Theriva Biologics (then Synthetic Biologics), Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The filing reports unaudited results. Financial share amounts were retrospectively adjusted for a 1-for-10 reverse stock split effective July 25, 2022.
Business context
The company is a clinical-stage biotechnology business with no reported revenue. After acquiring VCN Biosciences on March 10, 2022, management began shifting strategic focus from gastrointestinal and microbiome programs toward oncology, led by VCN-01, an oncolytic adenovirus being studied in pancreatic cancer and retinoblastoma. The company is exploring licensing or partnering opportunities for legacy programs SYN-004 and SYN-020.
The VCN acquisition consideration was approximately $23.9 million, including $4.7 million cash, 2.64 million shares valued at $6.6 million, and contingent consideration initially valued at $12.2 million. The company also committed to fund VCN research and development and related costs under a plan of approximately $27.8 million over three years. Additional milestone, royalty and sublicensing-related payments could reach $70.2 million.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Operating expenses | $4.99 million | $3.20 million | $9.24 million | $5.73 million |
| Net loss | $4.97 million | $3.20 million | $9.24 million | $5.73 million |
| Net loss per share | $0.31 | $0.24 | $0.62 | $1.31 |
| Operating cash used | Not separately stated | Not separately stated | $9.26 million | $5.92 million |
Research and development expense rose 80% in Q2 and 99% for the first half, primarily reflecting VCN-01 costs not present in the prior-year periods, along with SYN-020 manufacturing and clinical costs and SYN-004 trial costs. General and administrative expense increased 19% in Q2 and 18% for the first half, including acquisition-related legal and consulting costs and VCN administrative expense. Revenue-based margins are not applicable because no revenue was reported.
Cash and cash equivalents were $52.3 million at June 30, 2022, plus $96,000 of restricted cash. Cash, cash equivalents and restricted cash decreased $15.0 million during the first half. Investing cash use was $4.3 million, including $3.9 million net cash paid for the acquisition; financing cash use was $1.4 million, principally payment of VCN debt. Total liabilities were $20.7 million, including $11.7 million of contingent consideration and $272,000 of government loans. The loans carry 0%–1% interest and mature from 2023 through 2028.
Management stated that cash of $53.5 million as of August 1, 2022 was expected to fund operations through at least Q4 2023. The company expects continued losses and will need additional funding for later-stage trials; no committed financing for future clinical trials was identified.
Material changes and unusual items
- The VCN acquisition added $20.6 million of in-process research and development and $5.2 million of goodwill to the June 30 balance sheet. Purchase price allocation remained preliminary. No impairment was reported for the quarter.
- The contingent consideration liability was valued at $11.7 million at June 30, down $483,000 from acquisition-date fair value; the change was recognized as a non-cash gain in operating expense.
- First-half 2022 net loss was $9.2 million, compared with $5.7 million in first-half 2021. The prior-year common-stockholder loss and per-share result were affected by preferred-stock dividends and a $7.4 million deemed dividend; these items help explain why prior-year loss per share was higher despite lower operating expenses.
- Foreign-currency translation resulted in a $1.3 million loss for the first half of 2022, recorded in other comprehensive loss.
- On July 29, 2022, the company completed a preferred-stock private placement for approximately $3.0 million gross proceeds. The securities were convertible at $1.22 per share into an aggregate of approximately 2.46 million common shares. The company also disclosed a reduction in the exercise price of its October 2018 warrants from $6.90 to $1.22 per share following the financing.
Outlook, clinical progress and risks
- Management planned a randomized Phase 2 VCN-01 pancreatic cancer trial of approximately 92 patients, with enrollment expected in Q4 2022 if regulators allowed it to proceed. The protocol was submitted to U.S. and European regulators in June.
- Management anticipated a VCN-01 retinoblastoma Phase 2/3 trial in the second half of 2023. In an ongoing Phase 1 study, one patient had a reported complete regression lasting more than 30 months; the study was expected to complete in Q1 2023.
- For SYN-004, 19 patients had been dosed in Cohort 1 of the Phase 1b/2a HCT study, 12 considered evaluable. A Cohort 1 topline readout was expected in the second half of 2022, subject to study and review timing. Enrollment and continuation remained affected by COVID-19 and the study site’s capacity.
- SYN-020’s Phase 1 multiple-ascending-dose study reported favorable preliminary safety and tolerability in May 2022, with no serious adverse events. Management was exploring strategic options to advance the asset.
- Management expected R&D spending to increase as it planned VCN-01 trials and manufacturing and continued VCN-11 and other research. Later-stage trials will require significant financing or a partner; additional equity could dilute existing holders, and funding may not be available on acceptable terms.
- COVID-19, global economic conditions and the war in Ukraine could disrupt clinical trials, suppliers and costs. The filing states that the full effects were uncertain.
- Management concluded disclosure controls and procedures were not effective at June 30 because of a material weakness in controls over accounting and disclosure for non-routine transactions, including related income-tax analysis. Remediation was planned; VCN was excluded from the 2022 internal-control assessment while integration proceeded.
- The company reported no legal proceedings expected to have a material adverse effect and no off-balance-sheet arrangements.
Important facts for investors to verify
- Cash runway assumptions, planned spending and the financing required to conduct the proposed VCN-01 trials and other later-stage programs.
- Regulatory clearance, trial initiation and enrollment timelines for VCN-01, and the timing and outcome of SYN-004 study readouts.
- Final VCN acquisition accounting, milestone-payment assumptions and the potential cash impact of up to $70.2 million of contingent consideration.
- Terms and dilution effects of the July 2022 preferred-stock financing, warrant repricing and any further capital raises.
- Progress in remediating the material weakness and integrating VCN into financial reporting controls.