Business context and reporting period
This is Synthetic Biologics, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2012. The filing says the company was formerly Adeona Pharmaceuticals; it does not identify the registrant as Theriva Biologics, Inc. The business was shifting toward biotechnology drug development, including infectious-disease monoclonal antibodies and a synthetic DNA therapy for pulmonary arterial hypertension (PAH). Its pipeline also included Trimesta for multiple sclerosis (MS), AEN-100 for ALS, and partnered flupirtine development for fibromyalgia.
Financial performance and position
Amounts below are in millions of dollars, except per-share data.
| Metric | Three months ended September 30, 2012 | Nine months ended September 30, 2012 | Comparable 2011 period |
|---|---|---|---|
| Continuing-operation revenue | None reported | None reported | None reported |
| General and administrative expense | $1.073 | $3.717 | $0.582 / $2.339 |
| Research and development expense | $0.763 | $1.696 | $0.289 / $0.801 |
| Loss from continuing operations | $(1.826) | $(5.391) | $(1.030) / $(4.819) |
| Net loss, including discontinued operations | $(1.930) | $(5.002) | $(1.098) / $(4.964) |
| Net loss per share | $(0.05) | $(0.15) | $(0.04) / $(0.18) |
Discontinued operations contributed $0.389 million of income for the nine-month period, including a $0.677 million gain on the March sale of the clinical laboratory; the quarter recorded a $0.104 million discontinued-operations loss. Gross margin is not meaningful for the continuing business because no continuing-operation revenue was reported.
- Cash and cash equivalents were $4.577 million at September 30, down $2.101 million from year-end 2011. Total assets were $5.826 million; current liabilities were $0.417 million, with no debt reported.
- Operating cash use was $4.143 million for the first nine months, compared with $2.144 million in 2011. Investing cash use was $0.007 million; financing provided $2.049 million, mainly from warrant exercises.
- Stockholders’ equity was $5.409 million, below the NYSE MKT’s stated $6 million minimum. The company said the later financing raised equity above that threshold.
- Accounts receivable, net, fell to $0.122 million from $0.405 million, including an allowance for doubtful accounts of $0.560 million.
Material changes versus prior comparable periods
For the first nine months, total operating expenses rose to $5.413 million from $3.140 million, reflecting increased employee, investor-relations, legal, and pipeline-development costs. G&A rose 59% and R&D rose 112%. Continuing-operation loss increased, while total net loss was nearly flat because 2011 included substantial warrant-related expense and 2012 included the laboratory-sale gain. Operating cash use also increased. The filing reports 1.840 million stock options granted in the first nine months of 2012, with approximately $4.0 million fair value.
Outlook, developments and risks
- Management stated that cash, including proceeds from the subsequent financing, was expected to fund planned operations for at least 12 months. It cautioned that this estimate relies on assumptions, that no committed financing sources existed, and that additional funding might be required sooner or on unacceptable terms.
- After quarter-end, the company issued 3,552,210 shares to Intrexon as partial consideration for its infectious-disease collaboration; it expected to record $7.6 million of R&D expense for the shares. The first antibody effort targeted Acinetobacter infections.
- A private placement completed October 30, 2012 sold 6.75 million shares at $1.60, yielding $10.8 million gross and $10.1 million net. The company reported approximately $14.2 million cash at October 31. Placement-agent compensation included a 6% commission and a five-year warrant for up to 635,855 shares.
- On November 8, the company agreed to acquire C. difficile program assets, subject to conditions and NYSE MKT approval. Terms included $100,000 paid initially, a further $135,000 and 625,000 shares upon closing, and potential milestone payments; the seller could reclaim assets if specified development timelines were missed.
- Key risks include continuing losses and cash burn, dependence on future capital, dilution, early-stage and unproven programs, clinical and regulatory uncertainty, reliance on Intrexon, investigators, grants and partners, manufacturing and intellectual-property risks, competition, and possible listing or registration-rights consequences. The company also cited loss of Form S-3 eligibility following an accounting firm’s partner-rotation failure.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It reported no legal proceedings.
Important facts for investors to verify
- Confirm the issuer and security: this filing is for Synthetic Biologics, Inc., not a registrant named Theriva Biologics, Inc.; verify any corporate-name or successor relationship relevant to the requested company.
- Review subsequent-event accounting and dilution from the Intrexon share issuance, private placement, placement-agent warrant, and proposed C. difficile asset acquisition.
- Assess whether the stated 12-month operating runway remains supportable against ongoing cash burn, planned development costs, and the $7.6 million noncash collaboration charge.
- Check progress and funding for the Phase II Trimesta trials, PAH program, antibody program, ALS development plan, and Meda’s flupirtine program.
- Verify NYSE MKT equity compliance and registration-statement deadlines, including potential liquidated damages if registration obligations are missed.