Surrozen, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Surrozen is a preclinical-stage biotechnology company developing antibody-based therapies to selectively modulate the Wnt pathway. Its August 11, 2021 business combination was accounted for as a reverse recapitalization, with Legacy Surrozen as the accounting acquirer; prior-period share figures were retrospectively adjusted.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $40.2 million | $25.7 million |
| General and administrative expense | $14.2 million | $7.1 million |
| Total operating expenses | $54.4 million | $32.8 million |
| Net loss | $54.6 million | $32.7 million |
| Net loss per share, basic and diluted | $2.21 | $2.05 |
| Net cash used in operating activities | $48.8 million | $29.1 million |
At December 31, 2021, cash and cash equivalents were $33.1 million and marketable securities were $90.4 million, totaling $123.5 million in cash, cash equivalents and marketable securities. Total assets were $137.2 million, total liabilities $27.5 million, and stockholders’ equity $109.7 million. Liabilities included $8.3 million of warrant liabilities and $7.8 million of operating lease liabilities; the filing does not report conventional borrowings. Operating cash outflow increased year over year. Investing cash outflow was $77.7 million, primarily reflecting purchases of marketable securities, while financing provided $124.6 million, principally from the business combination and PIPE financing. Operating margins are not meaningful because the company had no revenue.
Material changes versus FY2020
- Net loss increased by $21.9 million, or 67%, as operating expenses rose 66% to $54.4 million.
- R&D expense increased 56%, reflecting higher external development costs and personnel and facility expenses. G&A expense doubled, including higher personnel, professional-services and public-company costs.
- Cash used in operations rose by $19.7 million. The August 2021 business combination and $102.2 million PIPE financing brought $128.8 million of cash consideration after transaction fees; reported net financing proceeds from the transaction were $124.2 million.
- Marketable securities increased substantially following the financing. FY2021 comprehensive loss was $54.8 million, including a $0.1 million unrealized loss on marketable securities.
Outlook, commentary and risks
- Management expected existing cash, cash equivalents and marketable securities to fund operations for at least 12 months from the filing date, but anticipated continued losses, negative operating cash flow and substantial additional funding needs. The company reported no product revenue and did not provide revenue or earnings guidance.
- At the time of filing, Surrozen planned Phase 1 trials for SZN-1326 (moderate-to-severe IBD, initially ulcerative colitis) and SZN-043 (severe alcoholic hepatitis) in the third quarter of 2022, with patient studies planned for 2023. These were forward-looking plans, not completed milestones. SZN-413 was nominated in January 2022 for retinal vascular-associated diseases.
- A February 2022 agreement gives Surrozen the option to sell up to $50 million of common stock to Lincoln Park over 36 months, subject to conditions and limits; availability is not assured and sales could dilute shareholders.
- Key risks include the untested clinical prospects of the lead candidates, need for further financing, dependence on third-party manufacturers and research providers, and potential delays from COVID-19 or other disruptions. Management also cautioned that Wnt-pathway activation may carry tumor-related risk, not observed in the cited preclinical toxicology studies to date.
- Disclosure controls and procedures were deemed ineffective because of a continuing material weakness involving insufficient accounting and financial-reporting expertise in U.S. GAAP and SEC requirements. Management was still implementing remediation measures; the auditor did not provide an internal-control effectiveness opinion. The financial statements received an unqualified audit opinion.
Most important facts to verify
- Whether the stated cash runway remains adequate relative to actual spending, trial costs and the timing of clinical and manufacturing commitments.
- Progress and results of IND-enabling work and whether the planned clinical timelines for SZN-1326 and SZN-043 were achieved.
- Whether the Lincoln Park facility is available on acceptable terms, how much has been drawn, and the resulting dilution.
- Remediation of the material weakness and whether subsequent filings report effective disclosure controls and internal controls.
- Warrant-liability valuation and potential dilution: 7,217,974 warrants were outstanding at year-end, exercisable at $11.50 per share.