Theriva Biologics, Inc. annual report, FY2018

Business context and reporting period

Registrant: Synthetic Biologics, Inc. (the filing does not identify Theriva Biologics, Inc. as the registrant). This is its Form 10-K for the fiscal year ended December 31, 2018, filed February 27, 2019. The company was a clinical-stage therapeutics developer focused on microbiome-related programs; it reported no meaningful product revenue and had no products approved for sale.

Lead programs were SYN-004 (ribaxamase), intended to protect the gut microbiome from certain IV antibiotics and prevent C. difficile infection, and SYN-010 for IBS-C. Other programs included preclinical SYN-020, SYN-006, SYN-007 and SYN-005. The company completed a one-for-35 reverse stock split in August 2018.

Financial results and liquidity

2018 other income of $4.2 million included $4.1 million of noncash warrant remeasurement income, reducing reported net loss. Common-stockholder loss included $11.7 million of Series B preferred deemed dividends and $0.2 million of Series A dividends; the statement also reflects a $2.5 million deemed dividend related to converted Series B shares. These items are not equivalent to operating performance.

At December 31, 2018, current assets were $29.5 million and current liabilities were $3.4 million; total liabilities were $3.7 million. No borrowings or interest-bearing debt are shown on the balance sheet. Total stockholders’ equity was $14.2 million, versus a $3.4 million deficit a year earlier. Accumulated deficit was $219.5 million. The company reported approximately $26.0 million cash in February 2019 and believed it could fund operations through at least the end of Q1 2020, but not its planned registrational trials.

Material changes versus the prior year

• R&D expense fell 37%, primarily because no company-sponsored clinical trials were ongoing during 2018; G&A expense fell 24%, including lower stock-based compensation and personnel-related costs.
• Cash increased by $11.8 million, supported by approximately $16.7 million net proceeds from an October public offering and $12.2 million net proceeds from at-the-market share sales.
• The October financing included common stock, Series B convertible preferred stock and warrants. At year-end, 9,161 Series B preferred shares remained outstanding; the preferred stock and warrants could result in substantial additional share issuance.
• The company’s workforce was reduced by eight employees, approximately one-third of the workforce, in December 2018. It recorded a one-time severance charge of about $409,000 and expected annualized savings beginning in 2019.
• The PKU collaboration with Intrexon was mutually terminated in November 2018. The separate Intrexon collaboration for pertussis remained in effect.

Outlook, commentary and principal risks

• SYN-004: Following an End-of-Phase-2 meeting, the FDA proposed a global, event-driven Phase 3 study of up to approximately 4,000 patients, with separate efficacy and mortality-safety co-primary endpoints. The company said a single successful Phase 3 trial might support an approval submission. Estimated trial costs exceeded $80 million; initiation depended on financing or a strategic partner. A narrower specialty-population strategy, including HCT recipients, was also under consideration.
• Safety and regulatory uncertainty: The FDA withdrew SYN-004’s Breakthrough Therapy Designation after reviewing a mortality imbalance between treatment groups that could not be fully assessed given the limited safety database and study methods. The company said investigators and an independent third party did not consider the deaths drug-related, but the issue remains material.
• SYN-010: An investigator-sponsored, placebo-controlled Phase 2b study with Cedars-Sinai was underway, with approximately 150 planned patients. Enrollment began in early 2019; topline data were anticipated in the second half of 2019. Future pivotal development was contingent on funding or partnership.
• Other programs: Management anticipated an IND filing for SYN-020 in Q4 2019 and a Phase 1 trial in Q1 2020, subject to development and resources. These were plans, not assurances.
• Financing and dilution: Management stated that existing cash would not fund planned registrational studies. No committed financing sources or partners were in place. Additional equity financing could dilute shareholders; financing shortfalls could delay, curtail or stop development.
• Other risks: The company relied on third-party manufacturers, generally with only one manufacturer per lead program; faced clinical, regulatory, reimbursement, intellectual-property and competitive risks; and warned that delays or trial failures could prevent commercialization. NYSE American listing compliance remained a risk; the exchange’s compliance plan ran through September 2, 2019.
• Contingencies and unusual matters: The company disputed former Chief Medical Officer Joseph Sliman’s asserted “good reason” termination claim and was reviewing its rights with counsel. It reported no legal proceedings expected to have a material adverse effect. The auditor issued an unqualified opinion on the financial statements; management reported disclosure controls and internal control over financial reporting were effective.

Important facts for investors to verify

1. Confirm the registrant identity and reporting period: this filing is for Synthetic Biologics, Inc. for full-year 2018, not a Theriva Biologics quarterly filing.
2. Review the full preferred-stock and warrant terms, conversion blockers, potential dilution and the remaining availability and restrictions under the at-the-market program.
3. Track cash burn and runway against the company’s stated Q1 2020 funding horizon, and determine whether financing or a partnership is secured for pivotal trials.
4. Review the underlying SYN-004 mortality data, FDA correspondence and final Phase 3 requirements; assess the status and results of the SYN-010 Phase 2b study.
5. Check NYSE American listing status and any subsequent developments concerning the Sliman employment dispute and other disclosed contingencies.