquired VCN in March 2022, over the fair values of the acquired tangible or intangible assets and assumed liabilities.

The Company will conduct an impairment test of goodwill on an annual basis as of October 1 of each year and will also conduct tests if events occur or circumstances change that would, more likely than not, reduce the Company’s fair value below its net equity value.

During the quarters ended September 30 and December 31, 2022, the Company experienced a sustained decline in the quoted market price of the Company’s common stock and the Company deemed this to be a triggering event.

The Company performed an impairment analysis at both September 30 and December 31, 2022 and concluded that the Goodwill and IPR&D was not impaired at both dates.

If development is terminated or abandoned, we may have a full or partial impairment charge related to the IPR&D assets, calculated as the excess of carrying value of the IPR&D assets over fair value.

Goodwill represents the excess of the purchase price paid when we acquired VCN in March 2022, over the fair values of the acquired tangible or intangible assets and assumed liabilities.

We will conduct an impairment test of goodwill on an annual basis as of October 1 of each year and will also conduct tests if events occur or circumstances change that would, more likely than not, reduce our fair value below our net equity value.

During the quarters ended September 30, 2023 and December 31, 2022, we experienced a sustained decline in the quoted market price of our common stock and we deemed this to be a triggering event.

We performed an impairment analysis and concluded that the Goodwill and IPR&D was not impaired.

There were no impairment changes recorded in 2023 or 2022.

Contingent Consideration

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Contingent consideration liabilities are measured at their estimated fair value as of the date of acquisition, with subsequent changes in fair value recorded in the consolidated statements of operations.

The Company estimates the fair value of the contingent consideration as of the acquisition date using the estimated future cash outflows based on the probability of meeting future milestones.

The milestone payments will be made upon the achievement of clinical and commercialization milestones as well as single low digit royalty payments and payments upon receipt of sublicensing income.

Subsequent to the date of acquisition, the Company reassesses the actual consideration earned and the probability-weighted future earn-out payments at each balance sheet date.

We estimate the fair value of the contingent consideration as of the acquisition date using the estimated future cash outflows based on the probability of meeting future milestones.

The milestone payments will be made upon the achievement of clinical and commercialization milestones.

Subsequent to the date of acquisition, we reassess the actual consideration earned and the probability-weighted future earn-out payments at each balance sheet date.

Any adjustment to the contingent consideration liability will be recorded in the consolidated statements of operations.

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Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset.

Recoverability measurement and estimating of

undiscounted cash flows is done at the lowest possible level for which we can identify assets.

Recoverability measurement and estimating of undiscounted cash flows is done at the lowest possible level for which we can identify assets.

If such assets are considered to be impaired, impairment is recognized as the amount by which the carrying amount of assets exceeds the fair value of the assets.

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Upon achieving regulatory approval or commercial viability for the related product, the indefinite-lived intangible asset is accounted for as a finite-lived asset and is amortized on a straight-line basis over the estimated useful life.

If the project is not completed or is terminated or abandoned, the Company may have an impairment related to the IPR&D which is charged to expense.

If the project is not completed or is terminated or abandoned, we may have an impairment related to the IPR&D which is charged to expense.

Indefinite-lived intangible assets are tested for impairment annually and whenever events or changes in circumstances indicate that the carrying amount may be impaired.

Impairment is calculated as the excess of the asset’s carrying value over its fair value.

The Company performed an impairment analysis at both September 30 and December 31, 2022 and concluded that the Goodwill and IPR&D was not impaired at both dates.

During the quarters ended September 30, 2023 and December 31, 2022, we experienced a sustained decline in the quoted market price of our common stock and we deemed this to be a triggering event.

We performed an impairment analysis and concluded that the Goodwill and IPR&D was not impaired.

Research and Development Costs

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General and Administrative Expenses

General and administrative expenses increased to $9.9 million for the year ended December 31, 2022, from $6.5 million for the year ended December 31, 2021.

This increase of 50.8% is primarily comprised of increased expense related to the fair value of the contingent consideration, higher insurance costs, additional salary and benefits related to new headcount, public relations expenses, and VCN administrative expenses not included in the prior year, offset by a decrease in consulting and legal costs related to the VCN acquisition.

General and administrative expenses decreased to $7.1 million for the year ended December 31, 2023, from $9.9 million for the year ended December 31, 2022.

This decrease of 28% is primarily comprised of the decrease in the expense related to the fair value of the contingent consideration of $2.8 million, along with lower salary, investor relations, legal costs, consulting related to the VCN acquisition, and director and officer insurance offset by higher audit fees, and other consulting fees.

The charge relating to stock-based compensation expense was $0.4 million for the year ended December 31, 2023, compared to $0.4 million for the year ended December 31, 2022.

In addition, we expect general and administrative expenses to increase as we increase headcount and related overhead due to the VCN acquisition.

Research and Development Expenses

Research and development expenses increased to $14.3 million for the year ended December 31, 2023, from $11.7 million for the year ended December 31, 2022.

This increase of 50% is primarily the result of increased clinical trial expenses related to VCN-01 not incurred in the prior year, offset by lower clinical and manufacturing expenses related to our Phase 1a clinical trial of SYN-020 and expenses related to our Phase 1b/2a clinical trial of SYN-004 (ribaxamase) in allogeneic HCT recipients.

We anticipate research and development expense to increase as we continue enrollment in our VIRAGE Phase 2 clinical trial of VCN-01 in PDAC, and our ongoing Phase 1 clinical trial in retinoblastoma, expand GMP manufacturing activities for VCN-01, and continue supporting our VCN-11 and other preclinical and discovery initiatives.

This increase of 22% is primarily the result of higher clinical trial expenses related to our VIRAGE Phase 2 clinical trial of VCN-01 in PDAC, offset by lower expenses related to our Phase 1b/2a clinical trial of SYN-004 (ribaxamase) in allogeneic HCT recipients, the completed Phase 1a clinical trial of SYN-020, decreased manufacturing expenses related to our Phase 1a clinical trial of SYN-020 and lower other indirect costs.

We anticipate research and development expense to increase as we continue enrollment in our VIRAGE Phase 2 clinical trial of VCN-01 in PDAC and finalize our Phase 1 clinical trial in retinoblastoma, expand GMP manufacturing activities for VCN-01, and continue supporting our VCN-11 and other preclinical and discovery initiatives.

Research and development expenses also include a charge relating to non-cash stock-based compensation expense of $165,000 for the year ended December 31, 2023, compared to $112,000 for the year ended December 31, 2022.

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Other income was $1,442,000 for the year ended December 31, 2023, compared to other income of $471,000 for the year ended December 31, 2022.

Other income for the year ended December 31, 2023 is primarily comprised of interest income of $1,439,000 and an exchange gain of $3,000.

Other income for the year ended December 31, 2022 is primarily comprised of interest income of $512,000 offset by an exchange loss of $41,000

Other income for the year ended December 2021 was primarily comprised of interest income

Income Tax Benefit

Our income tax benefit was $1.4 million for the year ended December 31, 2022, solely as a result of net operating losses incurred by our VCN subsidiary acquired in 2022.

The Company’s effective tax rate in 2022 was 6.75%, which differs from the federal statutory rate of 21% primarily due to the change in our valuation allowance, VCN’s foreign tax benefit, the fair market value adjustment for the contingent consideration, along with the effects of other nondeductible permanent differences.

For the year ended December 31, 2021 we had no income tax provision or benefit due to the Company’s domestic net losses and full valuation allowance against our net deferred tax assets.

Our income tax benefit was $1.6 million and $1.4 million for the years ended December 31, 2023 and 2022 respectively, solely as a result of net operating losses incurred by our VCN subsidiary acquired in 2022.

Our effective tax rate for the years ended December 31, 2023 and 2022 was 8.2% and 6.75%, respectively, which differs from the federal statutory rate of 21% primarily due to the change in our valuation allowance, VCN’s foreign tax benefit, the fair market value adjustment for the contingent consideration, along with the effects of other nondeductible permanent differences.

Our net loss for the year ended December 31, 2023 was $18.3 million, or ($1.14) per common share, compared to $19.7 million, or ($1.31) per common share for the year ended December 31, 2022.

Net loss attributable to common stockholders for the year ended December 31, 2022 was $20 million and includes the deemed dividend for the effect of the Series C Preferred Stock and Series D Preferred Stock price adjustment of $0.3 million.

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.

There was no deemed dividend adjustment in 2023.

Liquidity and Capital Resources

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During the year ended December 31, 2023, 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 year ended December 31, 2023.

Cash and cash equivalents includes the net proceeds from sales of our Series C Preferred Stock and Series D Preferred Stock issued during the year ended December 31, 2022, Common Stock in “at-the-market” (ATM) equity offerings during 2021 and cash proceeds through the exercise of a portion of the October 2018 warrants.

With these additional sources of liquidity, we believe we will be able to fund our operations through the second quarter and into the

third quarter of 2024.

Management believes its plan, which includes the additional testing of SYN-004 (ribaxamase) and the advancement of VCN-01 will allow us to meet our financial obligations, further advance key products, and maintain our planned operations for at least one year from the issuance date of these consolidated financial statements.

However, the amount of additional capital needed by us will also depend upon the costs to advance our VCN-01 clinical programs and whether we continue to develop SYN-004 and/or SYN-020 internally or we out-license or partner such development.

If necessary, we may attempt to utilize the ATM or seek to raise additional capital on the open market, neither of which is guaranteed.

With our cash position of $19.0 million in early March 2024, we believe we will be able to fund our operations through the fourth quarter of 2024 and into the first quarter of 2025.

Following the anticipated completion of our ongoing Phase 1b/2a clinical study of SYN-004 (ribaxamase) in allogeneic HCT recipients, our ongoing Phase 1 and Phase 2 clinical trials for VCN-01, and the preclinical studies of VCN-11, and related discovery initiatives, 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.

Management believes its plan, which includes the advancement of VCN-01 and the additional testing of SYN-004 (ribaxamase) will allow us to meet our financial obligations, further advance key products, and maintain our planned operations.

However, the amount of additional capital needed by us will also depend upon the costs to advance our VCN-01 clinical programs and whether we continue to develop SYN-004 internally, or out-license or partner such development.

If necessary, we may attempt to utilize the ATM or seek to raise additional capital in other financing transactions, neither of which is guaranteed.

Use of the ATM is limited by certain restrictions and management’s plan does not rely on additional capital from either of these sources.

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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, 2023, our only source of cash was from sales of our common stock through the Amended and Restated ATM Sales Agreement in which we sold 2.0 million shares of our stock for net proceeds of $2.2 million.

During the year ended December 31, 2022, our only source of cash was from the sales of our Series C Preferred Stock and Series D Preferred Stock.

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.

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.

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 or other equity financings.

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.

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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 $40.1 million in early March 2023 is sufficient to fund our operations through at least the end of the second quarter of and into the third quarter 2024, including continuation of our ongoing Phase 1b/2a clinical study of SYN-004 (ribaxamase) in allogeneic HCT recipients for the prevention of aGVHD, our ongoing Phase 1 and Phase 2 clinical trials for VCN-01, preclinical studies of VCN-11 and related discovery initiatives, and to fund our committed obligations under the VCN Purchase Agreement for the VCN Acquisition.

We anticipate that our future clinical trials will be much larger in size and require larger cash expenditures than the aforementioned clinical programs.

As the COVID-19 coronavirus has persisted around the globe and world governments have reacted to the on-going war in the Ukraine, we have experienced and may, in the future, experience disruptions that impact our business and clinical trials.

These include postponement of clinical site initiation as was observed for the Phase 1b/2a clinical trial of SYN-004, increased costs of goods and services, supply chain constraints, and disruptions and changes in vendor personnel.

The full impact of the COVID-19 and global economic downturn continues to evolve as of the date of this report.

As such, it is uncertain as to the full magnitude that these factors 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 persistent COVID-19 and the global economic downturn, we are not able to estimate the future effects of these factors on our results of operations, financial condition, or liquidity.

We believe our cash position of $19.0 million in early March 2024 is sufficient to fund our operations through at least the end of the fourth quarter of 2024 and into the first quarter 2025, including continuation of our ongoing Phase 1b/2a clinical study of SYN-004 (ribaxamase) in allogeneic HCT recipients for the prevention of aGVHD, our ongoing Phase 1 and Phase 2 clinical trials for VCN-01, preclinical studies of VCN-11 and related discovery initiatives, and to fund our committed obligations under the VCN Purchase Agreement for the VCN Acquisition.

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 term or long-term expected plans as it is anticipated that we will not have enough cash to continue our operations for the next twelve months from the date of the filing of this Annual Report.

We will be required to obtain additional funding in order to continue the development of certain product candidates within the anticipated time periods (including initiation of planned clinical trials), if at all, and to continue to fund operations at the current cash expenditure levels.

We do anticipate that 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 our ongoing Phase 1b/2a clinical study of SYN-004 (ribaxamase) in allogeneic HCT recipients for the prevention of aGVHD, our ongoing Phase 1 and Phase 2 clinical trials for VCN-01, preclinical studies of VCN-11 and related discovery initiatives, and to fund our committed obligations under the VCN Purchase Agreement for the VCN Acquisition..

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 in our ability to continue as a going concern without additional capital becoming available.

Our ability to continue as a going concern is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce expenditures, and, ultimately, to generate revenue.

Our notes to the consolidated financial statements contain an explanatory paragraph referring to our recurring and continuing losses from operations and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available.

We cannot provide any assurance that we will be able to 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.

If we fail to obtain additional funding for its clinical trials, whether through the sale of securities or a partner or collaborator, and otherwise when needed, we will not be able to execute our business plan as planned and will be forced to cease certain development activities (including initiation of planned clinical trials) 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.

Our ability to continue as a going concern is dependent upon our ability to raise additional capital.

Our cash and cash equivalents will not be sufficient to enable us to meet our long-term expected plans, including initiation or completion of future registrational studies for VCN-01, any potential future trials of SYN-004 including Phase 3 clinical programs of SYN-004 (ribaxamase) for prevention of CDI and/or the prevention of aGVHD in allogeneic HCT recipients, or later-stage clinical trials of SYN-020.

Therefore, we do not intend to commence future new studies of VCN-01, SYN-004 (ribaxamase) or SYN-020 until we are confident that we have funding necessary to complete such trials.

We are actively pursuing additional equity 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) 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 especially in light of the fact that we 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 no assurance that we will be able to continue to raise funds through the sale of shares of common stock through the FBR Sales Agreement.

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.

Cash Used in Operating Activities

Net cash used in operating activities was $19.0 million and $19.1 million during the years ended December 31, 2023 and 2022, respectively, which was primarily due to the use of funds in our operations related to the development of VCN-01 our product candidate.

Cash used in operating activities for the years ended December 31, 2023 decreased compared to the same period in 2022 due primarily to the payment of contingent consideration to Grifols of $1.7 million and an increase in interest income, which led to a decrease in net loss.

Cash Used In Investing Activities

Cash used in investing activities during the years ended December 31, 2023 was $202,000 for equipment purchases as compared to $4.4 million during the same period in the prior year, which were primarily related to the cash payment for the acquisition of VCN and a pre-acquisition loan to VCN.

Cash Used In Financing Activities

Cash used in financing activities during the year ended December 31, 2023 included at the market offering proceeds of $2.2 million from sales of 2.0 million shares of our common stock which was offset by payment of contingent consideration to Grifols of $1.5 million and $75,000 of payments of debt that we incurred when we acquired VCN.

Cash used in financing activities during the year ended December 31, 2022 related to the proceeds received from the issuance of Series C and D preferred stock offset by the payments of contingent consideration of $3.0 million and $1.4 million of debt payments related to loans extended by certain Spanish institutions.

License and Contractual Agreement Obligations

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis