Business context and reporting period
The filing is Synthetic Biologics, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2017; it does not identify the company as Theriva Biologics. Synthetic Biologics described itself as a clinical-stage therapeutics company focused on the microbiome. Its lead candidates were SYN-004 (ribaxamase) for prevention of C. difficile infection and related effects of IV antibiotics, and SYN-010 for IBS-C. The company also had earlier-stage programs.
Financial performance and position
- Revenue: No material revenue is reported in the presented statements. The company said it expected minimal revenue until product commercialization.
- Operating costs and losses: In Q3 2017, operating expenses were $5.8 million, down from $9.2 million in Q3 2016; operating loss was $5.8 million versus $9.2 million. Net loss was $10.9 million versus $8.5 million. A $5.1 million noncash warrant fair-value expense drove much of the difference between operating and net loss. Including a $6.9 million deemed preferred-stock dividend, loss attributable to common stockholders was $17.8 million, or $0.14 per share, versus $8.4 million, or $0.09 per share.
- Nine-month results: Operating expenses were $20.5 million versus $29.0 million, and net loss was $18.3 million versus $25.3 million. Loss attributable to common stockholders was $24.9 million, or $0.20 per share, versus $24.9 million, or $0.27 per share.
- Expense mix: Nine-month R&D fell to $15.0 million from $22.4 million, principally due to lower SYN-004 and SYN-010 program costs. G&A declined to $5.4 million from $6.7 million.
- Cash flow: Operating activities used $16.3 million in the first nine months, compared with $17.5 million in 2016. Investing activities used $0.2 million. Financing provided $18.5 million, including $12.0 million net from preferred stock and $6.4 million from at-the-market common stock sales. Cash increased $2.0 million to $21.1 million.
- Liquidity and obligations: Current assets were $22.3 million and current liabilities $17.5 million at September 30. Warrant liabilities were $12.7 million; no conventional debt balance is identified in the provided balance sheet. Total liabilities were $18.0 million. Stockholders’ deficit was $6.7 million, versus equity of $2.2 million at year-end 2016. Accumulated deficit was $197.0 million.
Material changes versus the prior comparable period
- Quarterly R&D decreased 41%, and nine-month R&D decreased 33%; management attributed the reductions mainly to lower lead-program costs.
- Quarterly net loss widened despite lower operating costs, primarily because warrant remeasurement shifted from $0.7 million of income in Q3 2016 to $5.1 million of expense in Q3 2017.
- Cash was higher than at December 31, 2016, largely following preferred-stock and at-the-market share financing; common shares outstanding also increased.
- The September 2017 private placement issued 120,000 Series A preferred shares for $12 million. The preferred shares carry a cumulative 2% annual dividend, are convertible at an initial $0.54 per common share subject to adjustments, and have senior liquidation and certain redemption rights.
Outlook, commentary, and risks
- Going concern: Management stated that cash was insufficient to execute near-term plans, including planned clinical trials, and that additional capital was required. The filing says these conditions raise substantial doubt about the company’s ability to continue as a going concern. It had no committed third-party financing and warned that failure to raise funds could delay trials or curtail development.
- Clinical outlook: The company planned SYN-004 Phase 3 trial(s) in 2018 or later, subject to financing and clinical infrastructure. It planned a SYN-010 Phase 2b/3 adaptive study, also contingent on funding. The FDA had granted SYN-004 Breakthrough Therapy Designation, and the company reported positive Phase 2b topline results; these were not approval or confirmation of late-stage efficacy.
- Financing and dilution: Further equity or debt financing, partnerships, licensing, or grants might not be available on acceptable terms or at all. Additional equity could dilute existing holders. Preferred-stock rights may also affect common shareholders and financing flexibility.
- Other risks: The company reported a stockholders’ deficit while noting NYSE American continued-listing equity requirements. Warrant liabilities use Level 3 valuation inputs, so fair-value changes can create material noncash earnings volatility. The filing reported no material legal proceedings, no material changes in contractual obligations, and no off-balance-sheet arrangements.
- Controls: Management concluded disclosure controls were effective as of September 30, 2017 and reported no material change in internal control over financial reporting during the period.
Most important facts for investors to verify
- Confirm the issuer and ticker: this filing is for Synthetic Biologics, Inc., despite the request metadata naming Theriva Biologics.
- Assess actual cash runway, spending needs, and the status, terms, and availability of additional financing; management explicitly said current cash would not fund planned operations.
- Review trial initiation timing and funding dependencies for SYN-004 and SYN-010, and distinguish reported Phase 2 findings from future clinical outcomes and regulatory approval.
- Examine the Series A preferred-stock terms, potential conversion dilution, dividend and redemption preferences, and the warrant liability and its effect on reported earnings.
- Check NYSE American listing compliance and any subsequent changes in liquidity, share count, or financing after September 30, 2017.