Surrozen, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Surrozen is a clinical-stage biotechnology company developing therapies that modulate the Wnt pathway. It has no approved products and has not generated product-sales revenue.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | No revenue reported | No revenue reported | No revenue reported | Includes collaboration revenue recognized in 2022; amount for these periods is not separately clear in the supplied financial statements |
| Research and development | $6.1 million | $8.6 million | $21.1 million | $27.6 million |
| General and administrative | $3.6 million | $5.0 million | $12.2 million | $14.6 million |
| Restructuring expense | $1.5 million | — | $2.7 million | — |
| Operating loss | $11.2 million | $13.6 million | $36.1 million | $42.2 million |
| Net loss | $10.4 million | $13.4 million | $34.1 million | $35.2 million |
| Net loss per share | $0.34 | $0.38 | $1.13 | $1.01 |
As a pre-revenue company, gross and operating margins are not meaningful. Q3 interest income was $0.7 million, versus $0.2 million a year earlier. For the nine-month comparison, other income fell to $0.1 million from $6.6 million, largely reflecting the absence of the prior-year gain from changes in warrant fair value; this helped limit the improvement in net loss despite lower operating expenses.
At September 30, 2023, cash and cash equivalents were $34.0 million and short-term marketable securities were $9.5 million, totaling $43.4 million. Current assets were $48.4 million and current liabilities $6.7 million. Cash, cash equivalents and restricted cash increased $9.3 million during the first nine months, but operating activities used $33.1 million. Investing activities provided $42.2 million, mainly from net maturities of marketable securities; financing activities provided $0.1 million. Cash and marketable securities together declined from $75.8 million at December 31, 2022.
No funded borrowings are disclosed. Lease liabilities totaled $4.0 million, including $2.4 million current; future minimum lease payments were $4.2 million. Warrant liabilities were $0.2 million. Accumulated deficit was $212.8 million.
Changes versus prior periods
- Q3 net loss narrowed 22% year over year, while nine-month net loss narrowed 3%. Nine-month operating expenses declined 14%, primarily due to lower R&D and G&A spending following workforce reductions and completion of SZN-1326 drug-substance manufacturing.
- R&D decreased 23% for the nine months: SZN-043 spending fell 9%, SZN-1326 fell 43%, and discovery/preclinical spending fell 21%.
- Two restructurings reduced staffing: approximately 25% in Q1 and a further planned reduction of approximately 38% announced in July. The company expected the latter reduction to be substantially complete by year-end 2023.
- Cash and marketable securities decreased substantially from year-end 2022, despite lower operating cash use than in the prior-year period.
Outlook, programs and risks
- Management stated that available cash, cash equivalents and marketable securities should fund operations for at least 12 months from the financial statements’ issuance. The company expects continuing losses, significant clinical-development costs and a need for additional long-term capital; actual cash use could exceed projections.
- SZN-043: Phase 1a enrollment in healthy volunteers and patients with chronic liver disease was ongoing. Management expected data in Q1 2024, potentially supporting a Phase 1b trial in alcoholic hepatitis in 2024, with possible proof-of-concept data in the second half of 2024.
- SZN-1326: Phase 1a enrollment in healthy volunteers was ongoing. Management expected data in Q1 2024, potentially supporting a Phase 1b ulcerative-colitis trial in 2024, with possible proof-of-concept data in the second half of 2024.
- Both clinical programs have had treatment-related, asymptomatic transaminase elevations. SZN-043 observations were Grade 1 or 2 and resolved spontaneously; no serious adverse events were reported in the described study. SZN-1326 dosing had been voluntarily paused in Q4 2022 to assess elevations, with enrollment subsequently re-initiated. Further safety findings could delay or halt development.
- Under its Boehringer Ingelheim collaboration for Fzd4 antibodies, including SZN-413, Surrozen may receive up to $587 million in success-based milestones and royalties. Management anticipated that nomination of a lead development candidate in 2024 could trigger a $10 million milestone; future milestones are uncertain and were not recognized as revenue.
- Surrozen had not used its Lincoln Park equity-purchase facility (up to $50 million) or its Guggenheim at-the-market facility (up to $23 million) as of September 30, 2023. Future equity financing may dilute shareholders; inability to obtain funding could require program reductions or licensing rights on less favorable terms.
- Nasdaq had notified the company that its share price was below the $1.00 minimum bid requirement. The company had until January 2, 2024 to regain compliance and stated it might use a reverse stock split if needed.
- The company reported effective disclosure controls 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
- Whether clinical updates and timelines were achieved, and the full safety context and follow-up for transaminase elevations in SZN-043 and SZN-1326.
- Current cash runway, actual operating cash burn, and whether additional financing or reductions to development plans are needed.
- Progress and terms of the BI collaboration, including candidate nomination and the potential $10 million milestone; milestone payments and royalties remain contingent.
- Whether Surrozen regained Nasdaq minimum-bid compliance by January 2, 2024 and whether a reverse stock split was required.
- The Q3 issuer-repurchase table reports 1,372 shares at $8.59 and 403 shares at $8.64, but a total of 1,775 shares at an average price of $17.23. That total average appears inconsistent with the monthly figures and merits verification.