THERIVA BIOLOGICS, INC.
10-Ks and 10-Qs
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2013
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OR
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
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For the transition period from ____________ to ____________
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Commission File Number: 1-12584
SYNTHETIC BIOLOGICS, INC.
(Name of small business issuer in its charter)
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Nevada
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13-3808303
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification Number)
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155 Gibbs Street, Suite 412
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Rockville, MD
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20850
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code:
(734) 332-7800
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.001 par value per share
Securities registered pursuant to Section 12(g) of the Act:
None.
(Title of Class)
Indicate by check mark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated file, a non-accelerated file, or a smaller reporting company. See the definitions of “large accelerated filer, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
¨
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Non-Accelerated filer
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Smaller reporting company
x
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
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No
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As of November 12, 2013 the registrant had 44,654,414 shares of common stock outstanding.
SYNTHETIC BIOLOGICS, INC.
FORM 10-Q
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION
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Item 1.
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Financial Statements (Unaudited)
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3
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Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012
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3
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Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012
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4
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Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2013 and 2012
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5
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Notes to Consolidated Financial Statements
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6
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Item 2.
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Management’s Discussion and Analysis of Financial Information and Results of Operations
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13
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risks
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23
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Item 4.
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Controls and Procedures
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23
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PART II. OTHER INFORMATION
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Item 1.
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Legal Proceedings
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24
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Item 1A.
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Risk Factors
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24
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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34
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Item 3.
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Defaults Upon Senior Securities
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34
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Item 4.
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Mine Safety Disclosures
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34
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Item 5.
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Other Information
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34
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Item 6.
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Exhibits
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35
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SIGNATURES
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36
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GLOSSARY
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37
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Synthetic Biologics, Inc. and Subsidiaries
(In thousands, except per share amounts)
(Unaudited)
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September 30, 2013
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December 31, 2012
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Assets
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Current Assets:
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Cash
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$
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5,145
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$
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9,954
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Prepaid expenses and other current assets
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1,647
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2,509
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Total Current Assets
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6,792
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12,463
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Property and equipment, net
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157
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223
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Long-term note receivable
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-
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700
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Deposits and other assets
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4
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37
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Total Assets
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$
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6,953
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$
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13,423
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Liabilities and Stockholders' Equity
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Current Liabilities:
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Accounts payable
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$
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584
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$
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395
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Total Liabilities
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584
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395
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Stockholders' Equity:
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Preferred stock, $0.001 par value; 10,000,000 shares authorized,
none issued and outstanding |
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-
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-
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Common stock, $0.001 par value; 100,000,000 shares authorized,
44,735,896 issued and 44,654,414 outstanding, respectively, and 44,444,230 issued and 44,362,748 outstanding, respectively |
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45
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44
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Additional paid-in capital
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83,358
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81,925
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Accumulated deficit
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(77,034)
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(68,941)
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Total Stockholders' Equity
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6,369
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13,028
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Total Liabilities and Stockholders' Equity
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$
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6,953
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$
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13,423
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See accompanying notes to unaudited consolidated financial statements.
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Synthetic Biologics, Inc. and Subsidiaries
(In thousands, except share and per share amounts)
(Unaudited)
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For the three months ended September 30,
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For the nine months ended September 30,
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2013
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2012
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2013
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2012
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Operating Costs and Expenses:
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General and administrative
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$
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1,890
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$
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1,073
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$
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4,270
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$
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3,717
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Research and development
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1,475
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763
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3,796
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1,696
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Total Operating Costs and Expenses
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3,365
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1,836
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8,066
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5,413
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Loss from Operations
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(3,365)
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(1,836)
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(8,066)
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(5,413)
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Other Income (Expense):
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Interest income
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11
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-
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32
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-
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Other income (expense)
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(14)
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10
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(59)
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22
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Total Other Income (Expense), net
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(3)
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10
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(27)
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22
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Loss from Continuing Operations
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(3,368)
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(1,826)
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(8,093)
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(5,391)
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Income (Loss) from Discontinued Operations
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-
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(104)
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-
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389
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Net Loss
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$
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(3,368)
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$
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(1,930)
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$
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(8,093)
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$
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(5,002)
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Net Income (Loss) Per Share - Basic and Dilutive:
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Continuing operations
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$
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(0.08)
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$
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(0.05)
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$
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(0.18)
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$
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(0.16)
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Discontinued operations
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-
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-
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-
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0.01
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Net Loss Per Share
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$
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(0.08)
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$
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(0.05)
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$
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(0.18)
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$
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(0.15)
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Weighted average number of shares outstanding
during the period - Basic and Dilutive |
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44,654,414
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33,383,226
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44,636,935
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32,801,415
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See accompanying notes to unaudited consolidated financial statements.
| 4 | ||
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Synthetic Biologics, Inc. and Subsidiaries
(In thousands)
(Unaudited)
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For nine months ended September 30,
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2013
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2012
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Cash Flows From Operating Activities:
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Net loss
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$
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(8,093)
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$
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(5,002)
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Adjustments to reconcile net loss to net cash used in operating activites:
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Stock-based compensation
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1,202
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1,303
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Depreciation
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33
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51
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Provision for uncollectible accounts receivable
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-
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269
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Provision for uncollectible note and interest receivables
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763
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-
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Loss on sale of equipment
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58
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-
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Impairment on loss of equipment
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-
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30
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Gain on sale of discontinued operations
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-
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(677)
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Changes in operating assets and liabilities:
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Accounts receivable
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-
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14
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Prepaid expenses and other current assets
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800
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(135)
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Deposits and other assets
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33
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4
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Accounts payable
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189
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2
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Accrued liabilities
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-
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(2)
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Net Cash Used In Operating Activities
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(5,015)
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(4,143)
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Cash Flows From Investing Activities:
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Purchase of property and equipment
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(25)
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(7)
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Net Cash Used In Investing Activities
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(25)
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(7)
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Cash Flows From Financing Activities:
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Proceeds from issuance of common stock for stock option exercises
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231
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94
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Proceeds from issuance of common stock for warrant exercises
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-
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1,955
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Net Cash Provided By Financing Activities
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231
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2,049
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Net decrease in cash
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(4,809)
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(2,101)
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Cash at beginning of period
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9,954
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6,678
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Cash at end of period
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$
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5,145
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$
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4,577
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Supplemental disclosures of cash flow information:
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Cash paid for interest
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$
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-
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$
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-
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Cash paid for taxes
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$
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-
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$
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-
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See accompanying notes to unaudited consolidated financial statements.
| 5 | ||
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Synthetic Biologics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
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1.
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Organization and Nature of Operations and Basis of Presentation
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Description of Business
Synthetic Biologics, Inc. (the “Company” or “Synthetic Biologics”) is a biotechnology company focused on the development of biologics for the prevention and treatment of serious infectious diseases. The Company is developing an oral enzyme for the prevention of
C. difficile
infections, and a series of monoclonal antibody therapies for the treatment of Pertussis and
Acinetobacter
infections. In addition, the Company is developing a drug candidate for the treatment of relapsing-remitting multiple sclerosis and cognitive dysfunction in multiple sclerosis, and has partnered the development of a treatment for fibromyalgia.
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Therapeutic Area
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Product Candidate
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Status
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Relapsing-remitting MS
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Trimesta
(oral estriol)
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Completed enrollment in Phase II clinical trial; dosing and monitoring underway
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Cognitive dysfunction in MS
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Trimesta
(oral estriol)
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Patient enrollment underway in Phase II clinical trial
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C. difficile
infection prevention
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SYN-004
(oral enzyme)
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SYN-004, second generation candidate in preclinical;
first generation predecessor candidate
(formerly known as P1A) is in Phase II
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Pertussis
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SYN-005
(monoclonal antibody)
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Preclinical; Collaborations with Intrexon and The University of Texas at Austin
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Acinetobacter
infection
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SYN-001
(monoclonal antibody)
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Discovery; Collaboration with Intrexon
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Fibromyalgia
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Effirma
(oral flupirtine)
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Partnered with Meda AB
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In order to further prioritize the Company’s focus, it previously elected to discontinue further development of AEN-100 for the treatment of amyotrophic lateral sclerosis. However, the Company is seeking development partners for its zinc-based intellectual property and assets including, AEN-100.
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Basis of Presentation
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The accompanying consolidated financial statements have been prepared pursuant to the rules and regulations of Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying consolidated financial statements include all adjustments, composed of normal recurring adjustments, considered necessary by management to fairly state our results of operations, financial position and cash flows. The operating results for the interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012 (“2012 Form 10-K”) as filed with the SEC. The interim results for the three and nine months ended September 30, 2013, are not necessarily indicative of results for the full year.
The consolidated financial statements are prepared in conformity with U.S. GAAP, which requires the use of estimates, judgments and assumptions that affect the amounts of assets and liabilities at the reporting date and the amounts of revenue and expenses in the periods presented. We believe that the accounting estimates employed are appropriate and the resulting balances are reasonable; however, due to the inherent uncertainties in making estimates actual results could differ from the original estimates, requiring adjustments to these balances in future periods.
| 6 | ||
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2.
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Management’s Plan
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The Company has incurred an accumulated deficit of $
77
million through September 30, 2013. With the exception of the quarter ended June 30, 2010, the Company has incurred negative cash flow from operations since it started the business. The Company has spent, and expects to continue to spend, substantial amounts in connection with implementing its business strategy, including the planned product development efforts, clinical trials, and research and discovery efforts.
The actual amount of funds the Company will need to operate is subject to many factors, some of which are beyond our control. These factors include the following:
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·
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the progress of research activities;
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·
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the number and scope of research programs;
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·
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the progress of preclinical and clinical development activities;
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·
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the progress of the development efforts of parties with whom the Company has entered into research and development agreements;
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·
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costs associated with additional clinical trials of product candidates;
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·
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the ability to maintain current research and development licensing arrangements and to establish new research and development and licensing arrangements;
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·
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the ability to achieve milestones under licensing arrangements;
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·
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the costs involved in prosecuting and enforcing patent claims and other intellectual property rights; and
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·
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the costs and timing of regulatory approvals.
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The Company has based its estimate on assumptions that may prove to be wrong. The Company may need to obtain additional funds sooner or in greater amounts than it currently anticipates. Potential sources of financing include strategic relationships, public or private sales of the Company’s shares or debt and other sources, including sales of securities pursuant to the terms of the Controlled Equity Offering
SM
Agreement that it entered into with Cantor Fitzgerald & Co., as sales agent, that provides the ability to conduct an at-the-market (ATM) public offering for up to $
15
million of shares of common stock at prices to be determined at the time of sale. As of the date of this filing, the Company has not sold any shares under the ATM.
The Company may seek to access the public or private equity markets when conditions are favorable due to long-term capital requirements. The Company does not have any committed sources of financing at this time, and it is uncertain whether additional funding will be available when needed on terms that will be acceptable to it, or at all. If the Company raises funds by selling additional shares of common stock or other securities convertible into common stock, the ownership interest of the existing stockholders will be diluted. If the Company is not able to obtain financing when needed, it may be unable to carry out the business plan. As a result, the Company may have to significantly limit its operations and its business, financial condition and results of operations would be materially harmed.
| 7 | ||
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3.
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Discontinued Operations of Adeona Clinical Laboratory and Note Receivable
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On March 8, 2012, the Company sold all of its interest in Adeona Clinical Laboratory, LLC (the “Lab”) to Hartlab, LLC, an entity controlled by the Lab’s former owner. In connection with the sale of the Lab, the consideration received was (i) the immediate assignment of the Lab’s outstanding accounts receivable up through the date of closing, plus (ii) $
700,000
payable pursuant to the terms of a two-year promissory note bearing interest at
5.7
% per annum secured by all of the assets of the Lab. The note and all unpaid interest were due on March 1, 2014.
During the three months ended September 30, 2013, the note receivable and associated interest receivable were deemed uncollectible. Accordingly, the Company recorded bad debt expense of $
763
,000.
In accordance with
Accounting Standards Codification (“ASC”)
Topic 205-20 “
Presentation of Financial Statements-Discontinued Operations
” (ASC 205-20), the Company determined that all the criteria for reporting a discontinued operation had been met. Accordingly, the Lab has been classified as a discontinued operation and its results of operations, financial position and cash flows are separately reported for all periods presented.
The summarized statement of operations data for Adeona Clinical Laboratory for the three and nine months ended September 30, 2013 and 2012 are as follows
(in thousands):
|
|
|
Three Months ended September 30,
|
|
Nine Months ended September 30,
|
|
||||||||
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
||||
|
Laboratory fees, net
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
-
|
|
|
104
|
|
|
-
|
|
|
287
|
|
|
Cost of laboratory services
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
116
|
|
|
Total operating costs and expenses
|
|
|
-
|
|
|
104
|
|
|
-
|
|
|
403
|
|
|
Loss from discontinued operations
|
|
|
-
|
|
|
(104)
|
|
|
-
|
|
|
(288)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of Adeona Clinical Laboratory
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
677
|
|
|
Income (loss) from discontinued operations
|
|
$
|
-
|
|
$
|
(104)
|
|
$
|
-
|
|
$
|
389
|
|
|
|
4.
|
Fair Value of Financial Instruments
|
The fair value accounting standards define fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is determined based upon assumptions that market participants would use in pricing an asset or liability. Fair value measurements are rated on a three-tier hierarchy as follows:
|
|
⋅
|
Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets;
|
|
|
⋅
|
Level 2 inputs: Inputs, other than quoted prices included in Level 1 that are observable either directly or indirectly; and
|
|
|
⋅
|
Level 3 inputs: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
If the inputs used to measure fair value fall in different levels of the fair value hierarchy, the hierarchy level is based upon the lowest level of input that is significant to the fair value measurement.
Cash and cash equivalents include money market accounts of $
5.1
million and $
10.0
million as of September 30, 2013 and December 31, 2012, respectively, that are measured using Level 1 inputs.
|
|
5.
|
Selected Balance Sheet Information
|
Prepaid expenses and other current assets (in thousands)
|
|
|
September 30, 2013
|
|
December 31, 2012
|
|
||
|
Intrexon prepaid research and development expenses
|
|
$
|
1,543
|
|
$
|
2,412
|
|
|
Other receivables
|
|
|
-
|
|
|
17
|
|
|
Prepaid expenses
|
|
|
104
|
|
|
80
|
|
|
Total
|
|
$
|
1,647
|
|
$
|
2,509
|
|
| 8 | ||
|
|
The anticipated Intrexon research and development expenses for the next twelve months are classified as a current asset. The Company may terminate the arrangement at any time and receive a cash refund of the remaining balance minus any amounts owed to Intrexon.
Property and equipment (in thousands)
|
|
|
September 30, 2013
|
|
December 31, 2012
|
|
||
|
Manufacturing equipment
|
|
$
|
152
|
|
$
|
297
|
|
|
Computer and office equipment
|
|
|
45
|
|
|
35
|
|
|
Laboratory equipment
|
|
|
133
|
|
|
133
|
|
|
|
|
|
330
|
|
|
465
|
|
|
Less accumulated depreciation
|
|
|
(173)
|
|
|
(242)
|
|
|
Total
|
|
$
|
157
|
|
$
|
223
|
|
|
|
6.
|
Stock-Based Compensation
|
Stock Incentive Plan
During 2001, the Company’s Board of Directors and stockholders adopted the 2001 Stock Incentive Plan (the “2001 Stock Plan”). The total number of shares of stock with respect to which stock options and stock appreciation rights may be granted to any one employee of the Company or a subsidiary during any one-year period under the 2001 Stock Plan shall not exceed
250,000
. All awards pursuant to the 2001 Stock Plan shall terminate upon the termination of the grantee’s employment for any reason. Awards include options, restricted shares, stock appreciation rights, performance shares and cash-based awards (the “Awards”). The 2001 Stock Plan contains certain anti-dilution provisions in the event of a stock split, stock dividend or other capital adjustment, as defined in the plan. The 2001 Stock Plan provides for a Committee of the Board to grant Awards and to determine the exercise price, vesting term, expiration date and all other terms and conditions of the Awards, including acceleration of the vesting of an Award at any time. As of September 30, 2013, there were
953,507
options issued and outstanding under the 2001 Stock Plan.
On March 20, 2007, the Company’s Board of Directors approved the 2007 Stock Incentive Plan (the “2007 Stock Plan”) for the issuance of up to
2,500,000
shares of common stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors and consultants of the Company and its subsidiaries. This plan was approved by stockholders on November 2, 2007. The exercise price of stock options under the 2007 Stock Plan is determined by the compensation committee of the Board of Directors, and may be equal to or greater than the fair market value of the Company’s common stock on the date the option is granted. The total number of shares of stock with respect to which stock options and stock appreciation rights may be granted to any one employee of the Company or a subsidiary during any one-year period under the 2007 plan shall not exceed
250,000
. Options become exercisable over various periods from the date of grant, and generally expire ten years after the grant date. As of September 30, 2013, there are
443,573
options issued and outstanding under the 2007 Stock Plan.
On November 2, 2010, the Board of Directors and stockholders adopted the 2010 Stock Incentive Plan (“2010 Stock Plan”) for the issuance of up to
3,000,000
shares of common stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend equivalent rights, restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors and consultants of the Company and its subsidiaries. The exercise price of stock options under the 2010 Stock Plan is determined by the compensation committee of the Board of Directors, and may be equal to or greater than the fair market value of the Company’s common stock on the date the option is granted. Options become exercisable over various periods from the date of grant, and generally expire ten years after the grant date. As of September 30, 2013, there are
2,407,500
options issued and outstanding under the 2010 Stock Plan.
In the event of an employee’s termination, the Company will cease to recognize compensation expense for that employee. There is no deferred compensation recorded upon initial grant date, instead, the fair value of the stock-based payment is recognized ratably over the stated vesting period.
| 9 | ||
|
|
The Company has applied fair value accounting for all share based payment awards since inception. The fair value of each option or warrant granted is estimated on the date of grant using the Black-Scholes option pricing model.
The Black-Scholes assumptions used in the three and nine months ended September 30, 2013 and 2012 are as follows:
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
||||||
|
|
|
2013
|
|
2012
|
|
2013
|
|
|
2012
|
|
|
|
Exercise price
|
|
-
|
|
$1.96- $2.27
|
|
$
|
1.74
|
|
|
$1.70- $2.47
|
|
|
Expected dividends
|
|
-
|
|
0%
|
|
|
0
|
%
|
|
0%
|
|
|
Expected volatility
|
|
-
|
|
153%
|
|
|
148
|
%
|
|
108% - 174%
|
|
|
Risk free interest rate
|
|
-
|
|
0.63% - 0.65%
|
|
|
0.77
|
%
|
|
0.37% - 1.98%
|
|
|
Expected life of option
|
|
-
|
|
5 years – 10 years
|
|
|
5 years
|
|
|
5 years – 10 years
|
|
|
Expected forfeitures
|
|
-
|
|
0%
|
|
|
0
|
%
|
|
0%
|
|
The Company records stock-based compensation based upon the stated vested provisions in the related agreements. The vesting provisions for these agreements have various terms as follows:
|
|
·
|
immediate vesting,
|
|
|
·
|
half vesting immediately and the remainder over three years,
|
|
|
·
|
quarterly over three years,
|
|
|
·
|
annually over three years,
|
|
|
·
|
one-third immediate vesting and remaining annually over two years,
|
|
|
·
|
one half immediate vesting with remaining vesting over nine months,
|
|
|
·
|
one quarter immediate vesting with the remaining over three years,
|
|
|
·
|
one quarter immediate vesting with the remaining over 33 months; and
|
|
|
·
|
monthly over three years.
|
During the nine months ended September 30, 2013, the Company granted
117,500
options to employees and directors having an approximate fair value of $
185,000
based upon the Black-Scholes option pricing model. During the same period in 2012, the Company granted
1,840,000
options to employees and consultants having an approximate fair value of $
4.0
million based upon the Black-Scholes option pricing model.
A summary of stock option activities as of September 30, 2013, and for the year ended December 31, 2012, is as follows:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
Remaining
|
|
Aggregate
|
|
|||
|
|
|
|
|
|
Average Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|||
|
|
|
Options
|
|
Price
|
|
Life
|
|
Value
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2011
|
|
|
2,979,010
|
|
$
|
1.34
|
|
|
6.01 years
|
|
$
|
-
|
|
|
Granted
|
|
|
2,075,000
|
|
$
|
2.21
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(374,851)
|
|
$
|
0.34
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(225,413)
|
|
$
|
2.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2012
|
|
|
4,453,746
|
|
$
|
1.78
|
|
|
6.43 years
|
|
$
|
1,308,000
|
|
|
Granted
|
|
|
117,500
|
|
$
|
1.74
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(291,666)
|
|
$
|
0.79
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(475,000)
|
|
$
|
2.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – September 30, 2013 - outstanding
|
|
|
3,804,580
|
|
$
|
1.79
|
|
|
5.76 years
|
|
$
|
932,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – September 30, 2013 - exercisable
|
|
|
2,902,307
|
|
$
|
1.67
|
|
|
5.27 years
|
|
$
|
903,000
|
|
|
Grant date fair value of options granted - 2013
|
|
|
|
|
$
|
185,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value - 2013
|
|
|
|
|
$
|
1.57
|
|
|
|
|
|
|
|
|
Grant date fair value of options granted - 2012
|
|
|
|
|
$
|
4,468,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value - 2012
|
|
|
|
|
$
|
2.15
|
|
|
|
|
|
|
|
| 10 | ||
|
|
Stock-based compensation expense included in general and administrative expenses and research and development expenses relating to stock options issued to employees and consultants for the three months ended September 30, 2013 and 2012 were $
338,000
and $
395,000
, respectively, and $
1.2
million and $
1.3
million for the nine month periods ended September 30, 2013 and 2012, respectively.
As of September 30, 2013, total unrecognized stock-based compensation expense related to stock options was $
1.9
million, which is expected to be expensed through February 2016.
7. Stock Purchase Warrants
On October 25, 2012, the Company entered into a Common Stock Purchase Agreement with certain accredited investors. As part of this agreement, the Company issued warrants to purchase
635,855
shares of common stock to the placement agent, or its permitted assigns. The warrants have an exercise price of $
1.60
and a life of
five
years. The warrants vested immediately and expire October 25, 2017. Since these warrants were granted as part of an equity raise, the Company has treated them as a direct offering cost. The result of the transaction has no affect to equity. As of September 30, 2013, all the warrants were outstanding.
On March 15, 2012, the Company entered into a consulting agreement for a financial communications program, for a period of twelve months that began on February 20, 2012. As compensation for such program, the consultant is paid a monthly fee and will be issued a performance warrant exercisable for
250,000
shares of the Company’s common stock based on achievement of certain stock price milestones. Upon initiation of the program,
50,000
of the performance warrants vested. The performance warrant is exercisable for a period of two years from the date of issuance for an exercise price equal to the price ($
2.20
per share) of the Company’s common stock on the date of execution (March 15, 2012). In March 2013, the performance warrants’ vesting period was extended to March 14, 2014. All other provisions of the performance warrants remain unchanged. The incremental expense related to the modification of the warrants of approximately $
76,000
will be recognized over the one year extension period.
On December 20, 2011, the Company entered into a consulting agreement for financial advisory services, for a period of twelve months. As compensation for such services, the consultant was paid a monthly fee and on February 2, 2012, was issued warrants exercisable for
100,000
shares of the Company’s common stock. The warrant is exercisable upon issuance for a period of five years from the date of issue at an exercise price equal to the price ($
1.14
) of the Company’s common stock on the date of issue. As of September 30, 2013, all the warrants were outstanding.
A summary of warrant activity for the Company for the nine months ended September 30, 2013 and for the year ended December 31, 2012 is as follows:
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Number of Warrants
|
|
Exercise Price
|
|
||
|
Balance at December 31, 2011
|
|
|
3,259,186
|
|
$
|
1.95
|
|
|
Granted
|
|
|
985,855
|
|
|
1.71
|
|
|
Exercised
|
|
|
(1,768,167)
|
|
|
1.11
|
|
|
Forfeited
|
|
|
(844,373)
|
|
|
3.32
|
|
|
Balance at December 31, 2012
|
|
|
1,632,501
|
|
|
1.99
|
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
-
|
|
|
Balance at September 30, 2013
|
|
|
1,632,501
|
|
$
|
1.99
|
|
Stock-based compensation expense included in general and administrative expenses relating to warrants issued to consultants was $
0
and $
1,000
for the three months ended September 30, 2013 and 2012, respectively, and $
22,000
and $
271,000
for the nine months ended September 30, 2013 and 2012, respectively.
| 11 | ||
|
|
A summary of all outstanding and exercisable warrants as of September 30, 2013 is as follows:
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Exercise
|
|
Warrants
|
|
Warrants
|
|
Remaining
|
|
Aggregate
|
|
|||||
|
Price
|
|
Outstanding
|
|
Exercisable
|
|
Contractual Life
|
|
Intrinsic Value
|
|
|||||
|
$
|
1.14
|
|
|
100,000
|
|
|
100,000
|
|
|
3.34 years
|
|
$
|
54,000
|
|
|
$
|
1.32
|
|
|
18,182
|
|
|
18,182
|
|
|
2.25 years
|
|
$
|
6,000
|
|
|
$
|
1.60
|
|
|
635,855
|
|
|
635,855
|
|
|
4.08 years
|
|
$
|
51,000
|
|
|
$
|
2.20
|
|
|
250,000
|
|
|
50,000
|
|
|
0.45 years
|
|
$
|
-
|
|
|
$
|
2.22
|
|
|
517,257
|
|
|
517,257
|
|
|
3.16 years
|
|
$
|
-
|
|
|
$
|
3.30
|
|
|
61,207
|
|
|
61,207
|
|
|
1.66 years
|
|
$
|
-
|
|
|
$
|
3.75
|
|
|
50,000
|
|
|
50,000
|
|
|
2.38 years
|
|
$
|
-
|
|
|
$
|
1.99
|
|
|
1,632,501
|
|
|
1,432,501
|
|
|
3.03 years
|
|
$
|
111,000
|
|
8.
Stockholders’ Equity
During the nine months ended September 30, 2013, the Company issued
291,666
shares of common stock, in connection with the exercise of stock options, for proceeds of approximately $
231,000
.
9. Net Loss per Share
Net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding. Diluted loss per share is computed by dividing net loss by the weighted average number of common shares outstanding including the effect of common share equivalents. All common equivalent shares were anti-dilutive at September 30, 2012 and 2013, as such there is no separate computation for diluted loss per share. The number of options and warrants for the purchase of common stock, that were excluded from the computations of net loss per common share for the nine months ended September 30, 2013 were
3,804,580
and
1,632,501
, respectively, and for the nine months ended September 30, 2012 were
4,258,746
and
1,324,102
, respectively.
| 12 | ||
|
|
The following discussion should be read in conjunction with the attached unaudited consolidated financial statements and notes thereto, and with our audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2012, found in our Annual Report on Form 10-K. In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Where possible, we have tried to identify these forward looking statements by using words such as “anticipate,” “believe,” “intends,” or similar expressions. Our actual results could differ materially from those anticipated by the forward-looking statements due to important factors and risks including, but not limited to, those set forth under “Risk Factors” in this 10-Q and as applicable in Part I, Item 1A of our Annual Report on Form 10-K.
Overview
We are a biotechnology company focused on the development of biologics for the prevention and treatment of serious infectious diseases. We are developing an oral enzyme for the prevention of
C. difficile
infections, and a series of monoclonal antibody therapies for the treatment of Pertussis and
Acinetobacter
infections. In addition, we are developing a drug candidate for the treatment of relapsing-remitting multiple sclerosis and cognitive dysfunction in multiple sclerosis, and have partnered the development of a treatment for fibromyalgia.
Product Pipeline:
Summary of Infectious Disease Programs:
|
|
·
|
Clostridium difficile (C. difficile, C. diff)
infections:
We are in preclinical development with
SYN-004, a novel second-generation oral enzyme drug candidate, for co-administration with commonly used IV antibiotics intended to prevent the development of severe effects of
C. diff
infections
(CDI), the leading cause of hospital acquired infections (HAI), that generally occurs secondary to treatment with intravenous antibiotics.
Designed to be given orally to protect the gut while certain IV beta-lactam antibiotics (penicillins and cephalosporins) fight the primary infection, SYN-004 is believed to have a similar profile to its first-generation predecessor, which demonstrated favorable protection of the gut flora (microbiome) during
treatment with certain penicillins, with the potentially added ability to act against
a broader spectrum of IV beta-lactam antibiotics.
Beta-lactam antibiotics are a mainstay in hospital infection management and include the commonly used penicillin and cephalosporin classes of antibiotics.
Roughly 14.4 million patients are administered "SYN-004 target" IV beta-lactam antibiotics annually, representing an estimated target market for SYN-004 of 117.6 million beta-lactam doses purchased by U.S. hospitals. While the final dosing regimen for SYN-004 is yet to be determined, the addressable market is extremely significant. Currently there are no approved treatments designed to protect the microbiome from the damaging effects of IV antibiotics. This worldwide opportunity could represent a potential multi-billion dollar market.
* In October 2013, we initiated
manufacturing of SYN-004 material to support our planned preclinical and clinical studies.
|
|
|
|
|
|
|
|
*This information is an estimate derived from the use of information under license from the following IMS Health Incorporated information service: CDM Hospital database for full year 2012. IMS expressly reserves all rights, including rights of copying, distribution and republication.
|
| 13 | ||
|
|
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Pertussis:
In December 2012, in collaboration with Intrexon Corporation (NYSE: XON) (“Intrexon”), we initiated development of a monoclonal antibody (mAb) therapy for the treatment of Pertussis infections, more commonly known as whooping cough. We are developing a mAb therapy, SYN-005, designed to target and neutralize the pertussis toxin, in order to reduce the mortality rate in infants and potentially shorten the duration of chronic cough in afflicted adults. To further the development of this potential therapy for Pertussis, we entered into an agreement with The University of Texas at Austin to license the rights to certain research and pending patents related to pertussis antibodies. According to the World Health Organization, each year,
B. pertussis
infection causes an estimated 300,000 deaths worldwide, primarily among young, unvaccinated infants.
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Acinetobacter
infections:
In September 2012, in collaboration with Intrexon, we initiated efforts to develop a mAb therapy for the treatment of
Acinetobacter
infections. Many strains of
Acinetobacter
are multidrug-resistant and pose an increasing global threat to hospitalized patients, wounded military personnel and those affected by natural disasters. A treatment for
Acinetobacter
infections represents a billion dollar market opportunity.
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Summary of Multiple Sclerosis Program:
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Trimesta
TM
(oral estriol) is being developed as an oral once-daily treatment for relapsing-remitting multiple sclerosis (MS) in women. Patient enrollment is complete in this two-year, randomized, double-blind, placebo-controlled Phase II clinical trial being conducted at 15 centers in the U.S. The primary endpoint is relapse rate at two years, with top-line results expected in 1H 2014. This trial is supported by grants exceeding $8 million, which should be sufficient to fund the trial through completion. Annual worldwide sales of current MS therapies are estimated at $14.1 billion.
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Trimesta
TM
is also being developed for the treatment of cognitive dysfunction in female MS patients. This 12-month randomized, double-blind, placebo-controlled Phase II clinical trial is being conducted at the University of California, Los Angeles (UCLA). The primary endpoint is the effect on cognitive function as assessed by Paced Auditory Serial Addition Test (PASAT). Patient enrollment is ongoing. The majority of the costs of this trial are being funded by grants from foundations and charitable organizations and we have pledged approximately $500,000 to UCLA to partially fund this trial payable over three years. An estimated 50-65% of MS patients are expected to develop disabilities due to cognitive dysfunction and there is currently no approved treatment.
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Summary of Fibromyalgia Program:
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Effirma
TM
(flupirtine) is being developed for the treatment of fibromyalgia by Meda AB (Meda), a multi-billion dollar international pharmaceutical company. On May 6, 2010, we entered into a sublicense agreement with Meda covering all of our patents’ rights on the use of flupirtine for fibromyalgia in the U.S., Canada and Japan. The sublicense agreement provides that all ongoing and future development costs are to be borne by Meda and we are entitled to receive certain payments if milestones are achieved and royalties on sales. According to Meda’s 2012 Year-End Report filed in February 2013, Meda has received the go-ahead from the FDA to conduct a Phase II proof of concept study for the treatment of fibromyalgia. Meda also announced that the randomized, double-blind, placebo and active-controlled study of patients with fibromyalgia will be conducted at 25 clinics in the U.S. Based on an estimated annual price of $1,200 per fibromyalgia patient, we estimate that the total market potential in the U.S. is $6 billion.
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In order to further prioritize our focus, we elected to discontinue further development of AEN-100 for the treatment of amyotrophic lateral sclerosis. However, we are seeking development partners for our zinc-based intellectual property and assets including, AEN-100.
Recent Developments
On December 19, 2012, we entered into a Patent License Agreement (the “License Agreement”) with The University of Texas at Austin (the “University”) for the exclusive license of the right to use, develop, manufacture, market and commercialize certain research and patents related to Pertussis (more commonly known as whooping cough) antibodies developed in the lab of Dr. Jennifer A. Maynard, Assistant Professor of Chemical Engineering. In connection with the License Agreement, we and the University also entered into a Sponsored Research Agreement pursuant to which the University is performing certain research work related to pertussis under the direction of Dr. Jennifer Maynard and we will obtain certain rights to patents and technology developed during the course of such research.
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On November 28, 2012, a closing was held for the transaction contemplated by the Asset Purchase Agreement (the “Prev Agreement”) we entered into with Prev ABR LLC (“Prev”), pursuant to which we acquired the
C. diff
program assets of Prev, including pre-Investigational New Drug (IND) package, Phase I and Phase II clinical data, manufacturing process data and all issued and pending U.S. and international patents. Pursuant to the Prev Agreement, we paid Prev an initial cash payment of $100,000 upon execution of the Prev Agreement and at closing paid an additional cash payment of $135,000 and issued 625,000 unregistered shares of our common stock to Prev. In addition, upon the achievement of the milestones set forth below, Prev may be entitled to receive additional consideration payable 50% in cash and 50% in our stock, subject to Prev’s option to receive the entire payment in shares of our stock, with the exception of the first milestone payments to be paid in cash: (i) upon commencement of an IND; (ii) upon commencement of a Phase I clinical trial; (iii) upon commencement of a Phase II clinical trial; (iv) upon commencement of a Phase III clinical trial; (v) upon Biologic License Application (BLA) filing in the U.S. and for territories outside of the U.S. (as defined in the Prev Agreement); and (vi) upon BLA approval in the U.S. and upon approval in territories outside the U.S. The future stock issuances are subject to prior approval of the NYSE MKT, LLC. No royalties are payable to Prev under the Prev Agreement. The Prev Agreement also provides that Prev has a right to the return to it of all assets acquired by us under the Prev Agreement if on or prior to the date that is (i) thirty (30) months after the execution of the Prev Agreement, we have not initiated toxicology studies in non-rodent models or (ii) thirty six (36) months have not filed an IND under the program related to the assets and such failure is not due to action or inaction of Prev or breach of its representations or warranties or covenants or if there is a change of control as defined in the Prev Agreement and after such change of control the assets are not further developed; provided however that such thirty (30) and thirty six (36) month periods can be extended by us for an additional twelve (12) months upon payment of a cash milestone payment.
On October 30, 2012, we completed a private placement (the “October 2012 Private Placement”) with certain accredited investors, pursuant to which we sold an aggregate of 6,750,000 shares of our common stock at a price per share of $1.60 (the “Common Shares”) for aggregate gross proceeds of $10.8 million and net proceeds of $10.1 million. In connection with the October 2012 Private Placement, we filed a registration statement with the SEC which was declared effective on December 20, 2012 for the resale of our common stock owned by certain of the purchasers in the October 2012 Private Placement. In connection with the October 2012 Private Placement, we also entered into an agreement with a certain purchaser that is an affiliate of Intrexon (the “Joinder Agreement”) pursuant to which such purchaser agreed to be bound by the terms of and join Intrexon as a party to its registration rights agreement with us entered into in connection with the Second Channel Agreement (the “First Amendment to Registration Rights Agreement”) and we registered the shares issued to such purchaser in accordance with the First Amendment to Registration Rights Agreement.
Griffin Securities, Inc. (“Griffin”) served as the placement agent for the October 2012 Private Placement. In consideration for services rendered by Griffin in the October 2012 Private Placement, we (i) paid to Griffin cash commissions equal to 6.0% of the gross proceeds received in the October 2012 Private Placement, (ii) issued to Griffin, or its designee, warrants, which are five-year warrants to purchase 635,855 shares of our common stock with an exercise price of $1.60 per share (the “Agent Warrants”); and (iii) reimbursed Griffin for its reasonable actual out-of-pocket expenses incurred in connection with the October 2012 Private Placement, including reasonable legal fees and disbursements. The common stock underlying the Agent Warrants was registered under the registration statement declared effective on December 20, 2012.
On August 6, 2012, we expanded our relationship with Intrexon and entered into a Second Channel Agreement with Intrexon (the “Second Channel Agreement”) that governs an “exclusive channel collaboration” arrangement in which we will use Intrexon’s technology relating to the identification, design and production of human antibodies and DNA vectors for the development and commercialization of a series of monoclonal antibody therapies for the treatment of certain serious infectious diseases (the “Program”). The Second Channel Agreement establishes committees comprised of our and Intrexon representatives that will govern activities related to the Program in the areas of project establishment, chemistry, manufacturing and controls, clinical and regulatory matters, commercialization efforts and intellectual property. On October 16, 2012, a closing was held for the transaction contemplated by the Second Channel Agreement. Pursuant to the terms of a Stock Issuance Agreement with Intrexon (the “Second Stock Purchase Agreement”), we issued 3,552,210 shares of our common stock, $0.001 par value, which issuance is also deemed paid in consideration for the execution and delivery of the Second Channel Agreement, dated August 6, 2012, between ourselves and Intrexon. We registered the shares issued to Intrexon in accordance with the First Amendment to Registration Rights Agreement.
On February 15, 2012, upon stockholder approval, we amended our Articles of Incorporation to change our name to Synthetic Biologics, Inc. Our common stock continues trade on the NYSE MKT (formerly the NYSE Amex and American Stock Exchange), under the symbol “SYN”. Prior to this time and since October 16, 2008, our name was Adeona Pharmaceuticals, Inc. and we traded on the NYSE MKT stock exchange under the symbol “AEN”. We are incorporated in the State of Nevada.
On December 21, 2011, we announced that the Board of Directors had taken several actions to prioritize our focus on our entry into the emerging field of synthetic biology. In connection with the change in business focus on March 8, 2012, we entered into a Membership Interest Purchase Agreement, and certain related agreements, pursuant to which we sold all of our interest in the Adeona Clinical Laboratory (the “Lab”) to Hartlab, LLC, an entity controlled by the Lab’s former owner, in consideration for (i) the immediate assignment of the Lab’s outstanding accounts receivable up through the date of closing, plus (ii) Seven Hundred Thousand Dollars ($700,000) payable pursuant to the terms of a two-year non-recourse promissory note secured by all of the assets of the Lab.
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On November 18, 2011, we entered into a Stock Purchase Agreement with Intrexon pursuant to which we issued to Intrexon 3,123,558 shares of our common stock at a purchase price equal to the $0.001 par value of such shares, which issuance was deemed paid in consideration for the execution and delivery of the channel agreement which was entered into on November 18, 2011 and terminated on April 16, 2013. We also agreed to an equity participation right in future securities offerings.
Since our inception in January 2001, our efforts and resources have been focused primarily on acquiring and developing our product candidates, our clinical trials, raising capital and recruiting personnel. As of June 30, 2010, we emerged from the development stage after entering into a sublicense agreement with Meda AB and receiving an up-front payment of $2.5 million. We consider this sublicense agreement to be an indication that we commenced our principal operations.
To date, we have financed our operations primarily through public and private sales of our common stock, and we expect to continue to seek and obtain the required capital in a similar manner. We have incurred an accumulated deficit of $77 million through September 30, 2013. We cannot provide any assurance that we will be able to achieve profitability on a sustained basis, if at all, obtain the required funding, obtain the required regulatory approvals, or complete additional corporate partnering or acquisition transactions.
Pipeline Programs and Therapeutic Areas
Infectious Disease Programs
We are focused on the development of biologics for the prevention and treatment of serious infectious diseases. Infectious disease outbreaks are increasing while intervention options are declining due to widespread multidrug-resistant bacteria, increasing numbers of immuno-compromised patients (e.g. the elderly and cancer patients), and the isolation of new pathogens. We are developing an oral enzyme for the prevention of
C. difficile
infections, and a series of monoclonal antibody therapies for the treatment of Pertussis and
Acinetobacter
infections.
C. difficile Infections
:
According to the Agency for Healthcare Research and Quality, aggregate costs associated with CDI-related stays in the hospital were $8.2 billion in the U.S. during 2009. CDI is a rising global HAI problem in which the toxins produced by
C. difficile
bacteria result in diarrhea (
C. difficile
-associated diarrhea (CDAD)), and in the most serious cases, pseudomembranous colitis (erosion of the lower GI tract) that can lead to death. The
Centers for Disease Control and Prevention (CDC) recently identified
C. diff
as an “urgent public health threat,” particularly given its resistance to many drugs used to treat other infections.
CDI is a major, unintended risk associated with the prophylactic or therapeutic use of intravenous antibiotics, which may alter the natural balance of microflora that normally protect the GI tract, leading to
C. difficile
overgrowth and infection. Other risk factors for CDI include hospitalization, prolonged length of stay, underlying illness, immune-compromising conditions including the administration of chemotherapy, and advanced age.
CDI is a widespread and often drug resistant infectious disease, and it is estimated that 1.1 million patients are infected with
C. diff
annually in the U.S.*, and it has been reported that
30,000 patients die with a
C. diff
infection annually.
CDI has surpassed methicillin-resistant staphylococcus aureus (MRSA) as the most frequent infection acquired in the hospital. Controlling the spread of CDI has proven challenging, as the
C. difficile
spores are easily transferred to patients via normal contact with healthcare personnel and other inanimate objects. There is currently no vaccine or approved product for the prevention of
C. diff
infection.
C. difficile: Acquisition of Clinical-Stage Program
In November 2012, we acquired a series of oral beta-lactamase enzymes (P1A, P2A and P3A) and related assets targeting the prevention of CDI, the leading cause of HAIs that generally occurs secondary to treatment with intravenous antibiotics. The acquired assets include a pre-IND package for P3A (SYN-004), Phase I and Phase II clinical data for P1A, manufacturing processes and data, and a portfolio of issued and pending U.S. and international patents intended to support an IND and BLA with the FDA. Utilizing this portfolio of assets, we intend to develop a proprietary oral beta-lactamase enzyme product candidate, SYN-004, previously known as IPSAT P3A. When co-administered with certain intravenous beta-lactam antibiotics, it is expected that SYN-004 can degrade the antibiotic that is excreted in the GI tract, thus preserving the natural balance of the patient's microflora, and preventing opportunistic infections including CDI. Beta-lactam antibiotics are a mainstay in hospital infection management and include the commonly used penicillin and cephalosporin classes of antibiotics.
Roughly 14.4 million patients are administered "SYN-004 target" IV beta-lactam antibiotics annually, representing an estimated target market for SYN-004 of 117.6 million beta-lactam doses purchased by U.S. hospitals. While the final dosing regimen for SYN-004 is yet to be determined, the addressable market is extremely significant. Currently there are no approved treatments designed to protect the microbiome from the damaging effects of IV antibiotics. This worldwide opportunity could represent a potential multi-billion dollar market.
*
C. difficile: Oral Enzyme Background
We acquired a series of oral beta-lactamase enzymes (P1A, P2A and P3A). Beta-lactamase enzymes have the ability to degrade beta-lactam antibiotics that may be excreted into the GI tract. P1A (the first generation candidate) showed acceptable safety and tolerability in a Phase I study. In addition, two Phase II clinical studies demonstrated that P1A had the ability to preserve GI microflora in hospitalized patients treated with intravenous ampicillin or the combination of piperacillin and tazobactam.
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C. difficile: Clinical Development
Compared to the first generation oral enzyme candidate, P1A, we believe that SYN-004 (formerly P3A) will have activity against a broader spectrum of beta-lactam antibiotics, including both penicillins and cephalosporins. Due to the structural similarities between P1A and SYN-004 for the prevention of CDI, along with previous discussions with the FDA, it is anticipated that certain preclinical data collected on P1A may be used in support of an IND for our new product candidate, SYN-004.
In October 2013, we initiated
manufacturing of SYN-004 material to support our planned preclinical and clinical studies.
We anticipate initiating a Phase I clinical trial in the 2
nd
half of 2014.
*This information is an estimate derived from the use of information under license from the following IMS Health Incorporated information service: CDM Hospital database for full year 2012. IMS expressly reserves all rights, including rights of copying, distribution and republication.
Monoclonal Antibodies:
Monoclonal Antibodies for Infectious Diseases
Acting as the body's army, antibodies are proteins, generally found in the bloodstream, that provide immunity in detecting and destroying pathogens, such as viruses and bacteria and their associated toxins. MAbs can also be designed and produced as therapeutic agents, utilizing protein engineering and recombinant production technologies. The mAbs being developed under our collaboration with Intrexon are intended to supplement a patient's own immune system by providing the means to specifically and rapidly neutralize and/or clear specific pathogens and toxins of interest in a process known as “passive immunity”. Many pathogens that cause infectious diseases are innately resistant to, or over time have developed increased resistance to, antibiotics and other drugs.
Intrexon Collaboration: Monoclonal Antibodies for Infectious Diseases
In August 2012, we entered into a worldwide exclusive channel collaboration with Intrexon through which we intend to develop a series of mAb therapies for the treatment of certain infectious diseases not adequately addressed by existing therapies. Utilizing Intrexon’s comprehensive suite of proprietary technologies, including the mAbLogix platform for rapid discovery of fully human mAbs and the LEAP cell processing station, our initial efforts will target three infectious disease indications. ** We also have the option to target an additional five infectious disease indications under this collaboration. To date, we have initiated development of a mAb therapy for the treatment of Pertussis and
Acinetobacter
infections.
**mAbLogix
TM
and LEAP
TM
are registered trademarks of Intrexon Corporation
Bordetella pertussis (B. pertussis)
is a gram-negative bacterium that infects the upper respiratory tract, causing uncontrollable, violent coughing. Antibiotic treatment does not have a major effect on the course of Pertussis, because while it can eliminate the
B. pertussis
bacteria from the respiratory tract, it does not neutralize the pertussis toxin. Infants with Pertussis often require hospitalization in pediatric intensive care units, frequently requiring mechanical ventilation. Pertussis in adults generally leads to a chronic cough referred to as the "cough of 100 days." The incidence of Pertussis is increasing in association with exposure of unvaccinated and under-vaccinated individuals including infants who are not yet fully vaccinated, exposure of individuals whose immunity has diminished over time, as well as asymptomatic carriers.
According to the World Health Organization, each year,
B. pertussis
infection causes an estimated 300,000 deaths worldwide, primarily among young, unvaccinated infants. Recent news reports throughout the U.S. indicate that the pertussis vaccine introduced in the 1990s does not provide long-term protection and, as a result, whooping cough cases are increasing to a 60-year high. There is no approved treatment for Pertussis, and antibiotic treatment does not have a major effect on the course of Pertussis, because while it can eliminate the
B. pertussis
bacteria from the respiratory tract, it does not neutralize the pertussis toxin.
Pertussis: Intrexon Collaboration and The University of Texas at Austin Agreement
In December 2012, we initiated mAb development for the treatment of Pertussis focusing on toxin neutralization pursuant to our August 2012 collaboration with Intrexon. Unlike antibiotics, we are developing a mAb therapy, SYN-005, to target and neutralize the pertussis toxin, in order to reduce the mortality rate in infants and potentially shorten the duration of chronic cough in afflicted adults. SYN-005 is currently in preclinical studies.
To further the development of this potential therapy for pertussis, we have entered into an agreement with The University of Texas at Austin to license the rights to certain research and pending patents related to pertussis antibodies. These research efforts are being conducted at the Cockrell School of Engineering in the laboratory of Assistant Professor, Jennifer A. Maynard, Ph.D., the Laurence E. McMakin, Jr. Centennial Faculty Fellow in the McKetta Department of Chemical Engineering. Dr. Maynard brings to the project her expertise in defining the key neutralizing epitopes of pertussis toxin to optimize the potential efficacy of antibody therapeutics.
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Pertussis: Clinical Development
We intend to initiate a large animal, IND-enabling study in the 1
st
quarter of 2014, with topline results expected in the 2
nd
quarter of 2014. If successful, we intend to initiate a Phase I clinical trial in the 2
nd
quarter of 2015.
Acinetobacter Infections:
Acinetobacter baumanii
is a difficult to treat pathogen due to its rapid and well-established development of resistance to most antibiotics, making it a multidrug-resistant pathogen. In addition, as a biofilm-forming pathogen,
Acinetobacter baumanii
has the ability to survive up to twice as long as non-biofilm-forming pathogens. In the U.S.,
Acinetobacter baumanii
has been reported to be the cause of up to 2.6% of hospital acquired infections, 1.3% of bloodstream infections and 7% of ICU respiratory tract infections, and more than half of the
Acinetobacter baumanii
isolates are multidrug-resistant. According to published articles, mortality rates as high as 43% are reported in hospital and ICU settings. While
Acinetobacter baumanii
is a well-documented pathogen in the hospital setting, this pathogen also poses an increasing danger to wounded servicemen and women in military treatment centers and to those treated in trauma centers following natural disasters.
A treatment for
Acinetobacter
infections represents a billion dollar market opportunity.
Acinetobacter: Intrexon Collaboration
In August 2012, we initiated a mAb discovery and development program for
Acinetobacter
infections pursuant to our August 2012 collaboration with Intrexon. Discovery efforts for the development of a mAb are currently underway.
Multiple Sclerosis Program
Relapsing-Remitting MS in Women:
MS is a progressive neurological disease in which the body loses the ability to transmit messages along central nervous system nerve cells, leading to pain, loss of muscle control, paralysis, cognitive impairment and in some cases death. According to the National Multiple Sclerosis Society (NMSS), more than 2.1 million people worldwide (approximately 400,000 patients in the U.S. of which approximately 65% are women) have been diagnosed with MS. The diagnosis is typically made in young adults, ages 20 to 50. According to the NMSS, approximately 85% of MS patients are initially diagnosed with the relapsing-remitting form, and 10-15% with other progressive forms.
There are nine FDA-approved therapies for the treatment of relapsing-remitting MS: Betaseron
®
, Rebif
®
, Avonex
®
, Copaxone
®
, Tysabri
®
, Gilenya
®
, Extavia
®
, Aubagio
®
and Tecfidera
TM
. Many of these therapies provide only a modest benefit for patients with relapsing-remitting MS. All of these drugs except Gilenya
®
, Aubagio
®
and Tecfidera
TM
require frequent (daily, weekly & monthly) injections (or infusions) on an ongoing basis and can be associated with unpleasant side effects (such as flu-like symptoms) and high rates of non-compliance among users. Despite the availability of therapies for the treatment of relapsing-remitting MS, the disease is highly underserved and exacts a heavy personal and economic toll. Annual worldwide sales of current MS therapies are estimated at $14.1 billion.
Relapsing-Remitting MS: Background
Research has shown that pregnant women with MS tend to experience a spontaneous reduction of disease symptoms during pregnancy, particularly in the third trimester. The PRIMS (Pregnancy In MS) study, a landmark observational clinical study published in the
New England Journal of Medicine
followed 254 women with MS during 269 pregnancies and for up to one year after delivery. The PRIMS study demonstrated that relapse rates were significantly reduced by 71% (p < 0.001) through the third trimester of pregnancy compared to pre-pregnancy-rates, and that relapse rates increased by 120% (p < 0.001) during the first three months after birth (post-partum) and then return to pre-pregnancy rates. It has been hypothesized that the female hormone, estriol, produced by the placenta during pregnancy, plays a role in “fetal immune privilege”, a process that prevents a mother’s immune system from attacking and rejecting the fetus. The maternal levels of estriol increase linearly through the third trimester of pregnancy until birth, whereupon it abruptly returns to low circulating levels. The anti-autoimmune effects of estriol are thought to be responsible for the therapeutic effects of pregnancy on MS.
Rhonda Voskuhl, M.D., Director, UCLA MS program, UCLA Department of Neurology, has found that plasma levels of estriol achieved during pregnancy have potent immunomodulatory effects. She further postulated and tested in a pilot clinical study that oral doses of estriol may have a therapeutic benefit when administered to non-pregnant female MS patients by, in essence, mimicking the spontaneous reduction in relapse rates seen in MS patients during pregnancy.
Estriol has been approved and marketed for over 40 years throughout Europe and Asia for the oral treatment of post-menopausal symptoms. It has never been approved by the U.S. FDA for any indication.
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Relapsing-Remitting MS: Clinical Development
Trimesta (oral estriol) is being developed for the treatment of relapsing-remitting MS in women. An investigator-initiated, 10-patient, 22-month, single-agent, crossover clinical trial to study the therapeutic effects of 8 mg of oral Trimesta taken daily in non-pregnant female relapsing-remitting MS patients was completed in the U.S. The total volume and number of gadolinium-enhancing lesions were measured by brain magnetic resonance imaging (an established neuroimaging measure of disease activity in MS). Over the next three months of treatment with Trimesta, the median total enhancing lesion volumes decreased by 79% (p = 0.02) and the number of lesions decreased by 82% (p = 0.09). They remained decreased during the next 3 months of treatment, with lesion volumes decreased by 82% (p = 0.01), and numbers decreased by 82% (p =0.02). Following a six-month drug holiday during which the patients were not on any drug therapies, median lesion volumes and numbers returned to near baseline pretreatment levels. Trimesta therapy was reinitiated during a four-month retreatment phase of this clinical trial. The relapsing-remitting MS patients again demonstrated a decrease in enhancing lesion volumes of 88% (p = 0.008) and a decrease in the number of lesions by 48% (p = 0.04) compared with original baseline scores.
A Phase II randomized, double-blind, placebo-controlled clinical trial is currently underway at 15 centers in the U.S. under the direction of Lead Principal Investigator, Dr. Rhonda Voskuhl. The purpose of this clinical trial is to evaluate whether 8 mg of oral Trimesta taken daily over a two year period will reduce the rate of relapses in a large population of female patients with relapsing-remitting MS. Investigators are administering either Trimesta or matching placebo, in addition to a standard of care, glatiramer acetate injections (Copaxone
®
), an FDA-approved therapy for MS, to women between the ages of 18 to 50 who have been recently diagnosed with relapsing-remitting MS. Relapse rates at two years is the primary endpoint in this clinical trial being run under an investigator-initiated IND. As of January 23, 2012, 164 patients have been enrolled and enrollment has been closed. The patients will be dosed and monitored for two years with the last patient scheduled to complete two years of therapy in January 2014.
With over $8 million in grant funding to date from organizations such as the National Institutes for Health and the National Multiple Sclerosis Society, the ongoing Trimesta clinical trial should be funded to its completion.
Relapsing-Remitting MS: Patents
In April 2013, we announced that the U.S. Patent & Trademark Office issued U.S. Patent No. 8,372,826 entitled,
Estriol Therapy for Multiple Sclerosis and Other Autoimmune Diseases
, to the Regents of the University of California which includes claims to the use of our drug candidate, Trimesta™ (oral estriol), in combination with glatiramer acetate injection (Copaxone®). According to Teva Pharmaceutical Industries Ltd.’s Form 20-F for the year ended December 31, 2012, filed with the SEC on February 12, 2013. Copaxone® is the number one selling drug for multiple sclerosis with approximately $4 billion in annual sales. Currently marketed exclusively by Teva Pharmaceutical Industries Ltd., Copaxone® is expected to face generic competition as certain patent terms begin to expire in 2014. Through our wholly owned subsidiary, we hold the exclusive worldwide license to U.S. Patent 8,372,826 and 6,936,599 and pending patents for multiple sclerosis and other autoimmune diseases covering the uses of our drug candidate, Trimesta™.
Cognitive Dysfunction in MS:
According to the NMSS and the Multiple Sclerosis Society of Canada publication,
Hold that Thought! Cognition and MS
, it is fairly common for people with MS to complain of cognitive difficulties, such as remembering things, finding the right words and the ability to concentrate. Among MS patients, 50-65% have some degree of cognitive dysfunction.
The major areas of cognition that may be affected include complex attention and executive functions
.
Complex attention involves multitasking, the speed with which information can be processed, learning and memory, and perceptual skills; executive functions include problem solving, organizational skills, the ability to plan, and word finding. Just as the nature, frequency, and severity of MS-related physical problems can widely vary, not all people with MS will have cognitive dysfunction, and no two people will experience exactly the same type or severity.
Cognitive Dysfunction in MS: Background
In the investigator-initiated, 10-patient, 22-month, single-agent, crossover clinical trial conducted by Dr. Rhonda Voskuhl, a statistically significant 14% improvement from baseline in the PASAT cognitive testing scores (p = 0.04) was observed in relapsing-remitting MS patients after six months of Trimesta therapy. PASAT is a routine cognitive test performed in patients with a wide variety of neuropsychological disorders such as MS. The PASAT scores are expressed as a mean percent change from baseline.
Cognitive Dysfunction in MS: Clinical Development
Our Trimesta (oral estriol) drug candidate is also being developed for the treatment of cognitive dysfunction in female MS patients. This randomized, double-blind, placebo-controlled Phase II clinical trial to evaluate Trimesta’s potential neuroprotective and therapeutic effect on cognitive dysfunction in female MS patients is currently enrolling relapsing-remitting or secondary-progressive female MS patients at UCLA. Up to 64 patients between the ages of 18 and 50 will be randomized 1:1 into the treatment and placebo groups. Dr. Voskuhl will administer either oral Trimesta or a matching placebo, in addition to any FDA-approved MS treatment. Each patient will be dosed and monitored for one year after being enrolled. The primary endpoint in this clinical trial being run under an investigator-initiated IND application is expected to be improvement in PASAT cognitive testing scores versus matching placebo. We and a private foundation have pledged to equally support this new clinical trial, and we will also provide Trimesta drug supply. The trial also received contributions from several other supporters. Patient recruitment and enrollment into this trial is ongoing.
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Fibromyalgia Program
Fibromyalgia is a chronic and debilitating condition characterized by widespread pain and stiffness throughout the body, often accompanied by severe fatigue, insomnia and alterations in mood. According to the National Fibromyalgia Association, fibromyalgia affects an estimated 3-6% of the population worldwide, including an estimated 10 million people in the U.S. There are presently three FDA products approved for the treatment of fibromyalgia - Lyrica
®
, Cymbalta
®
and Savella
®
.
Based on an estimated annual price of $1,200 per fibromyalgia patient, we estimate that the total market potential in the U.S. is $6 billion.
Fibromyalgia
:
Meda Corporate Partnership
On May 6, 2010, we entered into a sublicense agreement with Meda, a multi-billion dollar international pharmaceutical company, pursuant to which Meda assumed all future development costs and may commercialize flupirtine, a molecular entity with a unique mode of action for the treatment of fibromyalgia in the U.S. As consideration for such sublicense, we received an up-front payment of $2.5 million and are entitled to milestone payments of $5 million upon the FDA’s acceptance of the New Drug Application (NDA) for flupirtine for fibromyalgia and $10 million upon FDA approval of such NDA. Pursuant to the sublicense agreement, we will also receive a 7% royalty on net sales of flupirtine for fibromyalgia in the U.S., Canada and Japan, with such royalties being shared equally with our licensor, McLean Hospital, a Harvard teaching hospital.
Flupirtine is approved and marketed by Meda and its distributors in Europe and other countries for indications other than fibromyalgia and has been prescribed to millions of patients worldwide. We believe that such substantial human experience with flupirtine should greatly assist the FDA in its evaluation of the safety of flupirtine upon review of an NDA of flupirtine for fibromyalgia.
Fibromyalgia
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Clinical Development
Our Effirma (flupirtine) drug candidate for the treatment of fibromyalgia, has been partnered to Meda (see “Fibromyalgia: Meda Corporate Partnership” section above). Effirma is a selective neuronal potassium channel opener that also has N-methyl-D-aspartic (NMDA) receptor antagonist properties. Effirma is a non-opioid, non-NSAID, non-steroidal, analgesic. Preclinical data and clinical experience suggest that Effirma should also be effective for neuropathic pain since it acts in the central nervous system via a mechanism of action distinguishable from most marketed analgesics. Effirma is especially attractive because it operates through non-opiate pain pathways, exhibits no known abuse potential, and lacks withdrawal effects. In addition, no tolerance to its antinocioceptive effects has been observed. One common link between neuroprotection, nocioception and Effirma may be the N-methyl-D-aspartic acid glutamate system, a major receptor subtype for the excitotoxic neurotransmitter, glutamate. Effirma has strong inhibitory actions on N-methyl-D-aspartic acid-mediated neurotransmission. Flupirtine was originally developed by Asta Medica (subsequently acquired by Meda) and has been approved and is marketed by Meda in Europe since 1984, as well as other countries, for the treatment of pain. It has never been approved by the FDA for any indication.
According to Meda’s 2012 Year-End Report filed in February 2013, Meda has received the go-ahead from the FDA to conduct a Phase II proof of concept study for the treatment of fibromyalgia. Meda also announced that the randomized, double-blind, placebo and active-controlled study of patients with fibromyalgia will be conducted at 25 clinics in the U.S.
Critical Accounting Policies
The consolidated financial statements are prepared in conformity with U.S. GAAP, which require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses in the periods presented. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable; however, due to inherent uncertainties in making estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. The critical accounting estimates that affect the consolidated financial statements and the judgments and assumptions used are consistent with those described in the MD&A section in our 2012 Form 10-K.
Results of Operations
Three Months Ended September 30, 2013 and 2012
General and Administrative Expenses
General and administrative expenses increased by 76% to $1.9 million for the three months ended September 30, 2013, from $1.1 million for the three months ended September 30, 2012. This increase is primarily the result of bad debt expense of $763,000 associated with the determination that the note receivable and interest receivable from the sale of Adeona Clinical Laboratory is uncollectible.
See Note 3 - Discontinued Operations of Adeona Clinical Laboratory and Note Receivable.
The charge relating to stock-based compensation expense was $264,000 for the three months ended September 30, 2013, compared to $279,000 for the three months ended September 30, 2012.
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Research and Development Expenses
Research and development expenses increased by 93% to $1.5 million for the three months ended September 30, 2013, from $763,000 for the three months ended September 30, 2012. This increase is primarily the result of additional employee costs and increased program costs associated with our infectious disease programs. Research and development expenses also include a charge relating to non-cash stock-based compensation expense of $74,000 for the three months ended September 30, 2013, compared to $116,000 for the three months ended September 30, 2012.
Other Income (Expense), Net
Other expense was $3,000 for the three months ended September 30, 2013, compared to other income of $10,000 for the three months ended September 30, 2012.
Loss from Continuing Operations
Our loss from continuing operations was $3.4 million, or $0.06 per common share for the three months ended September 30, 2013, compared to a net loss from continuing operations of $1.8 million, or $0.05 per common share for the three months ended September 30, 2012.
Loss from Discontinued Operations
Our loss from discontinued operations was $104,000, or $0.00 per common share for the three months ended September 30, 2012. On March 8, 2012, we entered into a Membership Interest Purchase Agreement, and certain related agreements, pursuant to which we sold all of our interest in the Lab to Hartlab, LLC. This resulted in the classification of the Lab as discontinued operations.
See Note 3 - Discontinued Operations of Adeona Clinical Laboratory and Note Receivable
for summarized statement of operations data for the three months ended September 30, 2013 and 2012.
Nine Months Ended September 30, 2013 and 2012
General and Administrative Expenses
General and administrative expenses increased to $4.3 million for the nine months ended September 30, 2013, from $3.7 million for the nine months ended September 30, 2012. This increase of 15% is primarily the result of bad debt expense of $736,000 associated with the determination that the note receivable and interest receivable from the sale of Adeona Clinical Laboratory is uncollectible.
See Note 3 - Discontinued Operations of Adeona Clinical Laboratory and Note Receivable.
The charge relating to share-based compensation expense was $916,000 for the nine months ended September 30, 2013, compared to $1.1 million for the nine months ended September 30, 2012.
Research and Development Expenses
Research and development expenses increased to $3.8 million for the nine months ended September 30, 2013, from $1.7 million for the nine months ended September 30, 2012. This increase of 124% is primarily the result of additional employee costs and increased program costs associated with our infections disease programs. Research and development expenses also include a charge relating to share-based compensation expense of $286,000 for the nine months ended September 30, 2013, compared to $238,000 for the nine months ended September 30, 2012.
Other Income (Expense), Net
Other expense was $27,000 for the nine months ended September 30, 2013, compared to other income of $22,000 for the nine months ended September 30, 2012.
Loss from Continuing Operations
Our loss from continuing operations was $8.1 million, or $0.16 per common share for the nine months ended September 30, 2013, compared to a net loss from continuing operations of $5.4 million, or $0.16 per common share for the nine months ended September 30, 2012.
Income from Discontinued Operations
Our income from discontinued operations was $389,000, or $0.01 per common share for the nine months ended September 30, 2012. On March 8, 2012, we entered into a Membership Interest Purchase Agreement, and certain related agreements, pursuant to which we sold all of our interest in the Lab to Hartlab, LLC. This resulted in the classification of the Lab as discontinued operations.
See Note 3 - Discontinued Operations of Adeona Clinical Laboratory and Note Receivable
for summarized statement of operations data for the nine months ended September 30, 2013 and 2012.
Liquidity and Capital Resources
We have financed our operations since inception primarily through proceeds from equity financings, corporate partnering license fees, laboratory revenues and miscellaneous equipment sales.
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Our cash totaled $5.1 million as of September 30, 2013, a decrease of $4.8 million from December 31, 2012. During the nine months ended September 30, 2013, the primary sources of cash were proceeds from stock option exercises of $231,000. The primary use of cash during the nine months ended September 30, 2013 was for working capital requirements and operating activities which resulted in a net loss of $8.1 million for the nine months ended September 30, 2013.
Our continued operations will primarily depend on our ability to raise additional capital from various sources including equity and debt financings, as well as, license fees from potential corporate partners, joint ventures and grant funding. Such additional funds may not become available on acceptable terms and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs in the long term. We will continue to fund operations from cash on hand and through the similar sources of capital previously described. We can give no assurances that any additional capital that we are able to obtain will be sufficient to meet our needs.
Current and Future Financing Needs
We have incurred an accumulated deficit of $77 million through September 30, 2013. With the exception of the quarter ended June 30, 2010, we have incurred negative cash flow from operations since we started our business. We have spent, and expect to continue to spend, substantial amounts in connection with implementing our business strategy, including our planned product development efforts, our clinical trials, and our research and discovery efforts.
The actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control. These factors include the following:
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the progress of our research activities;
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the number and scope of our research programs;
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the progress of our preclinical and clinical development activities;
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the progress of the development efforts of parties with whom we have entered into research and development agreements;
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costs associated with additional clinical trials of our product candidates;
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our ability to maintain current research and development licensing arrangements and to establish new research and development and licensing arrangements;
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our ability to achieve our milestones under licensing arrangements;
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the costs involved in prosecuting and enforcing patent claims and other intellectual property rights; and
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the costs and timing of regulatory approvals.
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We have based our estimate on assumptions that may prove to be wrong. We may need to obtain additional funds sooner or in greater amounts than we currently anticipate. Potential sources of financing include strategic relationships, public or private sales of our shares or debt and other sources, including sales of securities pursuant to the terms of the Controlled Equity Offering
SM
Agreement that we entered into with Cantor Fitzgerald & Co., as sales agent, that provides us with the ability to conduct an at-the-market (ATM) public offering for up to $15 million of shares of common stock at prices to be determined at the time of sale. As of the date of this filing, we have not sold any shares under the ATM.
We may seek to access the public or private equity markets when conditions are favorable due to our long-term capital requirements. We do not have any committed sources of financing at this time, and it is uncertain whether additional funding will be available when we need it on terms that will be acceptable to us, or at all. If we raise funds by selling additional shares of common stock or other securities convertible into common stock, the ownership interest of our existing stockholders will be diluted. If we are not able to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit our operations and our business, financial condition and results of operations would be materially harmed.
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Synthetic Biologics, Inc. is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
(a) Evaluation of disclosure controls and procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are effective as of September 30, 2013 to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our fiscal quarter ended September 30, 2013, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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None.
The following information updates, and should be read in conjunction with, the information disclosed in Part 1, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which was filed with the Securities and Exchange Commission on April 16, 2013.
RISKS RELATING TO OUR BUSINESS
We will need to raise additional capital to operate our business.
With the exception of the three months ended June 30, 2010, we have experienced significant losses since inception and have a significant accumulated deficit. We expect to incur additional operating losses in the future and therefore our cumulative losses to increase. To date, other than the licensing fee we received from Meda AB for the development and commercialization of Effirma (flupirtine) for fibromyalgia in the U.S., Canada and Japan and limited laboratory revenues from Adeona Clinical Laboratory, which we sold in March 2012, we have generated very minimal revenues. Inasmuch as our sole source of revenue (with the exception of the Meda licensing fee) has been our laboratory revenue and our laboratory was sold in March 2012, we do not expect to derive revenue from any source in the near future until we or our partners successfully commercialize our products. As of September 30, 2013, our accumulated deficit totaled approximately $77 million on a consolidated basis. Until such time as we receive approval from the FDA and other regulatory authorities for our product candidates, we will not be permitted to sell our products and therefore will not have product revenues from the sale of products. For the foreseeable future we will have to fund all of our operations and capital expenditures from equity and debt offerings, cash on hand, licensing fees and grants. If our current cash, cash equivalents and short-term investments are not sufficient to sustain our operations, we will need to seek additional sources of financing and such additional financing may not be available on favorable terms, if at all. If we do not succeed in raising additional funds on acceptable terms, we may be unable to complete planned preclinical and clinical trials or obtain approval of our product candidates from the FDA and other regulatory authorities. In addition, we could be forced to delay, discontinue or curtail product development, forego sales and marketing efforts, and forego licensing in attractive business opportunities. Any additional sources of financing will likely involve the issuance of our equity or debt securities, which will have a dilutive effect on our stockholders.
We have not been able to sustain profitability.
Other than with respect to the three months ended June 30, 2010, we have a history of losses and we have incurred, and will continue to incur, substantial losses and negative operating cash flow. Even if we succeed in developing and commercializing one or more of our product candidates, we may still incur substantial losses for the foreseeable future and may not sustain profitability. We also expect to continue to incur significant operating and capital expenditures and anticipate that our expenses will substantially increase in the foreseeable future as we do the following:
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continue to undertake preclinical development and clinical trials for our product candidates;
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expand our research activities with Intrexon relating to monoclonal antibodies for infectious diseases;
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seek regulatory approvals for our product candidates;
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develop our product candidates for commercialization;
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implement additional internal systems and infrastructure;
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lease additional or alternative office facilities; and
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hire additional personnel, including members of our management team.
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We may experience negative cash flow for the foreseeable future as we fund our technology development with capital expenditures. As a result, we will need to generate significant revenues in order to achieve and maintain profitability. We may not be able to generate these revenues or achieve profitability in the future. Our failure to achieve or maintain profitability could negatively impact the value of our common stock and underlying securities.
Our research and development efforts may not succeed in developing commercially successful products and technologies, which may limit our ability to achieve profitability.
We must continue to explore opportunities that may lead to new products and technologies. To accomplish this, we must commit substantial efforts, funds, and other resources to research and development. A high rate of failure is inherent in the research and development of new products and technologies. Any such expenditures that we make will be made without any assurance that our efforts will be successful. Failure can occur at any point in the process, including after significant funds have been invested.
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Regardless of whether our clinical trials are deemed to be successful, promising new product candidates may fail to reach the market or may only have limited commercial success because of efficacy or safety concerns, failure to achieve positive clinical outcomes, inability to obtain necessary regulatory approvals or satisfy regulatory criteria, limited scope of approved uses, excessive costs to manufacture, the failure to establish or maintain intellectual property rights, or infringement of the intellectual property rights of others. Even if we successfully develop new products or enhancements, they may be quickly rendered obsolete by changing customer preferences, changing industry standards, or competitors' innovations. Innovations may not be quickly accepted in the marketplace because of, among other things, entrenched patterns of clinical practice or uncertainty over third-party reimbursement. We cannot state with certainty when or whether any of our products under development will be launched, whether we will be able to develop, license, or otherwise acquire drug candidates or products, or whether any products will be commercially successful. Failure to launch successful new products or new indications for existing products may cause our products to become obsolete, which may limit our ability to achieve profitability.
The technology on which our channel partnering arrangement with Intrexon is based on early stage technology.
On August 8, 2012, we announced an exclusive channel collaboration with Intrexon relating to the design, production, testing and commercialization of monoclonal antibodies for the treatment of certain infectious diseases. Although monoclonal antibody therapeutics are well established in the biotechnology and pharmaceutical sectors, their use for the treatment of infectious disease is extremely limited. In order for monoclonal antibodies to be effective for infectious diseases, they must not only properly target the organism of interest (or its toxins), but may also need to overcome defenses and forms of resistance of such organisms. To accomplish this may require the use of more than one specific monoclonal antibody, and mixtures of different monoclonal antibodies, which may create additional unforeseen complications, including increased manufacturing complexity and expense. In order to be competitive, monoclonal antibodies will be required to be produced at a low enough cost of goods in order to be profitably marketed. We have very limited development and manufacturing experience in the field of monoclonal antibodies and infectious disease. We cannot assure that any monoclonal antibody candidates will provide satisfactory in vitro and in vivo nonclinical results sufficient to warrant the expense of cGMP manufacture and clinical testing in human clinical trials.
We may not generate additional revenue from our relationships with our corporate collaborators.
On May 6, 2010, we entered into a sublicense agreement with Meda AB whereby we may receive milestone payments totaling $17.5 million (including an upfront payment of $2.5 million that has already been received), plus royalties on our flupirtine program. There can be no assurance that Meda AB will successfully develop flupirtine for fibromyalgia in the U.S., Canada or Japan that would allow us to receive such additional $15 million in milestone payments and royalties on sales in connection with such agreement. The successful achievement of the various milestones set forth in the sublicense agreement is not within our control and we will be dependent upon Meda AB for achievement of such milestones. According to Meda’s 2012 Year-End Report filed in February 2013, Meda has received the go-ahead from the FDA to conduct a Phase II proof of concept study for the treatment of fibromyalgia. There can be no assurance that Meda will initiate or successfully complete such planned study.
We have experienced several management changes.
We have had significant changes in management in the past few years. Jeffrey Riley was appointed Chief Executive Officer and President on February 3, 2012. Effective February 6, 2012, C. Evan Ballantyne was appointed Chief Financial Officer. James S. Kuo, M.D., served as Chief Executive Officer and President from February 6, 2010 until February 3, 2012. Changes in our key positions, as well as additions of new personnel and departures of existing personnel, can be disruptive, might lead to additional departures of existing personnel and could have a material adverse effect on our business, operating results, financial results and internal controls over financial reporting.
We may not be able to retain rights licensed to us by others to commercialize key products and may not be able to establish or maintain the relationships we need to develop, manufacture, and market our products.
In addition to our own patent applications, we also currently rely on licensing agreements with third party patent holders/licensors for our products. We have an exclusive license agreement with the McLean Hospital relating to the use of flupirtine to treat fibromyalgia which was sublicensed to Meda AB and an exclusive license agreement with the Regents of the University of California relating to our Trimesta technology. Each of these agreements requires us or our sublicensee to use our best efforts to commercialize each of the technologies as well as meet certain diligence requirements and timelines in order to keep the license agreement in effect. In the event we or our sublicensee are not able to meet our diligence requirements, we may not be able to retain the rights granted under our agreements or renegotiate our arrangement with these institutions on reasonable terms, or at all. Furthermore, we currently have very limited product development capabilities, and limited marketing or sales capabilities. For us to research, develop, and test our product candidates, we would need to contract with outside researchers, in most cases those parties that did the original research and from whom we have licensed the technologies. Our exclusive channel collaboration agreement with Intrexon provides that Intrexon may terminate the agreement if we do not perform certain specified requirements, including developing therapies considered superior. Our agreement with The University of Texas allows the University to terminate its agreement if we fail to comply with the terms of the agreement. Our agreement with Prev provides Prev with the right to the return of the assets if we do not perform certain requirements.
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We can give no assurances that any of our issued patents licensed to us or any of our other patent applications will provide us with significant proprietary protection or be of commercial benefit to us. Furthermore, the issuance of a patent is not conclusive as to its validity or enforceability, nor does the issuance of a patent provide the patent holder with freedom to operate without infringing the patent rights of others.
We will incur additional expenses in connection with our exclusive channel collaboration arrangement with Intrexon and our agreement with Prev.
Pursuant to our exclusive channel collaboration with Intrexon, we are responsible for future research and development expenses of product candidates developed under our collaboration, the effect of which has and will continue to increase the level of our overall research and development expenses going forward. Our agreement with Prev requires that we initiate certain studies and file an NDA within a certain amount of time, each of which are costly and will require additional expenditures. Although all manufacturing, preclinical studies and human clinical trials are expensive and difficult to design and implement, costs associated with the manufacturing, research and development of biologic product candidates are generally greater in comparison to small molecule product candidates. We have added additional personnel and expect to add additional personnel to support our exclusive channel collaboration with Intrexon, and research and development of our biologic candidate, SYN-004. In addition, we have commenced manufacturing of SYN-004 material to support our planned preclinical and clinical studies which will require us to incur additional expenses.
Because our biologic programs are relatively new, we have only recently assumed development responsibility and costs associated with such programs. In addition, because development activities in collaboration with Intrexon are determined pursuant to a joint steering committees comprised of Intrexon and ourselves and we have limited experience, future development costs associated with this program may be difficult to anticipate and exceed our expectations. Our actual cash requirements may vary materially from our current expectations for a number of other factors that may include, but are not limited to, unanticipated technical challenges, changes in the focus and direction of our development activities or adjustments necessitated by changes in the competitive landscape in which we operate. If we are unable to continue to financially support such collaborations due to our own working capital constraints, we may be forced to delay our activities. If we are unable to obtain additional financing on terms acceptable to us or at all, we may be forced to seek licensing partners or discontinue development.
Developments by competitors may render our products or technologies obsolete or non-competitive.
Companies that currently sell or are developing both generic and proprietary products to treat multiple sclerosis include: Abbott Biotherapeutics Corporation, Bayer Health Care, Biogen Idec, Genzyme, GlaxoSmithKline Pharmaceuticals, Merck & Co., Pfizer, Novartis, Sanofi and Teva Pharmaceuticals. Companies that currently sell or are developing both generic and proprietary products to treat infectious diseases include: MedImmune, Pfizer, Cubist, Optimer Pharmaceuticals, Symphogen, Merus, GlaxoSmithKline Pharmaceuticals and Merck & Co. Many of our competitors have significant financial and human resources. The infectious disease market is highly competitive with many generic and proprietary intravenous and oral formulations available to physicians and their patients. For our monoclonal antibodies, we currently do not expect to be able to deliver our infectious disease candidates via the oral route and may thus be limited to the in-patient and/or acute treatment setting. In addition, academic research centers may develop technologies that compete with our Trimesta and flupirtine technologies. Should clinicians or regulatory authorities view these therapeutic regiments as more effective than our products, this might delay or prevent us from obtaining regulatory approval for our products, or it might prevent us from obtaining favorable reimbursement rates from payers, such as Medicare, Medicaid, hospitals and private insurers.
We operate in a highly competitive environment
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The pharmaceutical and biotechnology industries, including the monoclonal antibody industry, are characterized by rapidly evolving technology and intense competition. Our competitors include major multi-national pharmaceutical companies and biotechnology companies developing both generic and proprietary therapies to treat serious diseases. Many of these companies are well-established and possess technical, human, research and development, financial, and sales and marketing resources significantly greater than ours. In addition, many of our potential competitors have formed strategic collaborations, partnerships and other types of joint ventures with larger, well established industry competitors that afford these companies potential research and development and commercialization advantages in the therapeutic areas we are currently pursuing.
Academic research centers, governmental agencies and other public and private research organizations are also conducting and financing research activities which may produce products directly competitive to those being developed by us. In addition, many of these competitors may be able to obtain patent protection, obtain FDA and other regulatory approvals and begin commercial sales of their products before us.
Competitors could develop and/or gain FDA approval of our product candidates for a different indication.
Since we do not have composition of matter patent claims for flupirtine and estriol, others may obtain approvals for other uses of these products that are not covered by our issued or pending patents. For example, the active ingredients in both Effirma (flurpirtine) and Trimesta (oral estriol) have been approved for marketing in overseas countries for different uses. Other companies, including the original developers or licensees or affiliates may seek to develop Effirma or Trimesta or their respective active ingredient(s) for other uses in the U.S. or any country we are seeking approval for. We cannot provide any assurances that any other company may obtain FDA approval for products that contain flupirtine and estriol in various formulations or delivery systems that might adversely affect our ability or the ability of Meda to develop and market these products in the U.S. We are aware that other companies have intellectual property protection using the active ingredients and have conducted clinical trials of flupirtine and estriol for different applications than what we are developing. Many of these companies may have more resources than us. We cannot provide any assurances that our products will be FDA-approved prior to our competitors.
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If a product containing our active ingredients is already marketed or if the FDA approves other products containing our active ingredients in the future to treat indications, physicians may elect to prescribe and substitute a competitor’s products to treat the diseases for which we are intending to commercialize; this is commonly referred to as “off-label” use. While under FDA regulations a competitor is not allowed to promote off-label uses of its product, the FDA does not regulate the practice of medicine and, as a result, cannot direct physicians to select certain products for their patients. Consequently, we might be limited in our ability to prevent off-label use of a competitor’s product to treat the diseases we are intending to commercialize, even if we have issued method of use patents for that indication. If we are not able to obtain and enforce our patents, if any, or otherwise receive orphan drug protection, a competitor could develop and commercialize similar products for the same indications that we are pursuing. We cannot provide any assurances that a competitor will not obtain FDA approval for a product that contains the same active ingredients as our products.
We rely on method patents and patent applications and various regulatory exclusivities to protect some of our product candidates and our ability to compete may be limited or eliminated if we are not able to protect our products.
Our competitiveness may be adversely affected if we are unable to protect our proprietary technologies. We do not have composition of matter patents for Trimesta or Effirma, or their respective active ingredients estriol and flupirtine. We rely on issued patent and pending patent applications for use of Trimesta to treat MS (issued U.S. Patent Nos. 6,936,599 and 8,372,826) and various other therapeutic indications, which have been exclusively licensed to us. We have exclusively licensed an issued patent for the treatment of fibromyalgia with flupirtine, which we have sublicensed to Meda AB.
Our AEN-100 drug candidate (gastroretentive zinc acetate) is the subject of U.S. and international pending patent applications, such as published U.S. patent application Ser. No. 11/621,962 and corresponding international applications that claim priority to January 10, 2006 as well as additional patent applications. On October 26, 2011, we received a final rejection letter with regard to U.S. patent application Ser. No. 11/621,962. On February 15, 2012, we filed a Request for Continued Examination. Our inability to obtain patent protection could hinder our partnering efforts.
The patent positions of pharmaceutical companies are uncertain and may involve complex legal and factual questions. We may incur significant expenses in protecting our intellectual property and defending or assessing claims with respect to intellectual property owned by others. Any patent or other infringement litigation by or against us could cause us to incur significant expenses and divert the attention of our management.
Others may file patent applications or obtain patents on similar technologies or compounds that compete with our products. We cannot predict how broad the claims in any such patents or applications will be, and whether they will be allowed. Once claims have been issued, we cannot predict how they will be construed or enforced. We may infringe intellectual property rights of others without being aware of it. If another party claims we are infringing their technology, we could have to defend an expensive and time consuming lawsuit, pay a large sum if we are found to be infringing, or be prohibited from selling or licensing our products unless we obtain a license or redesign our product, which may not be possible.
We also rely on trade secrets and proprietary know-how to develop and maintain our competitive position. Some of our current or former employees, consultants, scientific advisors, current or prospective corporate collaborators, may unintentionally or willfully disclose our confidential information to competitors or use our proprietary technology for their own benefit. Furthermore, enforcing a claim alleging the infringement of our trade secrets would be expensive and difficult to prove, making the outcome uncertain. Our competitors may also independently develop similar knowledge, methods, and know-how or gain access to our proprietary information through some other means.
We may fail to retain or recruit necessary personnel, and we may be unable to secure the services of consultants.
As of November 12, 2013, we employed approximately fourteen individuals, eight of whom are full-time employees. We have also engaged clinical consultants to advise us on our clinical programs and regulatory consultants to advise us on our dealings with the FDA and other foreign regulatory authorities. We have been and will be required to retain additional consultants and employees in order to fulfill our obligations under our exclusive channel collaborations with Intrexon and our development obligations under our agreement with Prev. Our future performance will depend in part on our ability to successfully integrate newly hired officers into our management team and our ability to develop an effective working relationship among senior management.
Certain of our directors, scientific advisors, and consultants serve as officers, directors, scientific advisors, or consultants of other biopharmaceutical or biotechnology companies that might be developing competitive products to ours. Other than corporate opportunities, none of our directors are obligated under any agreement or understanding with us to make any additional products or technologies available to us. Similarly, we can give no assurances, and we do not expect and stockholders should not expect, that any biomedical or pharmaceutical product or technology identified by any of our directors or affiliates in the future would be made available to us other than corporate opportunities. We can give no assurances that any such other companies will not have interests that are in conflict with our interests.
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Losing key personnel or failing to recruit necessary additional personnel would impede our ability to attain our development objectives. There is intense competition for qualified personnel in the drug and biologic development areas, and we may not be able to attract and retain the qualified personnel we would need to develop our business.
We rely on independent organizations, advisors, and consultants to perform certain services for us, including handling substantially all aspects of regulatory approval, clinical management, manufacturing, marketing, and sales. We expect that this will continue to be the case. Such services may not always be available to us on a timely basis when we need them.
If the parties we depend on for supplying substance raw materials for our product candidates and certain manufacturing-related services do not timely supply these products and services in sufficient quality or quantity, it may delay or impair our ability to develop, manufacture and market our product candidates.
We rely on suppliers for the substance raw materials of our product candidates and third parties for certain manufacturing-related services to produce material that meets appropriate content, quality and stability standards and use in clinical trials of our products and, after approval, for commercial distribution. With the exception of FUJIFILM Diosynth Biotechnologies UK Limited as our manufacturer for SYN-004, we have not yet established cGMP manufacturers for our biologic and drug candidates. To succeed, clinical trials require adequate supplies of study material, which may be difficult or uneconomical to procure or manufacture and there can be no assurance that we will successfully procure such study material. We and our suppliers and vendors may not be able to (i) produce our study material to appropriate standards for use in clinical studies, (ii) perform under any definitive manufacturing, supply or service agreements with us, or (iii) remain in business for a sufficient time to successfully produce and market our product candidates. If we do not maintain important manufacturing and service relationships, we may fail to find a replacement supplier or required vendor or develop our own manufacturing capabilities which could delay or impair our ability to obtain regulatory approval for our products and substantially increase our costs or deplete profit margins, if any. If we do find replacement manufacturers and vendors, we may not be able to enter into agreements with them on terms and conditions favorable to us and, there could be a substantial delay before a new facility could be qualified and registered with the FDA and foreign regulatory authorities.
Clinical trials are very expensive, time-consuming, and difficult to design and implement.
Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. The clinical trial process is also time-consuming. We estimate that clinical trials of our product candidates would take at least several years to complete. Furthermore, failure can occur at any stage of the trials, and we could encounter problems that cause us to abandon or repeat clinical trials. Commencement and completion of clinical trials may be delayed by several factors, including:
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obtaining an IND application with the FDA to commence clinical trials;
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identification of, and acceptable arrangements with, one or more clinical sites;
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obtaining IRB approval to commence clinical trials;
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unforeseen safety issues;
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determination of dosing;
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lack of effectiveness during clinical trials;
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slower than expected rates of patient recruitment;
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inability to monitor patients adequately during or after treatment;
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inability or unwillingness of medical investigators to follow our clinical protocols; and
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unwillingness of the FDA or IRBs to permit the clinical trials to be initiated.
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In addition, we, IRBs or the FDA may suspend our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or if IRBs or the FDA finds deficiencies in our submissions or conduct of our trials.
The results of our clinical trials may not support our product candidate claims and the results of preclinical studies and completed clinical trials are not necessarily predictive of future results.
To date, long-term safety and efficacy have not yet been demonstrated in clinical trials for any of our product candidates. Favorable results in our early studies or trials may not be repeated in later studies or trials. Even if our clinical trials are initiated and completed as planned, we cannot be certain that the results will support our product candidate claims. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful. Furthermore, success of our predecessor with P1A, does not ensure success of SYN-004. We cannot be sure that the results of later clinical trials would replicate the results of prior clinical trials and preclinical testing nor that they would satisfy the requirements of the FDA or other regulatory agencies. Clinical trials may fail to demonstrate that our product candidates are safe for humans and effective for indicated uses. Any such failure could cause us or our sublicensee to abandon a product candidate and might delay development of other product candidates. Preclinical and clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals or commercialization. Any delay in, or termination of, our clinical trials would delay our obtaining FDA approval for the affected product candidate and, ultimately, our ability to commercialize that product candidate.
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We depend on third parties, including researchers and sublicensees, who are not under our control.
Since we have in-licensed some of our product candidates, have sublicensed a product candidate and have collaboration agreements for the development of other product candidates, we depend upon our sublicensee and independent investigators and scientific collaborators, such as universities and medical institutions or private physician scientists, to advise us and to conduct our preclinical and clinical trials under agreements with us. These collaborators are not our employees and we cannot control the amount or timing of resources that they devote to our programs or the timing of their procurement of clinical-trial data or their compliance with applicable regulatory guidelines. Should any of these scientific inventors/advisors or those of our sublicensee become disabled or die unexpectedly, or should they fail to comply with applicable regulatory guidelines, we or our sublicensee may be forced to scale back or terminate development of that program. They may not assign as great a priority to our programs or pursue them as diligently as we would if we were undertaking those programs ourselves. Failing to devote sufficient time and resources to our drug-development programs, or substandard performance and failure to comply with regulatory guidelines, could result in delay of any FDA applications and our commercialization of the drug candidate involved.
These collaborators may also have relationships with other commercial entities, some of which may compete with us. Our collaborators assisting our competitors could harm our competitive position. For example, we are highly dependent on scientific collaborators for our Trimesta development program. Specifically, all of the clinical trials have been conducted under investigator-sponsored IND applications, not corporate-sponsored INDs. We have sometimes experienced difficulty in collecting data generated from these investigator-sponsored clinical trials for our programs. We cannot provide any assurances that we will not experience any additional delays in the future.
We are also highly dependent on government and private grants to fund certain of our clinical trials for our product candidates. For example, Trimesta (oral estriol) has received grants totaling over $8 million, predominantly from the Southern California Chapter of the NMSS and the National Institutes of Health which funds a majority of the ongoing clinical trial in relapsing-remitting MS for women. Although we believe that the grant funding received to date is sufficient to complete the current clinical trial based upon current cost estimates, if we experience any additional unanticipated costs or require further clinical trials, and our scientific collaborator is unable to maintain or receive additional grants, we might be forced to scale back or terminate the development of this product candidate. We will also need to cross reference our IND with the inventor/IND holder for this program should we elect to file our own corporate IND for our Trimesta (oral estriol) program. The on-going and future development and commercialization of Effirma (flupirtine) for fibromyalgia is the responsibility of Meda AB and no assurance can be given that Meda will gain the FDA’s acceptance of the NDA or obtain NDA approval from the FDA of flupirtine for fibromyalgia.
With respect to our product candidates in collaboration with Intrexon, we are dependent upon Intrexon’s synthetic biology facilities and capabilities as we have no such facilities and capabilities of our own. We are also reliant on their vectors, monoclonal antibody discovery, production cell line development and know-how. If any of the foregoing were to become inaccessible or terminated, it would be difficult for us to develop and commercialize our synthetic biologic product candidates.
We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights, as well as costs associated with lawsuits.
If any other person files patent applications, or is issued patents, claiming technology also claimed by us in pending applications, we may be required to participate in interference proceedings in the U.S. Patent and Trademark Office to determine priority of invention. We, or our licensors, may also need to participate in interference proceedings involving our issued patents and pending applications of another entity.
The intellectual property environment in the monoclonal antibody field is particularly complex, constantly evolving and highly fragmented. We have not conducted freedom-to-use patent searches on all aspects of our product candidates or potential product candidates, and we may be unaware of relevant patents and patent applications of third parties. In addition, the freedom-to-use patent searches that have been conducted may not have identified all relevant issued patents or pending patents. We cannot provide assurance that our proposed products in this area will not ultimately be held to infringe one or more valid claims owned by third parties which may exist or come to exist in the future or that in such case we will be able to obtain a license from such parties on acceptable terms.
We cannot guarantee that the practice of our technologies will not conflict with the rights of others. In some foreign jurisdictions, we could become involved in opposition proceedings, either by opposing the validity of another’s foreign patent or by persons opposing the validity of our foreign patents.
We may also face frivolous litigation or lawsuits from various competitors or from litigious securities attorneys. The cost to us of any litigation or other proceeding relating to these areas, even if deemed frivolous or resolved in our favor, could be substantial and could distract management from our business. Uncertainties resulting from initiation and continuation of any litigation could have a material adverse effect on our ability to continue our operations.
If we infringe the rights of others we could be prevented from selling products or forced to pay damages.
If our products, methods, processes, and other technologies are found to infringe the proprietary rights of other parties, we could be required to pay damages, or we may be required to cease using the technology or to license rights from the prevailing party. Any prevailing party may be unwilling to offer us a license on commercially acceptable terms.
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RISKS RELATING TO OUR STOCK
We will seek to raise additional funds in the future, which may be dilutive to stockholders or impose operational restrictions.
We expect to seek to raise additional capital in the future to help fund development of our proposed products. If we raise additional capital through the issuance of equity or of debt securities, the percentage ownership of our current stockholders will be reduced. We may also enter into strategic transactions, issue equity as part of license issue fees to our licensors, compensate consultants or settle outstanding payables using equity that may be dilutive. Our stockholders may experience additional dilution in net book value per share and any additional equity securities may have rights, preferences and privileges senior to those of the holders of our common stock.
We are substantially controlled by our current officers, directors, and principal stockholders.
Currently, our directors, executive officers, and principal stockholders beneficially own a substantial number of shares of our common stock. As a result, they will be able to exert substantial influence over the election of our Board of Directors and the vote on issues submitted to our stockholders. Our executive officers and directors beneficially owned approximately 9.3 million shares of our common stock, including stock options and warrants exercisable within 60 days of November 12, 2013. Randal J. Kirk indirectly beneficially owns approximately 9.8 million shares of our common stock. Our executive officers, directors and principal stockholders together beneficially owned approximately 19.1 million shares of our common stock, including the stock options and warrants exercisable within 60 days of November 12, 2013. Because our common stock has from time to time been “thinly traded”, the sale of a substantial number of shares by our executive officers, directors and principal stockholders would have an adverse effect on the market for our stock and our share price.
Our shares of common stock are from time to time thinly traded, so stockholders may be unable to sell at or near ask prices or at all if they need to sell shares to raise money or otherwise desire to liquidate their shares.
Our common stock has from time to time been “thinly-traded,” meaning that the number of persons interested in purchasing our common stock at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give stockholders any assurance that a broader or more active public trading market for our common shares will develop or be sustained, or that current trading levels will be sustained.
We cannot assure you that the common stock will be liquid or that it will remain listed on the NYSE MKT.
We cannot assure you that we will be able to maintain the continued listing standards of the NYSE MKT (formerly the NYSE Amex and the American Stock Exchange). The NYSE MKT requires companies to meet certain continued listing criteria including certain minimum stockholders' equity and equity prices per share as outlined in the NYSE MKT Exchange Company Guide. We may not be able to maintain such minimum stockholders' equity or prices per share or may be required to effect a reverse stock split to maintain such minimum prices and/or issue additional equity securities in exchange for cash or other assets, if available, to maintain certain minimum stockholders' equity required by the NYSE MKT. If we are delisted from the NYSE MKT then our common stock will trade, if at all, only on the over-the-counter market, such as the OTC Bulletin Board securities market, and then only if one or more registered broker-dealer market makers comply with quotation requirements. In addition, delisting of our common stock could depress our stock price, substantially limit liquidity of our common stock and materially adversely affect our ability to raise capital on terms acceptable to us, or at all. Delisting from the NYSE MKT could also have other negative results, including the potential loss of confidence by suppliers and employees, the loss of institutional investor interest and fewer business development opportunities. In order to remain listed on NYSE MKT, we are required to maintain a minimum stockholders’ equity of $6 million.
There may be issuances of shares of preferred stock in the future.
Although we currently do not have preferred shares outstanding, the Board of Directors could authorize the issuance of a series of preferred stock that would grant holders preferred rights to our assets upon liquidation, the right to receive dividends before dividends would be declared to common stockholders, and the right to the redemption of such shares, possibly together with a premium, prior to the redemption of the common stock. To the extent that we do issue preferred stock, the rights of holders of common stock could be impaired thereby, including without limitation, with respect to liquidation.
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Our failure to fulfill all of our registration requirements may cause us to suffer liquidated damages, which may be very costly.
Pursuant to the terms of the registration rights agreement that we entered into with Intrexon and an affiliated entity, we are required to file a registration statement with respect to securities issued to them within a certain time period and maintain the effectiveness of such registration statement. The failure to do so could result in the payment of damages by us. There can be no assurance that we will be able to maintain the effectiveness of any registration statement, and therefore there can be no assurance that we will not incur damages with respect to such agreements.
Stockholders may experience future dilution as a result of future equity offerings.
In order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock at prices that may not be the same as the price per share in this offering. We may sell shares or other securities in any other offering at a price per share that is less than the price per share paid by existing stockholders, and investors purchasing shares or other securities in the future could have rights superior to existing stockholders. The price per share at which we sell additional shares of our common stock, or securities convertible or exchangeable into common stock, in future transactions may be higher or lower than the price per share paid by existing stockholders.
We do not intend to pay dividends in the foreseeable future.
We have never paid cash dividends on our common stock. We currently intend to retain our future earnings, if any, to finance the operation and growth of our business and currently do not plan to pay any cash dividends in the foreseeable future. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if the market price of our common stock price appreciates.
Resales of our common stock in the public market by our stockholders may cause the market price of our common stock to fall.
We may issue common stock from time to time in connection with future offerings. Any issuance from time to time of new shares of our common stock, or our ability to issue shares of common stock in future offerings, could result in resales of our common stock by our current stockholders concerned about the potential dilution of their holdings. In turn, these resales could have the effect of depressing the market price for our common stock.
RISKS RELATED TO OUR INDUSTRY
We are subject to government regulation, compliance with which can be costly and difficult.
In the U.S., the formulation, manufacturing, packaging, storing, labeling, promotion, advertising, distribution and sale of our products are subject to regulation by various governmental agencies, including (1) the FDA, (2) the Federal Trade Commission, or FTC, (3) the Consumer Product Safety Commission, or CPSC, (4) the U.S. Department of Agriculture, or USDA. Our proposed activities may also be regulated by various agencies of the states, localities and foreign countries in which our proposed products may be manufactured, distributed and sold. The FDA, in particular, regulates the formulation, manufacture and labeling of over-the-counter, or OTC drugs, prescription drugs, conventional foods, dietary supplements, and cosmetics such as those that we intend to distribute. FDA regulations require us and our suppliers to meet relevant cGMP regulations for the preparation, packing, labeling, and storage of all drugs and foods.
Any products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing FDA regulation, including record-keeping requirements, reporting of adverse experiences, submitting periodic reports, drug sampling and distribution requirements, manufacturing or labeling changes, record-keeping requirements, and compliance with FDA promotion and advertising requirements. Drug manufacturers and their subcontractors are required to register their facilities with the FDA and state agencies, and are subject to periodic unannounced inspections for GMP compliance, imposing procedural and documentation requirements upon us and third-party manufacturers. Failure to comply with these regulations could result, among other things, in suspension of regulatory approval, recalls, suspension of production or injunctions, seizures, or civil or criminal sanctions. We cannot be certain that we or our present or future subcontractors will be able to comply with these regulations.
The FDA regulates prescription drug labeling and promotion activities. The FDA actively enforces regulations prohibiting the marketing of products for unapproved uses. The FDA permits the promotion of drugs for unapproved uses in certain circumstances, subject to stringent requirements. We and our product candidates are subject to a variety of state laws and regulations which may hinder our ability to market our products. Whether or not FDA approval has been obtained, approval by foreign regulatory authorities must be obtained prior to commencing clinical trials, and sales and marketing efforts in those countries. These approval procedures vary in complexity from country to country, and the processes may be longer or shorter than that required for FDA approval. We may incur significant costs to comply with these laws and regulations now or in the future.
The FDA, comparable foreign regulators and state and local pharmacy regulators impose substantial requirements upon clinical development, manufacture and marketing of pharmaceutical products. These and other entities regulate research and development and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, approval, advertising, and promotion of our products. The drug approval process required by the FDA under the Food, Drug, and Cosmetic Act generally involves:
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preclinical laboratory and animal tests;
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submission of an IND, prior to commencing human clinical trials;
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adequate and well-controlled human clinical trials to establish safety and efficacy for intended use;
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submission to the FDA of an NDA or Biologics License Application (BLA); and
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FDA review and approval of an NDA or BLA.
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The testing and approval process requires substantial time, effort, and financial resources, and we cannot be certain that any approval will be granted on a timely basis, if at all.
Preclinical tests include laboratory evaluation of the product candidate, its chemistry, formulation and stability, and animal studies to assess potential safety and efficacy. Certain preclinical tests must be conducted in compliance with good laboratory practice regulations. Violations of these regulations can, in some cases, lead to invalidation of the studies, requiring them to be replicated. In some cases, long-term preclinical studies are conducted concurrently with clinical studies.
We will submit the preclinical test results, together with manufacturing information and analytical data, to the FDA as part of an IND, which must become effective before we begin human clinical trials. The IND automatically becomes effective 30 days after filing, unless the FDA raises questions about conduct of the trials outlined in the IND and imposes a clinical hold, in which case, the IND sponsor and FDA must resolve the matters before clinical trials can begin. It is possible that our submission may not result in FDA authorization to commence clinical trials.
Clinical trials must be supervised by qualified investigators in accordance with good clinical practice (GCP) regulations, which include informed consent requirements. Each study must be approved and monitored by the appropriate IRBs which are periodically informed of the study’s progress, adverse events and changes in research. Annual updates are submitted to the FDA and more frequently if certain serious adverse events occur.
Human clinical trials of drug candidates typically have three sequential phases that may overlap:
Phase I: The drug is initially tested in healthy human subjects or patients for safety, dosage tolerance, absorption, metabolism, distribution, and excretion.
Phase II: The drug is studied in a limited patient population to identify possible adverse effects and safety risks, determine efficacy for specific diseases and establish dosage tolerance and optimal dosage.
Phase III: When Phase II evaluations demonstrate that a dosage range is effective with an acceptable safety profile, Phase III trials to further evaluate dosage, clinical efficacy and safety, are undertaken in an expanded patient population, often at geographically dispersed sites.
We cannot be certain that we will successfully complete Phase I, Phase II, or Phase III testing of our product candidates within any specific time period, if at all. Furthermore, the FDA, an IRB or the IND sponsor may suspend clinical trials at any time on various grounds, including a finding that subjects or patients are exposed to unacceptable health risk. Concurrent with these trials and studies, we also develop chemistry and physical characteristics data and finalize a manufacturing process in accordance with good manufacturing practice (GMP) requirements. The manufacturing process must conform to consistency and quality standards, and we must develop methods for testing the quality, purity, and potency of the final products. Appropriate packaging is selected and tested, and chemistry stability studies are conducted to demonstrate that the product does not undergo unacceptable deterioration over its shelf-life. Results of the foregoing are submitted to the FDA as part of a NDA (or BLA in case of biologic products) for marketing and commercial shipment approval. The FDA reviews each NDA or BLA submitted and may request additional information.
Once the FDA accepts the NDA or BLA for filing, it begins its in-depth review. The FDA has substantial discretion in the approval process and may disagree with our interpretation of the data submitted or identify new concerns. The process may be significantly extended by requests for new information or clarification of information already submitted. As part of this review, the FDA may refer the application to an advisory committee, typically a panel of clinicians. Manufacturing establishments often are inspected prior to NDA or BLA approval to assure compliance with GMPs and with manufacturing commitments made in the application.
Submission of an NDA or BLA with clinical data requires payment of a fee. In return, the FDA assigns a goal of ten months for issuing its “complete response,” in which the FDA may approve or deny the NDA or BLA, or require additional clinical data. Even if these data are submitted, the FDA may ultimately decide the NDA or BLA does not satisfy approval criteria. If the FDA approves the NDA or BLA, the product becomes available for marketing. Product approval may be withdrawn if regulatory compliance is not maintained or safety problems occur. The FDA may require post-marketing studies, also known as phase IV studies, as a condition of approval, and requires surveillance programs to monitor approved products that have been commercialized. The agency has the power to require changes in labeling or prohibit further marketing based on the results of post-marketing surveillance.
Satisfaction of these and other regulatory requirements typically takes several years, and the actual time required may vary substantially based upon the type, complexity and novelty of the product. Government regulation may delay or prevent marketing of potential products for a considerable period of time and impose costly procedures on our activities. We cannot be certain that the FDA or other regulatory agencies will approve any of our products on a timely basis, if at all. Success in preclinical or early-stage clinical trials does not assure success in later-stage clinical trials. Data obtained from preclinical and clinical activities are not always conclusive and may be susceptible to varying interpretations that could delay, limit or prevent regulatory approval. Even if a product receives regulatory approval, the approval may be significantly limited to specific indications or uses.
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Even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. Delays in obtaining, or failures to obtain regulatory approvals would have a material adverse effect on our business.
The FDA’s policies may change, and additional government regulations may be enacted which could prevent or delay regulatory approval of our potential products. Increased attention to the containment of health care costs worldwide could result in new government regulations materially adverse to our business. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the U.S. or abroad.
We do not have a guarantee of patent term restoration and marketing exclusivity of the ingredients for our drugs even if we are granted FDA approval of our products.
The U.S. Drug Price Competition and Patent Term Restoration Act of 1984 (Hatch-Waxman) permits the FDA to approve Abbreviated New Drug Applications (ANDAs) for generic versions of innovator drugs, as well as NDAs with less original clinical data, and provides patent restoration and exclusivity protections to innovator drug manufacturers. The ANDA process permits competitor companies to obtain marketing approval for drugs with the same active ingredient and for the same uses as innovator drugs, but does not require the conduct and submission of clinical studies demonstrating safety and efficacy. As a result, a competitor could copy any of our drugs and only need to submit data demonstrating that the copy is bioequivalent to gain marketing approval from the FDA. Hatch-Waxman requires a competitor that submits an ANDA, or otherwise relies on safety and efficacy data for one of our drugs, to notify us and/or our business partners of potential infringement of our patent rights. We and/or our business partners may sue the company for patent infringement, which would result in a 30-month stay of approval of the competitor’s application. The discovery, trial and appeals process in such suits can take several years. If the litigation is resolved in favor of the generic applicant or the challenged patent expires during the 30-month period, the stay is lifted and the FDA may approve the application. Hatch-Waxman also allows competitors to market copies of innovator products by submitting significantly less clinical data outside the ANDA context. Such applications, known as “505(b)(2) NDAs” or “paper NDAs,” may rely on clinical investigations not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use and are subject to the ANDA notification procedures described above.
The law also permits restoration of a portion of a product’s patent term that is lost during clinical development and NDA review, and provides statutory protection, known as exclusivity, against FDA approval or acceptance of certain competitor applications. Restoration can return up to five years of patent term for a patent covering a new product or its use to compensate for time lost during product development and regulatory review. The restoration period is generally one-half the time between the effective date of an IND and submission of an NDA, plus the time between NDA submission and its approval (subject to the five-year limit), and no extension can extend total patent life beyond 14 years after the drug approval date. Applications for patent term extension are subject to U.S. Patent and Trademark Office (USPTO) approval, in conjunction with FDA. Approval of these applications takes at least nine months, and there can be no guarantee that it will be given at all.
Hatch-Waxman also provides for differing periods of statutory protection for new drugs approved under an NDA. Among the types of exclusivity are those for a “new molecular entity” and those for a new formulation or indication for a previously-approved drug. If granted, marketing exclusivity for the types of products that we are developing, which include only drugs with innovative changes to previously-approved products using the same active ingredient, would prohibit the FDA from approving an ANDA or 505(b)(2) NDA relying on our safety and efficacy data for three years. This three-year exclusivity, however, covers only the innovation associated with the original NDA. It does not prohibit the FDA from approving applications for drugs with the same active ingredient but without our new innovative change. These marketing exclusivity protections do not prohibit the FDA from approving a full NDA, even if it contains the innovative change.
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None.
None.
Not applicable.
None.
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31.1
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Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) *
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31.2
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Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) *
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32.1
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Certification of Principal Executive Officer pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 *
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32.2
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Certification of Principal Financial Officer pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 *
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EX-101.INS
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XBRL Instance Document *
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EX-101.SCH
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XBRL Taxonomy Extension Schema *
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EX-101.CAL
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XBRL Taxonomy Extension Calculation Linkbase *
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EX-101.DEF
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XBRL Taxonomy Extension Definition Linkbase *
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EX-101.LAB
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XBRL Taxonomy Extension Label Linkbase *
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EX-101.PRE
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XBRL Taxonomy Extension Presentation Linkbase *
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*Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned.
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SYNTHETIC BIOLOGICS, INC.
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By:
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/s/ Jeffrey Riley
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Jeffrey Riley
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President and Chief Executive Officer
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(Principal Executive Officer)
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Date: November 14, 2013
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By:
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/s/ C. Evan Ballantyne
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C. Evan Ballantyne
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Chief Financial Officer
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(Principal Financial Officer)
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Date: November 14, 2013
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GLOSSARY
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Term
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Definition
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Adverse Event
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Any adverse change in health or “side-effect” that occurs in a person participating in a clinical trial, from the time they consent to joining the trial until a pre-specified period of time after their treatment has been completed.
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Bioavailability
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The quantity or fraction of the ingested dose that is absorbed by the body.
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BLA - Biologics License Application
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An application in the U.S. through which biologic sponsors formally propose that the FDA approve a new biologic for sale and marketing.
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Clinical Study/Trial
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A research study that is conducted to find out if a treatment or procedure is safe and/or effective in humans.
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Controlled Clinical Trial
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A clinical study that compares patients receiving a specific treatment to patients receiving an alternate treatment for the condition of interest. The alternate treatment may be another active treatment, standard of care for the condition and/or a placebo (inactive) treatment.
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Double-blinded Study/Trial
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Both the participant and the researcher are unaware of who is receiving the active treatment or the placebo.
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Effirma (flupirtine)
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Proposed tradename of Synthetic Biologics’ centrally-acting investigational oral drug for the treatment of fibromyalgia syndrome.
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FDA - Food & Drug Administration
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The U.S. government agency that ensures that medicines, medical devices, prescription medical foods and radiation-emitting consumer products are safe and effective. Authorized by Congress to enforce the Federal Food, Drug, and Cosmetic Act and several other public health laws, the agency monitors the manufacture, import, transport, storage, and sale of $1 trillion worth of goods annually.
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GMP - Good Manufacturing Practice
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Regulations that require that manufacturers, processors, and packagers of drugs, medical devices, some food, and blood take proactive steps to ensure that their products are consistently produced, pure, and stable. GMP regulations require a quality approach to manufacturing, enabling companies to minimize or eliminate instances of contamination, mix-ups, and errors.
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Monoclonal Antibodies (mAbs)
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Acting as the body's army, antibodies are proteins, generally found in the bloodstream, that provide immunity in detecting and destroying pathogens, such as viruses and bacteria and their associated toxins.
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IND
- Investigational New Drug
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An application in the U.S. submitted to the FDA for a new drug or biologic that, if allowed, will be used in a clinical trial.
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IRB - Institutional Review Board
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A committee designated to formally approve, monitor, and review biomedical research at an institution involving human studies. Institutional Review Boards aim to protect the rights and welfare of the research subjects.
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NDA - New Drug Application
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An application in the U.S. through which drug sponsors formally propose that the FDA approve a new pharmaceutical for sale and marketing.
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Open-label Clinical Study/Trial
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A trial in which both the treating physician and the patient know they are receiving the experimental treatment.
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Phase I Clinical Trial
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A Phase I trial represents an initial study in a small group of patients to primarily test for safety.
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Phase II Clinical Trial
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A Phase II trial represents a study in a larger number of patients to assess the safety and efficacy of a product.
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Phase III Clinical Trial
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Phase III trials are initiated to establish safety and efficacy in an expanded patient population and at multiple clinical trial sites and are generally larger than trials in earlier phases of development.
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Placebo
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An inactive pill or liquid. Many studies compare an active drug to a placebo to determine whether any changes seen during the study can be attributed to the active drug.
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Principal Investigator
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This is the study director who is ultimately responsible for the conduct of the study.
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Prospective Clinical Study/Trial
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A clinical study/trial in which participants are identified and then followed throughout the study going forward in time.
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Protocol
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A clinical study/trial’s plan - includes the schedule of tests, requirements for participation, procedures, and medications.
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Randomized Study/Trial
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Participants in a study are assigned by chance to either one or more of the active treatment group(s) or the placebo group.
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Single-blinded Study/Trial
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One party, either the participant or the researcher, does not know if the participant is taking the active treatment or the placebo.
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Study/Trial Coordinator
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Staff member who is often the primary contact for research participants and coordinates their care and evaluations throughout the study.
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Synthetic Biology
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Synthetic biology is an emerging field that combines molecular biology and automation to design, optimize and construct new biological systems and functions.
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These technologies utilize a combination of automated processes including, DNA sequencing, computer-aided design, DNA synthesis, fabrication of modular transgenes and high throughput testing to create and optimize biologic products.
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Trimesta (oral estriol)
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Proposed tradename of Synthetic Biologics’ investigational oral drug for the treatment of relapsing- remitting MS and cognitive dysfunction in MS.
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TABLE OF CONTENTS
Part I.-financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Information and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart Ii-other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits