Non-controlling Interest

12 Months Ended

Dec. 31, 2018

Noncontrolling Interest Disclosure [Text Block]

6. Non-controlling Interest

On September 5, 2018, the Company entered into an agreement with Cedars-Sinai Medical Center (CSMC) for an investigator-sponsored Phase 2b clinical study of SYN-010 to be co-funded by the Company and CSMC (the “Study”). The Study will provide further evaluation of the efficacy and safety of SYN-010, the Company’s modified-release reformulation of lovastatin lactone, which is exclusively licensed to the Company by CSMC. SYN-010 is designed to reduce methane production by certain microorganisms (

M. smithii

) in the gut to treat an underlying cause of irritable bowel syndrome with constipation (IBS-C).

In consideration of the support provided by CSMC for the Study, the Company will pay $321,000 and the Company entered into a Stock Purchase Agreement with CSMC pursuant to which the Company has agreed, upon the approval of the Study protocol by the Institutional Review Board, (IRB) to: (i) issue to CSMC fifty thousand

(50,000)

shares of common stock of the Company; and (ii) transfer to CSMC an additional two million four hundred twenty thousand

(2,420,000) s

hares of common stock of its subsidiary SYN Biomics, Inc. (“Synbiomics”) owned by the Company, such that after such issuance CSMC will own an aggregate of seven million four hundred eighty thousand

(7,480,000) s

hares of common stock of SYN Biomics, representing seventeen percent

(17%)

of the issued and outstanding shares of SYN Biomics’ common stock. The services rendered are recorded to research and development expense in proportion with the progress of the study and based overall on the fair value of the shares ($285,000) as determined at the date of IRB approval. During 2018, research and development expense recorded related to this transaction approximated $36,000. Including the issuance of common stock and the proportion of the cash contribution recognized to expense in 2018, total research and development expense recognized in 2018 for this transaction approximated $102,000.

The Agreement also provides CSMC with a right, commencing on the six month anniversary of issuance of the stock under certain circumstances in the event that the shares of stock of SYN Biomics are not then freely tradeable, and subject to NYSE American, LLC approval, to exchange its

SYN Biomics

shares for unregistered shares of the Company’s common stock, with the rate of exchange based upon the relative contribution of the valuation of

SYN Biomics

to the public market valuation of the Company at the time of each exchange. The Stock Purchase Agreement also provides for tag-along rights in the event of the sale by the Company of its shares of

SYN Biomics

On August 29, 2015, the Company, SYN Biomics and Mark Pimentel, M.D. entered into an amendment to the Pimentel Stock Purchase Agreement dated December 3, 2013, which accelerated the date upon which Dr. Pimentel could exchange his shares of common stock in SYN Biomics for shares of the Company’s common stock. On August 29, 2015, Dr. Pimentel notified the Company of his intent to exchange all of the shares of common stock in SYN Biomics, 8.5%, owned by him for 38,572 shares of the Company’s common stock in accordance with the terms of the Stock Purchase Agreement, as amended. On August 31, 2015, the Company issued 38,572 shares of the Company’s common stock to Dr. Pimentel in exchange for all of the shares of common stock of SYN Biomics held by Dr. Pimentel.

In December 2013, through the Company’s subsidiary, Synthetic Biomics, Inc., the Company entered into a worldwide exclusive license agreement with CSMC and acquired the rights to develop products for therapeutic and prophylactic treatments of acute and chronic diseases, including the development of SYN-010 to target IBS-C. The Company licensed from CSMC a portfolio of intellectual property comprised of several U.S. and foreign patents and pending patent applications for various fields of use, including IBS-C, obesity and diabetes. An investigational team led by Mark Pimentel, M.D. at CSMC discovered that these products may reduce the production of methane gas by certain GI microorganisms. During the years ended December 31, 2018 and 2017, the Company did not owe and did not pay CSMC for milestone payments related this license agreement.

The Company’s non-controlling interest is accounted for under ASC 810,

Consolidation

(“ASC 810”) and represents the minority shareholder’s ownership interest related to the Company’s subsidiary, SYN Biomics. In accordance with ASC 810, the Company reports its non-controlling interest in subsidiaries as a separate component of equity in the Consolidated Balance Sheets and reports both net loss attributable to the non-controlling interest and net loss attributable to the Company’s common stockholders on the face of the Consolidated Statements of Operations. After the 2018 transaction with CSMC, the Company’s equity interest in SYN Biomics is 83% and the non-controlling stockholder’s interest is 17%. As of December 31, 2018, the accumulated net loss attributable to the non-controlling interest is $2.9 million. As of December 31, 2017, the accumulated net loss attributable to the non-controlling interest is $1.9 million and includes $1.6 million of prior year losses attributable to minority stockholders including the reversal of Dr. Pimentel’s 2015 losses of $505,000 associated with the exchange of his shares of common stock in SYN Biomics for shares of the Company’s common stock, and current year losses of $54,000 attributable to minority stockholders. Management considers the amounts which should have been recorded in prior years to be immaterial.