Business Context and Reporting Period
Company: Synthetic Biologics, Inc. (formerly Adeona Pharmaceuticals, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2012
Business Overview: A biotechnology company focused on developing synthetic biologics and innovative medicines for serious diseases. Key programs include monoclonal antibodies for infectious diseases (in collaboration with Intrexon), a synthetic DNA-based therapy for pulmonary arterial hypertension (PAH), and clinical-stage programs for Multiple Sclerosis (Trimesta), ALS (AEN-100), and fibromyalgia (Effirma, partnered with Meda AB).
Recent Strategic Shift: On March 8, 2012, the company sold its Adeona Clinical Laboratory, classifying it as discontinued operations, to refocus on synthetic biology.
Key Financial Metrics
| Metric (in thousands) | Six Months Ended June 30, 2012 |
Six Months Ended June 30, 2011 |
|---|---|---|
| Revenue | $0 (No product revenue) | $0 (No product revenue) |
| Net Loss | $(3,072) | $(3,866) |
| Loss from Continuing Operations | $(3,565) | $(3,789) |
| Income from Discontinued Operations | $493 | $(77) |
| Operating Expenses | $3,577 | $2,269 |
| Cash and Cash Equivalents (End of Period) | $5,932 | $8,386 |
| Net Cash Used in Operating Activities | $(2,701) | $(1,233) |
| Net Cash Provided by Financing Activities | $1,955 | $6,969 |
| Total Assets | $7,245 | $7,476 |
| Total Liabilities | $395 | $417 |
| Accumulated Deficit | $(54,945) | $(51,873) |
Note: The company has no product revenue. Operating expenses consist primarily of General & Administrative ($2.6M) and Research & Development ($0.9M) for the six months ended June 30, 2012.
Material Changes vs. Prior Period
- Discontinued Operations: The sale of the Adeona Clinical Laboratory resulted in a $677,000 gain on sale, turning a loss from discontinued operations in the prior year into a net income of $493,000 for the six months ended June 30, 2012.
- Operating Expenses: Total operating costs increased by approximately 58% year-over-year (from $2.3M to $3.6M). This was driven by increased employee costs, expanded investor relations, and higher R&D program costs associated with the new synthetic biology pipeline.
- Warrant Expenses: Significant non-cash warrant expenses recorded in the prior year ($1.5M) were absent in the current period, contributing to a lower net loss from continuing operations despite higher operating costs.
- Cash Position: Cash decreased by $746,000 during the period, primarily due to operating burn, partially offset by $1.9M in proceeds from warrant exercises.
Guidance, Outlook, and Risks
Management Commentary & Outlook: Management believes current cash resources ($5.9M as of June 30, 2012) are sufficient to fund operations for at least the next 12 months. The company is pivoting entirely toward synthetic biology, leveraging collaborations with Intrexon for monoclonal antibodies and DNA-based therapies. Future funding will likely require additional equity or debt financings, which may be dilutive.
Key Risks and Contingencies:
- Liquidity Risk: The company has an accumulated deficit of $54.9 million and has never been profitable. Continued operations depend on raising additional capital, which is not guaranteed.
- Regulatory & Clinical Risk: All product candidates are in preclinical or early clinical stages. Success is not assured, and clinical trials are expensive and time-consuming.
- Collaboration Dependency: The company relies heavily on Intrexon for technology and Meda AB for the development of Effirma. Failure of partners to meet milestones could impact future revenue.
- Accounting Firm Change: The company dismissed Berman & Company, P.A. in July 2012 due to partner rotation issues and retained BDO USA, LLP. This event previously impacted S-3 eligibility.
- Subsequent Event: On August 6, 2012, the company expanded its collaboration with Intrexon, agreeing to issue approximately 3.55 million shares of common stock as partial consideration.
Investor Verification Checklist
- Cash Runway: Verify if the $5.9M cash balance is sufficient to cover the projected burn rate through the next 12 months given the increased R&D spend.
- Dilution Impact: Assess the impact of the subsequent issuance of 3.55 million shares to Intrexon and potential future equity raises on existing shareholders.
- Discontinued Operations: Confirm the status of the $700,000 promissory note receivable from the sale of the clinical laboratory and its collectability.
- Stock-Based Compensation: Review the $3.1 million in unrecognized stock-based compensation expense expected to be recognized through 2015.
- Partnership Milestones: Monitor the progress of the Meda AB partnership for Effirma (flupirtine) to determine the likelihood of receiving the remaining $15 million in milestone payments.