Surrozen, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Surrozen is a preclinical-stage biotechnology company developing biologic drug candidates that modulate the Wnt pathway. It has not generated product revenue.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $9.4 million | $8.6 million |
| General and administrative expense | $5.1 million | $4.4 million |
| Total operating expenses / operating loss | $14.5 million | $13.0 million |
| Net loss | $7.9 million | $13.0 million |
| Net cash used in operations | $18.4 million | $10.3 million |
There are no meaningful revenue or profit margins to report. Q1 2022 net loss included $6.5 million of other income from a decrease in the fair value of warrant liabilities; this noncash gain reduced reported net loss despite higher operating expenses. Comprehensive loss was $8.3 million, including $0.3 million of unrealized losses on marketable securities.
At March 31, 2022, cash and cash equivalents were $14.3 million and marketable securities were $90.0 million, for combined cash, cash equivalents and marketable securities of $104.3 million. Current assets were $95.7 million versus current liabilities of $8.1 million. Total liabilities were $15.0 million, including $7.2 million of operating lease liabilities and $1.8 million of warrant liabilities. The filing reports no borrowings or other debt. Accumulated deficit was $150.6 million.
Material changes versus the prior period
- Operating expenses rose 11% year over year. R&D expense increased 9%, driven mainly by higher personnel and facility costs, partly offset by lower external expenses after completion of drug-substance manufacturing for SZN-1326 and SZN-043.
- G&A expense increased 16%, primarily from higher personnel and insurance costs, partly offset by lower professional and consulting fees.
- Net loss decreased from $13.0 million to $7.9 million, principally because of the $6.5 million warrant-liability fair-value gain; operating loss widened by $1.5 million.
- Operating cash use increased by $8.0 million to $18.4 million. Cash, cash equivalents and restricted cash declined by $18.8 million during the quarter.
- Marketable securities declined in fair value, with $0.4 million of unrealized losses attributed primarily to interest-rate changes. The company reported no impairment and did not intend or expect to be required to sell the affected securities before recovery.
Outlook, risks and notable items
- Management stated existing cash, cash equivalents and marketable securities should fund operations for at least 12 months from issuance of the financial statements. The company expects continued operating losses and increased spending, particularly for planned clinical trials, manufacturing-process development and research.
- Management planned to initiate Phase 1 trials for SZN-1326, for inflammatory bowel disease with ulcerative colitis as the proposed first indication, and SZN-043, for severe alcoholic hepatitis, in Q3 2022. SZN-413 was nominated as a development candidate for retinal vascular-associated diseases in January 2022; additional candidates are expected to advance toward the clinic in 2023 and beyond.
- In February 2022, Surrozen entered a 36-month equity purchase agreement with Lincoln Park for up to $50 million of common stock, at the company’s discretion, commencing April 27, 2022. No shares had been sold under the agreement as of March 31, 2022. Future equity sales may dilute shareholders; management said the facility is not expected to meet all long-term funding needs.
- The company expects to require substantial additional capital over the long term. If financing is unavailable, it may need to reduce spending, delay or stop programs, or license product rights. Development costs and timelines depend on clinical and regulatory outcomes, enrollment, manufacturing, third parties, competition and other uncertainties.
- Management said the Russia-Ukraine conflict and COVID-19 had not significantly affected operations or financial condition to date, but their effects on development timelines and third parties remained uncertain.
- Disclosure controls were deemed ineffective at the reasonable-assurance level because a previously identified material weakness remained: insufficient accounting and financial-reporting personnel with U.S. GAAP and SEC reporting expertise. Remediation efforts include hiring, external advice and staff training.
- The company entered a non-exclusive commercial license with UCSF in March 2022, with nominal fees and potential milestone and royalty obligations. No material legal proceedings were reported.
Key facts for investors to verify
- Whether the planned Q3 2022 Phase 1 trial starts occurred, and the resulting enrollment, safety and timing updates.
- Actual cash burn and updated runway, including whether the $50 million Lincoln Park facility is used and the resulting dilution.
- Progress in remediating the material weakness and whether disclosure controls become effective.
- The drivers and volatility of warrant-liability remeasurement gains or losses, which materially affected reported net loss.
- Potential effects of market conditions, clinical development, manufacturing, regulatory decisions and external disruptions on funding needs and program timelines.