Surrozen, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Filed November 14, 2022. Surrozen is a clinical-stage biotechnology company developing therapies that modulate the Wnt pathway; it had no product revenue through September 30, 2022.
Financial performance and position
| Metric | Q3 2022 | Nine months 2022 | Comparable 2021 |
|---|---|---|---|
| Revenue | None | None | None |
| Research and development expense | $8.6 million | $27.6 million | $10.4 million / $29.3 million |
| General and administrative expense | $5.0 million | $14.6 million | $3.3 million / $10.1 million |
| Total operating expenses | $13.6 million | $42.2 million | $13.7 million / $39.4 million |
| Net loss | $13.4 million | $35.2 million | $14.0 million / $39.7 million |
| Net loss per share, basic and diluted | $0.38 | $1.01 | $0.51 / $1.86 |
As a pre-revenue company, profit margins are not meaningful. Nine-month net loss included $6.6 million of other income, primarily a $7.0 million noncash gain from the change in fair value of warrant liabilities. Without that favorable fair-value change, the reported loss would have been higher.
At September 30, 2022, cash and cash equivalents were $25.5 million and marketable securities were $52.9 million, totaling $78.4 million. Total current assets were $82.7 million versus current liabilities of $8.7 million. The company reported no borrowings; liabilities included $6.1 million of operating lease liabilities and $1.3 million of warrant liabilities. Stockholders’ equity was $77.5 million, and accumulated deficit was $177.9 million.
Cash used in operating activities was $43.9 million for the nine months, compared with $37.3 million in 2021. Investing activities provided $36.4 million, mainly from maturities of marketable securities; financing activities used $16,000. The company stated that existing resources plus the BI upfront payment, before $1.3 million of related university fees, were expected to fund operations for at least 12 months from the filing date.
Changes versus the prior comparable period
- Q3 operating expenses were nearly unchanged year over year: R&D fell 17%, while G&A rose 52%. Lower SZN-1326 manufacturing costs and lower discovery/preclinical spending were offset by higher SZN-043 and corporate costs.
- For the nine months, operating expenses rose 7% as G&A increased 44%, partly offset by a 6% decline in R&D. Higher personnel, stock-based compensation and insurance contributed to G&A growth.
- Nine-month net loss improved 11%, despite higher operating expenses, largely because of the warrant-liability fair-value gain and increased interest income.
- Cash and marketable securities declined from $123.5 million at December 31, 2021 to $78.4 million at September 30, 2022. No shares had been sold under the Lincoln Park equity purchase agreement as of quarter-end.
Outlook, developments and risks
- BI collaboration: In October 2022, Surrozen entered a collaboration and license agreement covering Fzd4 bispecific antibodies, including SZN-413. It provides a $12.5 million non-refundable upfront payment, expected in installments of $10.5 million in Q4 2022 and $2.0 million in the first half of 2023, plus potential success-based milestones of up to $587 million and mid-single-digit to low-double-digit royalties. Milestones and royalties are contingent; BI is to fund later development and commercialization after the partnership research period.
- Clinical safety: In November 2022, Surrozen disclosed a voluntary pause in enrollment in the SZN-1326 Phase 1 single-ascending-dose study after treatment-related, asymptomatic liver-enzyme elevations, including Grade 3 elevations in three subjects. Elevations resolved spontaneously; no serious adverse events were reported. The company planned further analysis and preclinical work before determining next steps.
- SZN-043: The Phase 1 study was ongoing, but several subjects had Grade 1 or 2 asymptomatic liver-enzyme elevations that resolved spontaneously. No serious adverse events were reported; management said it would reassess the program’s development timeline.
- The company expects losses and expenses to continue, including increased clinical, manufacturing and public-company costs. Management anticipates needing additional capital over the longer term; financing may be dilutive or unavailable on acceptable terms, and spending could be reduced if resources are insufficient.
- Management reported a continuing material weakness in internal control over financial reporting related to insufficient accounting and reporting personnel with appropriate GAAP and SEC expertise. Disclosure controls were not effective at the reasonable-assurance level; remediation efforts were underway.
- Other stated risks include uncertain clinical outcomes, regulatory and manufacturing delays, competition, inflation, and potential disruption from COVID-19 and the Russia-Ukraine conflict. The filing reported no legal proceedings believed likely to have a material adverse effect.
Important facts for investors to verify
- Whether SZN-1326 can resume clinical development, and what further analysis reveals about the liver-enzyme elevations.
- Whether SZN-043 can proceed safely and on what revised timeline.
- Receipt and timing of the BI upfront installments, related university fees, and progress toward any contingent milestones.
- Actual cash burn and runway relative to management’s estimate, including any need for additional financing or use of the Lincoln Park facility.
- Progress in remediating the material weakness and whether disclosure controls become effective.