Theriva Biologics, Inc. (then Synthetic Biologics, Inc.) — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The filing is for Synthetic Biologics, Inc.; it describes the March 2022 acquisition of VCN Biosciences and a strategic shift toward oncology. The financial statements are unaudited.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | $2.597 million | $1.118 million |
| General and administrative expense | $1.655 million | $1.419 million |
| Operating loss | $4.252 million | $2.537 million |
| Net loss | $4.273 million | $2.537 million |
| Net loss per share | $0.03 | $0.13 attributable to common stockholders |
| Operating cash used | $4.902 million | $3.328 million |
There were no product sales, so gross margin and operating margin are not meaningful. The 2021 common-stockholder loss included $7.402 million of preferred-stock price-adjustment deemed dividends and other preferred-stock charges; thus, its $11.459 million common-stockholder loss is not directly comparable with 2022 net loss.
Cash and cash equivalents were $56.692 million at March 31, versus $67.325 million at December 31, 2021. Cash, cash equivalents and restricted cash declined by $10.530 million in the quarter, including $4.902 million used in operations, $4.280 million used in investing (including acquisition payments), and $1.376 million of financing outflow. Current assets were $59.555 million and current liabilities $10.976 million, implying working capital of approximately $48.579 million.
Total liabilities were $20.972 million, including $12.158 million of contingent consideration and $297,000 of acquired government loans. Operating lease liabilities totaled $1.477 million. Management reported $54.9 million of cash at April-end and estimated it would fund operations through at least Q4 2023, including specified ongoing programs and VCN commitments. The filing also states the company believes cash can fund operations for at least 12 months from issuance of the statements.
Material changes and business developments
- On March 10, 2022, the company acquired all of VCN Biosciences for $4.7 million cash, 26.4 million common shares valued at $6.6 million, and contingent consideration valued at $12.2 million. The contingent payments may total up to approximately $70.25 million, subject to clinical and commercial milestones and other specified terms.
- The acquisition added VCN-01, an oncolytic adenovirus in clinical development for pancreatic cancer and retinoblastoma, and shifted the company’s strategic focus toward oncology. The company also committed to a VCN research, development and administrative budget of approximately $27.8 million.
- Acquired assets included $21.7 million of indefinite-lived in-process R&D and $5.8 million of goodwill. VCN contributed a $197,000 net loss from acquisition through quarter-end. Purchase accounting remained preliminary.
- R&D expense rose 132%, primarily due to SYN-020 manufacturing and trial costs, SYN-004 study costs, and VCN-01 expenses absent in the prior-year period. G&A expense rose 17%, including acquisition-related legal and consulting costs and newly consolidated VCN costs.
- Common shares issued and outstanding increased from approximately 132.0 million at year-end to approximately 158.4 million at March 31, primarily due to shares issued for the acquisition. No ATM shares were sold in Q1 2022; approximately 78.7 million shares were sold through ATM offerings in Q1 2021.
Outlook, commentary and risks
- Management anticipated submitting a proposed randomized Phase 2 VCN-01 pancreatic cancer trial protocol to the FDA and EMA in Q2 2022, with enrollment targeted for Q4 2022 if regulators permit. A retinoblastoma Phase 2/3 trial was anticipated in early 2023.
- The company expected R&D spending to increase as it pursued VCN-01 trials, manufacturing, SYN-020 development and preclinical programs. A SYN-020 Phase 2a study was contemplated for the second half of 2022, contingent on funding.
- Management said further-stage trials will require substantial additional financing or partnerships. No committed financing source for future trials was identified; financing may dilute shareholders, and failure to raise capital could delay or curtail development. The company noted limits on available common shares and potential constraints on securities offerings.
- COVID-19 had disrupted clinical operations and could continue to affect trial enrollment and timing. The filing also cited potential effects of the Russia-Ukraine conflict on supply chains and the cost or conduct of research, manufacturing and international trials.
- VCN milestone consideration is a Level 3 fair-value estimate dependent on milestone timing, probabilities and discount rates; changes in estimates could affect reported results. The acquired IPR&D and goodwill are subject to impairment assessment.
- Management concluded disclosure controls were not effective at March 31, 2022, identifying a material weakness in controls over accounting and disclosure for non-routine transactions, including review of analyses and related tax implications. Remediation was planned; VCN was still being integrated into financial controls.
- The company reported no legal proceedings expected to have a material adverse effect and no off-balance-sheet arrangements.
Key facts for investors to verify
- Whether cash runway assumptions remain adequate as clinical costs rise, and the timing and terms of any financing or partnership.
- Actual VCN-01 trial submissions, regulatory feedback, enrollment timing and spending against the approximately $27.8 million commitment.
- The potential amount and timing of VCN milestone and royalty obligations, and changes in their fair-value estimates.
- Final purchase-price allocation and any impairment indicators for the acquired IPR&D and goodwill.
- Progress in remediating the material weakness and integrating VCN into internal controls.
- Future share issuance, authorized-share capacity and resulting dilution risk.