Surrozen, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Surrozen is a clinical-stage biotechnology company developing Wnt pathway therapeutics. It has no product-sales revenue and depends on financing and collaborations to fund development.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | No revenue reported | No revenue reported | No revenue reported | $12.5 million collaboration revenue recognized in Q4 2022, not in this period |
| Research and development | $6.9 million | $9.6 million | $15.0 million | $19.0 million |
| General and administrative | $3.3 million | $4.5 million | $8.6 million | $9.6 million |
| Restructuring expense | — | — | $1.2 million | — |
| Net loss | $9.4 million | $13.9 million | $23.7 million | $21.9 million |
| Net loss per share, basic and diluted | $0.31 | $0.40 | $0.79 | $0.63 |
| Cash used in operating activities | Not separately stated | Not separately stated | $22.9 million | $29.8 million |
As of June 30, 2023, cash and cash equivalents were $36.5 million and short-term marketable securities were $16.9 million, totaling $53.4 million. Working capital was approximately $51.1 million. Total liabilities were $8.9 million, including $4.5 million of operating lease liabilities; the filing reports no borrowings or other debt. Accumulated deficit was $202.3 million. No meaningful operating margin is reported because the company had no current-period revenue.
Cash, cash equivalents and restricted cash increased $11.8 million during the first half, mainly because $34.6 million of investing cash inflows—including marketable-security maturities—exceeded $22.9 million of operating cash use. This increase does not represent cash generated by operations.
Material changes versus comparable periods
- Q2 net loss narrowed by $4.5 million, or 33%, year over year, alongside a 27% decrease in operating expenses. R&D spending fell 28%, mainly due to the January workforce reduction and lower program costs; G&A fell 26%, primarily reflecting employee retention tax credits.
- First-half operating expenses declined 13%, but net loss increased 8%. The comparison reflects $6.9 million of noncash warrant-liability fair-value income in first-half 2022 that did not recur in 2023, partly offset by lower operating costs and higher interest income.
- First-half operating cash use improved by $6.9 million year over year. Interest income was $1.2 million versus $0.1 million, reflecting higher market rates.
- Common shares outstanding were 30.6 million at June 30, 2023, up from 30.1 million at December 31, 2022. The company reported 30,575,450 shares outstanding as of August 7, 2023.
Outlook, programs and risks
- Management believes available cash, cash equivalents and marketable securities will fund operations for at least 12 months from issuance of the financial statements. The company expects continued losses and says additional capital will be needed over the longer term; actual cash burn could be higher than forecast.
- Management expected SZN-043 Phase 1a safety data by year-end 2023, potentially supporting a Phase 1b trial in alcoholic hepatitis in 2024 and proof-of-concept data in the second half of 2024. The filing reports ongoing enrollment in the Phase 1a study. Grade 1 and 2 asymptomatic, treatment-related transaminase elevations were observed in several subjects and resolved spontaneously; no serious adverse events were reported.
- SZN-1326 Phase 1a enrollment in healthy volunteers had restarted and was ongoing. The trial had been voluntarily paused in Q4 2022 to assess transaminase elevations. Management anticipated further safety data by year-end 2023, potentially supporting a Phase 1b ulcerative colitis trial in 2024 and proof-of-concept data in the second half of 2024.
- Under the Boehringer Ingelheim collaboration for Fzd4 antibodies including SZN-413, Surrozen is eligible for up to $587 million in success-based milestones plus royalties. Management anticipated potential lead-candidate nomination in 2024; it could trigger a $10 million milestone. These payments are contingent, not assured.
- A January 2023 restructuring reduced the workforce by approximately 25% and resulted in $1.2 million of charges. In July 2023, after quarter-end, the company adopted a further workforce reduction of approximately 38%, expected to be substantially complete by the end of Q3 2023, with estimated one-time charges of approximately $1.6 million. The Chief Scientific Officer ceased serving in that role effective July 31 and joined the Scientific Advisory Board.
- Key risks include clinical uncertainty and observed liver-enzyme elevations, development and manufacturing delays, reliance on third parties, the need for future financing and potential dilution, and the possibility that product candidates fail to gain approval. The company also disclosed Nasdaq’s minimum-bid-price deficiency; it must regain compliance by January 2, 2024 and stated it may effect a reverse stock split if necessary.
- The company reported effective disclosure controls and procedures as of quarter-end and no material change in internal control over financial reporting during the quarter. It reported no legal proceedings believed likely to have a material adverse effect.
Important facts for investors to verify
- Clinical-trial updates and the status and significance of transaminase elevations for SZN-043 and SZN-1326.
- Actual cash burn, spending reductions, and whether the stated 12-month runway remains adequate as trials and restructuring proceed.
- Timing and feasibility of the anticipated clinical milestones, including the potential SZN-413 nomination and related $10 million payment.
- Whether Surrozen can secure additional financing on acceptable terms, and the potential dilution from equity facilities or other offerings.
- Nasdaq bid-price compliance progress and any reverse-stock-split action.
- The filing presents warrant-liability information in different forms across its balance sheet and fair-value note; verify the reported carrying value and reconciliation in the original filing.