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THERIVA BIOLOGICS, INC.
FORM 10-K
TABLE OF CONTENTS
Explanatory Note
Theriva Biologics, Inc., and its consolidated subsidiaries (the “Company”, “we” or “us”) is filing this comprehensive Annual Report on Form 10-K for the fiscal years ended December 31, 2022 and 2021 (this “Annual Report”). This Comprehensive Form 10-K contains our audited financial statements for the fiscal year ended December 31, 2022, as well as restatement of the following previously filed periods: our unaudited consolidated financial statements covering the quarterly reporting periods for the three and six-month periods ended June 30, 2022 and the three and nine-month periods ended September 30, 2022.
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Restatement Background
As previously disclosed, on March 8, 2023, management and the Audit Committee of the Company, in consultation with BDO USA LLP (“BDO”), the Company’s independent registered public accounting firm, determined that the Company’s previously issued interim financial statements included in the Quarterly Reports on Form 10-Q for the quarters ended June 30, 2022 and September 30, 2022 (the “Non-Reliance Periods”), should no longer be relied upon.
During the preparation of its annual tax provision for the year ended December 31, 2022, the Company determined that a deferred tax asset related to net operating losses generated during the second and third quarters of 2022 at the Company’s subsidiary, VCN Biosciences S.L.(“VCN”), should have been established. Further, because an existing deferred tax liability associated with an indefinite-lived intangible asset is considered a source of income for the future realization of the net operating loss deferred tax asset, the deferred tax asset was determined to be more likely than not recoverable. Since the deferred tax asset was determined to be more likely than not recoverable, it would have resulted in an income tax benefit during the interim periods thereby reducing the Company’s consolidated net loss and loss per share for the three- and six-month periods ended June 30, 2022 and the three- and nine-month periods ended September 30, 2022.
Items Restated in this Form 10-K
This Annual Report reflects changes to the Consolidated Balance Sheets as of June 30, 2022 and September 30, 2022, the Consolidated Statements of Income and Comprehensive Loss for the three and six months ended June 30, 2022 and the three and nine months ended September 30, 2022, Stockholders’ Equity, and Cash Flows for the six months ended June 30, 2022 and the nine months ended September 30, 2022, and the related notes thereto. Restatement of consolidated financial statements for the quarterly periods are disclosed in Note 14 to the consolidated financial statements.The Company has not filed, and does not intend to file, amendments to the previously filed Quarterly Reports on Form 10-Q for the quarters ending June 30, 2022 and September 30, 2022. Accordingly, investors should rely only on the financial information and other disclosures regarding the restated periods in this Annual Report or in future filings with the Securities and Exchange Commission (“SEC”) (as applicable), and not on any previously issued or filed reports, earnings releases or similar communications relating to these periods.
See Note 14 to the consolidated financial statements, included in Part II, Item 8 of this Annual Report , for additional information on the restatement and the related consolidated financial statement effects.
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PART I
Special Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K (this “Annual Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties. The forward-looking statements are contained principally in Part I, Item 1. “Business,” Part I, Item 1A. “Risk Factors,” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere in this Annual Report. In some cases you can identify forward-looking statements by terminology such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements.
You should refer to Item 1A. “Risk Factors” section of this Annual Report for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Annual Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We do not undertake any obligation to update any forward-looking statements.
Unless the context requires otherwise, references to “we,” “us,” “our,” “Theriva,” and “Theriva Biologics,” refer to Theriva Biologics, Inc. and its subsidiaries.
Summary Risk Factors
The following is a summary of the key risks relating to the Company. A more detailed description of each of the risks can be found below under Item 1A. Risk Factors.
Risks Related to Our Financial Position and Capital Requirements
| ● | We will need to raise additional capital to operate our business. |
| ● | We expect to continue to incur significant operating and capital expenditures and we will need additional funds to support our operations. |
| ● | The actual amount of funds we will need to operate is subject to many risk factors, some of which are beyond our control. |
| ● | We currently have a limited operating history as an oncology company, no products approved for commercial sale, have no significant source of revenue and may never generate significant revenue. |
| ● | We face risks related to the Restatement of our previously issued financial statements for the quarters ended June 30, 2022 and September 30, 2022.We have identified material weaknesses in our internal controls, and we cannot provide assurances that these weaknesses will be effectively remediated or that additional material weaknesses will not occur in the future. In addition, we are not yet required to perform an assessment of internal controls for VCN |
| ● | We expect to seek to raise additional capital in the future, which may be dilutive to stockholders or impose operational restrictions. |
| ● | Our operating results may fluctuate significantly, which makes our future operating results difficult to predict. |
| ● | If our acquired intangible assets become impaired, we may be required to record a significant charge to earnings. |
Risks Related to Our Business
| ● | Prior to 2022 we did not conduct any cancer research and development activities and there can be no assurance that we will successfully be able to do so. |
| ● | The development and commercialization of oncolytic viruses have experienced certain challenges. |
| ● | Our research and development efforts may not succeed in developing successful products and technologies. |
| ● | We may not realize the benefits from any strategic alliances we form or licensing arrangements we enter into. |
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| ● | 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. |
| ● | We may incur additional expenses in connection with our licenses and collaboration arrangements and our development of our product candidates. |
| ● | Developments by competitors may render our products or technologies obsolete or non-competitive. |
| ● | We may seek to selectively establish collaborations, and, if we are unable to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans. |
| ● | If the parties we depend on for product manufacturing are unsuccessful in providing adequate drug supply, it may delay or impair our ability to develop, manufacture and market our product candidates. |
| ● | Any problems obtaining the standard of care drugs that we administer with CVN-01, could result in a delay or interruption in our clinical trials. |
| ● | We may fail to retain or recruit necessary personnel, and we may be unable to secure the services of consultants. |
| ● | Global health crises may adversely affect our planned operations. |
| ● | Business disruptions could seriously harm our future revenue and financial condition and increase costs and expenses. |
| ● | Unfavorable U.S. or global economic conditions could adversely affect our business, financial condition or results of operations. |
| ● | We rely extensively on our information technology systems which are vulnerable to damage and interruption. |
| ● | Any failure to maintain the security of information relating to our patients, customers, employees and suppliers, whether as a result of cybersecurity attacks or otherwise, could expose us to litigation, government enforcement actions and costly response measures, and could disrupt our operations and harm our reputation. |
| ● | We may face particular data protection, data security and privacy risks in connection with the European Union’s Global Data Protection Regulation and other privacy regulations. |
Regulatory Risks
| ● | If we do not obtain the necessary regulatory approvals we may not be able to develop or sell our product candidates. |
| ● | Clinical trials are very expensive, time consuming, and difficult to design and implement. |
| ● | The results of our clinical trials may not support our proposed product candidate claims and the results of preclinical studies and completed clinical trials are not necessarily predictive of future results. |
| ● | Difficulties in enrolling, retaining, or completing patients in our clinical trials or delays in enrollment are expected to result in our clinical development activities being delayed or otherwise adversely affected. |
| ● | Patients who are administered our product candidates may experience unexpected side effects or other safety risks that could cause a halt in clinical development, preclude approval or limit the commercial potential of the product candidate. |
| ● | It is possible that we may not be able to obtain or maintain orphan drug designation or exclusivity for our drug candidates,. |
| ● | Our product candidates, if approved for sale, may not gain acceptance among physicians, patients and the medical community. |
| ● | We depend on third parties, including researchers and sublicensees, who are not under our control. |
| ● | We currently have no marketing, sales or distribution organization and have no experience in marketing products as a company. |
| ● | Reimbursement may not be available for our product candidates, which would impede sales. |
| ● | Healthcare reform measures could hinder or prevent our product candidates’ commercial success. |
| ● | If we fail to comply with state and federal healthcare regulatory laws, we could face substantial penalties, damages, fines, disgorgement, exclusion from participation in governmental healthcare programs, and the curtailment of operations, any of which could harm our business. |
| ● | If we obtain approval to commercialize our clinical product candidates outside of the United States, a variety of risks associated with international operations could harm our business |
| ● | If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates. |
Intellectual Property Risks
| ● | We rely on 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. |
| ● | We may incur substantial costs as a result of litigation or other proceedings relating to protecting our intellectual property rights, as well as costs associated with lawsuits. |
| ● | If we infringe the rights of others, we could be prevented from selling products or forced to pay damages. |
| ● | We enjoy restricted geographical protection with respect to certain patents. |
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| ● | We may become subject to claims challenging inventorship or ownership of our patents and other intellectual property. |
Risks Related to Our Securities
| ● | We cannot assure you that our common stock will be liquid or that it will remain listed on the NYSE American exchange. |
| ● | We expect to seek to raise additional capital in the future, which may be dilutive to stockholders or impose operational restrictions. |
| ● | Holders of our warrants issued in our October 2018 offering have no rights as common stockholders until they exercise their warrants and acquire our common stock. |
| ● | The market price of our common stock has been and may continue to be volatile and adversely affected by various factors. |
| ● | Our Articles of Incorporation and bylaws and Nevada law may have anti-takeover effects that could discourage, delay or prevent a change in control, which may cause our stock price to decline. |
| ● | We do not intend to pay dividends in the foreseeable future on our common stock. |
| ● | Resales of our common stock in the public market by our stockholders may cause the market price of our common stock to fall. |
| ● | The shares of common stock offered under our current Amended and Restated At The Market Issuance Sales Agreement may be sold in “at the market” offerings, and investors who buy shares at different times will likely pay different prices. |
Item 1. Business.
Overview
We are a diversified clinical-stage company developing therapeutics in areas of high unmet need. As a result of the acquisition of VCN Biosciences, S.L., now known as Theriva Biologics, S.L. (“VCN”), described in more detail below, we began transitioning our strategic focus to oncology through the development of VCN’s oncolytic adenovirus platform designed for intravenous and intravitreal delivery to trigger tumor cell death, improve access of co-administered cancer therapies to the tumor, and promote a robust and sustained anti-tumor response by the patient’s immune system. Prior to the Acquisition, our focus was on developing therapeutics designed to treat gastrointestinal (GI) diseases which included. our clinical development candidates: (1) SYN-004 (ribaxamase) which is designed to degrade certain commonly used intravenous (IV) beta-lactam antibiotics within the GI tract to prevent microbiome damage, thereby preventing overgrowth and infection by pathogenic organisms such as Clostridioides difficile (CDI) and vancomycin resistant Enterococci (VRE), and reducing the incidence and severity of acute graft-versus-host-disease (aGVHD) in allogeneic hematopoietic cell transplant (HCT) recipients, and (2) SYN-020, a recombinant oral formulation of the enzyme intestinal alkaline phosphatase (IAP) produced under cGMP conditions and intended to treat both local GI and systemic diseases.
As part of our strategic transformation into an oncology focused company, we are exploring value creation options around our SYN-020 and SYN-004 assets. SYN-004 and SYN-020 both have significant potential opportunity in non-oncology related indications. Advancement of these products may be better achieved by out-licensing or partnering and we will explore opportunities for both SYN-004 and SYN-020 moving forward.
Acquisition of VCN Biosciences, S.L. (now known as Theriva Biologics, S.L.)
On March 10, 2022, we completed our acquisition (the “VCN Acquisition”) of all the outstanding shares of VCN (the “VCN Shares”) from the shareholders of VCN pursuant to the terms of the Share Purchase Agreement (“Purchase Agreement”) that we entered into with VCN and the shareholders of VCN Biosciences, S.L. (the “Sellers”) on December 14, 2021. Upon consummation of the Acquisition, VCN became our wholly owned subsidiary. As consideration for the purchase of the VCN Shares of capital stock, we paid $4,700,000 (the “Closing Cash Consideration”) to Grifols Innovation and New Technologies Limited (“Grifols”), the owner of approximately 86% of the equity of VCN, and issued to the remaining Sellers 2,639,530 shares of our common stock, $0.001 par value (the “Closing Shares”), representing 19.99% of the outstanding shares of our common stock on December 14, 2021, the date of the Purchase Agreement. As additional consideration for the purchase of the VCN Shares held by Grifols, we also agreed to make the following milestone payments to Grifols:
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Milestone Payments |
US$3MM upon VCN-01 US IND Safe to Proceed pancreatic ductal adenocarcinoma (“PDAC”, or other first indication), which payment was made in Q4 2022 upon attaining the milestone US$2.75MM upon VCN-01 US IND Safe to Proceed – retinoblastoma (“RB”, or other second indication) US$3.25MM upon VCN-01 US first patient dosed– PDAC (or other first indication) after receipt of VCN-01 US IND Safe to Proceed for PDAC being informed US$3.25MM upon VCN-01 US first patient dosed – RB (or other second indication) after receipt of VCN-01 US IND Safe to Proceed for RB being informed US$6MM upon VCN-01 US Phase 2 trial meets the primary endpoint or if a Phase 2 trial is not conducted and only a Phase 3 trial is conducted then upon a Phase 3 being initiated – PDAC (or other first indication) US$8MM upon VCN-01 Pivotal Trial meeting the primary endpoint or upon BLA Submission – RB (or other second indication) US$12MM upon VCN-01 US Phase 3 trial meeting the primary endpoint or upon BLA Submission – PDAC (or other first indication) US$16MM upon VCN-01 BLA Approval – PDAC (or other first indication) US$16MM upon VCN-01 BLA Approval – RB (or other second indication) |
Pursuant to the Purchase Agreement, at the Closing we assumed $2,400,000 of liabilities of VCN, which includes certain loans from the Spanish Government and the Catalan Government Agency.
The Purchase Agreement contains customary representations, warranties and covenants of the Sellers and us. Subject to certain customary limitations, the Sellers have agreed to indemnify us and our officers and directors against certain losses related to, among other things, breaches of their representations and warranties, certain specified liabilities and the failure to perform covenants or obligations under the Purchase Agreement.
Effective November 15, 2022, as part of our corporate rebranding, VCN changed its name to Theriva Biologics S.L. without other changes to its corporate structure.
Theriva is a clinical-stage biopharmaceutical company developing new oncolytic adenoviruses for the treatment of cancer. Theriva’s lead product candidate, VCN-01, is being studied in clinical trials for pancreatic cancer and retinoblastoma with additional investigator sponsored trials in indications including head and neck squamous cell carcinoma (HNSCC) serous epithelial ovarian cancer and brain tumors. VCN-01 is designed to be administered systemically, intratumorally or intravitreally, either as a monotherapy or in combination with standard of care, to treat a wide variety of cancer indications. VCN-01 is designed to replicate selectively and aggressively within tumor cells, and to degrade the tumor stroma barrier that serves as a significant physical and immunosuppressive barrier to cancer treatment. Degrading the tumor stroma has been shown to improve access to the tumor by the virus and additional therapies such as chemo- and immuno-therapies. Importantly, degrading the stroma exposes tumor antigens, turning “cold” tumors “hot” and enabling a sustained anti-tumor immune response. Theriva has the exclusive rights to four patent families for proprietary technologies, as well as technologies developed in collaboration with the Virotherapy Group of the Catalan Institute of Oncology (ICO-IDIBELL) and with Hospital Sant Joan de Deu (HSJD), with a number of additional patents pending.
Recent Developments
Name Change
Effective October 12, 2022, we changed our name to Theriva Biologics, Inc. by filing a Certificate of Amendment to its Articles of Incorporation (the “Certificate of Amendment”) with the Secretary of State of the State of Nevada on October 11, 2022. In addition, effective October 12, 2022, the Company amended and restated its Amended and Restated Bylaws (the “Bylaws”) to reflect the Name
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Change (the “Amended and Restated Bylaws”). The Amended and Restated Bylaws contain no other changes. In connection with the Name Change, the Company’s Common Stock began trading on the NYSE American LLC under the new ticker symbol “TOVX” effective as of the opening of trading hours on October 13, 2022.
Stock Repurchase
On December 22, 2022, we repurchased an aggregate of 720,000 shares of our common stock from Manel Maria Cascallo Piqueras, Ramon Alemany and Gabriel Maria Capella Munar (the “Selling Stockholders”), three founders of our subsidiary Theriva Biologics, S.L. (formerly known as VCN Biosciences, S.L.) in a privately negotiated transaction pursuant to the terms of a Share Repurchase Agreement (the “Share Repurchase Agreement”) entered into on December 20, 2022 with each of the Selling Stockholders. The price per share was $0.4001, which was the closing price of the Common Stock on the day prior to the closing for an aggregate purchase price was $288,072. The closing was subject to fulfillment of certain conditions, including delivery of certain closing documents. The Share Repurchase Agreement contains customary representations, warranties and covenants of the parties. The repurchase was funded from the Company’s cash on hand and the shares that were repurchased will be held as treasury stock by the Company. The Selling Stockholders acquired the shares of the Company’s Common Stock as consideration for the sale of their shares of the subsidiary to the Company in March 2022.
Recent Clinical Developments
On November 3, 2022, we issued a press release announcing the first patient has been dosed in Cohort 2 of our Phase 1b/2a randomized, double-blinded, placebo-controlled clinical trial of SYN-004 (ribaxamase) in allogeneic hematopoietic cell transplant (HCT) recipients for the prevention of acute graft-versus-host-disease (aGVHD).
On January 9, 2023, we issued a press release announcing that the first patient has been dosed in the Phase 1 investigator sponsored clinical trial of intravenous VCN-01 in patients with high-grade brain tumors who are scheduled for surgical resection.
On January 17, 2023, we issued a press release announcing the first patient has been dosed in VIRAGE, the Phase 2b randomized, open-label, placebo-controlled, multicenter clinical trial of systemically administered VCN-01 in combination with standard-of-care (SoC) chemotherapy (gemcitabine/nab-paclitaxel) as a first line therapy for patients with newly diagnosed metastatic pancreatic ductal adenocarcinoma (PDAC) (NCT05673811).
Our Current Product Pipeline
*Based on management’s current beliefs and expectations
aGVHD acute graft-vs-host disease; allo-HCT allogeneic hematopoietic cell transplant. IAP recombinant bovine intestinal alkaline phosphatase II. CPI immune checkpoint inhibitor. Gem/nab-P Gemcitabine + Abraxane® (nab-paclitaxel). HNSCC head and neck
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squamous cell carcinoma. IV intravenous. IVit intravitreal. MAD multiple ascending dose. ODD Orphan Drug Designation. OV oncolytic virus.
¹Additional products with preclinical proof-of-concept include SYN-006 (carbapenemase) to prevent aGVHD and infection by carbapenem resistant Enterobacteriaceae and SYN-007 (ribaxamase) DR to prevent antibiotic associated diarrhea with oral β-lactam antibiotics.
²Depending on funding/partnership. SYN-004 may enter an FDA-agreed Phase 3 clinical trial for the prevention of Clostridioides difficile infection.
³We have an option-license agreement with Massachusetts General Hospital to develop SYN-020 in several potential indications related to inflammation and gut barrier dysfunction.
Our Current Oncology-Focused Pipeline
Oncolytic Viruses
Our oncology platform is based on oncolytic virotherapy (“OV therapy”), which exploits the ability of certain viruses to kill tumor cells and trigger an anti-tumor immune response. This novel class of anticancer agents has unique mechanisms of action compared to other cancer drugs. Oncolytic viruses exploit the fact that cancer cells contain mutations that cause them to lose growth control and form tumors. Once inside a tumor cell, oncolytic viruses exploit the tumor cell machinery to generate thousands of additional copies of the virus, which then kill the tumor cell and spread to neighboring cells, causing a chain reaction of cell killing. This infection by OVs also alerts the immune system, which can then attack the virus infected cells and the tumor cells to help destroy the tumor in some instances.
Our OV candidates products are engineered to efficiently infect and selectively replicate to a high extent in tumor cells versus normal host cells, which enables intravenous delivery. By contrast, many other oncolytic viruses in clinical development today are administered by direct injection into the tumor. Intravenous delivery has the potential to expand the therapeutic effect of OVs because the virus can infect both the primary tumor and tumor metastases throughout the body.
Our first product candidate, VCN-01, is a clinical stage oncolytic human adenovirus that is modified to express an enzyme, hyaluronidase, that degrades hyaluronan in the tumor stroma, which helps the virus and other molecules to penetrate and spread throughout the tumor. VCN-01 can be used alone or in combination with other cancer therapies such as chemotherapy and immunotherapy, for difficult to treat cancers. An expanding intellectual property portfolio supports our oncology programs, and because our products are characterized as biologics, they will be further protected by data and/or market exclusivity in major markets.
VCN-01 — An oncolytic human type-5 adenovirus engineered for intravenous administration and to express a tumor matrix degrading enzyme (PH20, hyaluronidase) that facilitates the entry of therapeutics and immune cells into tumors
VCN-01 is a genetically modified oncolytic adenovirus that has been engineered to contain four independent genetic modifications on the backbone of the wild-type human adenovirus serotype 5 (HAd5) genome. These modifications have been shown in preclinical and clinical studies to confer tumor selective replication and antitumor activity. VCN-01 was engineered to replicate in and kill virtually all types of cancer cells, to expose tumor neoantigens of lysed tumors, to reduce liver tropism, and to express PH20 hyaluronidase to enhance the penetration of virus, chemotherapy and immune cells into the tumor.
Malignant tumors are made up of tumor cells as well as significant supporting tissue known as tumor stroma. The tumor stroma supports the formation and growth of tumors and contains cells and other components that are required for robust tumor growth and metastasis. The stroma also forms an effective barrier to the entry of therapeutic agents such as chemotherapy and antibodies. VCN-01 is designed to overcome the stroma barrier problem by expressing the well-characterized stroma degrading enzyme PH20 hyaluronidase after it infects tumor cells. Expression of PH20 by VCN-01 degrades the hyaluronic acid within the tumor stroma and improves virus spread. Based upon the foregoing, we believe our oncolytic virus platform, exemplified by VCN-01, represents a new and potentially powerful form of therapy that combines tumor cell killing, anti-tumor immunity and stroma destruction after intravenous delivery.
The VCN-01 product candidate is provided as a sterile liquid concentrate that is diluted for infusion or injection. The proposed therapeutic indication for VCN-01 is the treatment of solid tumors, as its selectivity mechanism relies on cellular properties shared by virtually all human tumor cells. Our initial indication for clinical development is unresectable metastatic pancreatic cancer, a disease for which there is currently no cure and only limited therapeutic options.
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VCN-01 has been administered to 82 patients across four Phase 1 clinical trials, including patients with pancreatic cancer, head and neck squamous cell carcinoma, ovarian carcinoma, colorectal cancer, and retinoblastoma.
Pancreatic Ductal Adenocarcinoma
Cancer of the pancreas consists of two main histological types: cancer that arises from the ductal (exocrine) cells of the pancreas or, much less often, cancers may arise from the endocrine compartment of the pancreas. Pancreatic Ductal Adenocarcinoma (“PDAC”) accounts for more than 90% of all pancreatic tumors. It can be located either in the head of the gland or in the body-tail. Pancreatic cancer usually gives metastases to liver and peritoneum. Other less common sites are the lungs, brain, kidney and bone. In its early stages, pancreatic cancer does not typically result in any characteristic symptoms. In many instances, progressive abdominal pain is the first symptom. Therefore, for most cases, pancreatic cancer is diagnosed in its late stages (locally advanced non-metastatic or metastatic stage of the disease) when the radical resection and possibly curative treatment is not possible. It’s generally assumed that only 10% of cases are resectable at presentation, whereas 30-40% of patients are diagnosed at local advanced/unresectable stage and 50-60% present with distant metastases.
PDAC Clinical Unmet Need and Market Opportunity
PDAC is one of the most fatal cancers accounting for the 4th highest cause of cancer-associated deaths in the US and the European Union. Despite significant research efforts, minimal progress has been achieved to date. The five-year overall survival rate is < 10% and has not substantially improved over the last 30 years. Surgery is the only treatment that offers the prospect of long term-survival; however, the 5-year survival for the limited number of patients in whom resection is possible remains low (20 – 30 %). Patients with advanced disease are managed with chemotherapy. In recent years, the combination of gemcitabine with albumin-bound paclitaxel (GA), and the combination of folic acid, 5-fluorouracil, irinotecan and oxaliplatin (FOLFIRINOX) have emerged as the standard of care. However, the results are still very poor and new therapeutic interventions are needed. The increase is particularly evident in younger people and several studies anticipate that pancreatic cancer is expected to become the second leading cause of cancer-related death in the United States by 2030. The rising incidence of pancreatic cancer and its current economic burden place increased pressure to improve outcomes for patients.
In May 2011, the Committee for Orphan Medicinal Products (“COMP”) from the European Medicines Agency (“EMA”) recommended granting Orphan Medicinal Product Designation to VCN-01 for the treatment of pancreatic cancer and in June 2011, the European Commission confirmed the designation under Regulation (“EC”) No 141/2000 of the European Parliament and of the Council.
Phase 1a/Proof of Concept Trial of VCN-01 by intratumoral administration in PDAC
In September 2019, VCN presented a poster at the European Society for Molecular Oncology (“ESMO”) annual meeting describing initial mechanism of action data from a multicenter, Phase 1 dose escalation study of intratumoral (“IT”) VCN-01 administered to pancreatic cancer patients in combination with standard doses/schedules of either gemcitabine or nab-paclitaxel plus gemcitabine (NCT02045589). The study was conducted at three hospitals in Spain and 8 patients with confirmed histologic diagnosis of unresectable PDAC amenable to endoscopic ultrasound guided (“EUS)) injection were treated with 3 injections (coincident with 1st day of the chemotherapy cycles) at two different dose levels of VCN-01 (six patients had metastatic disease and two had locally advanced disease). The treatment regimen was generally well-tolerated; however, one patient died from severe intraabdominal fluid collection that was considered to be related to VCN-01 treatment. Evaluation of virus pharmacokinetics and PH20 levels in serum were consistent with strong virus replication in the tumors. This was supported by the presence of viral particles in tumor cells as assessed in paired tumor biopsies collected before and after treatment. Tumor stiffness was reduced in all VCN-01-injected lesions as measured by elastography. Disease stabilization of injected lesions was observed in 5 out of 6 patients although subsequent tumor progression was observed in most of the patients due to the appearance of new lesions or growth of distant, non-injected, metastatic lesions. This study provided encouraging mechanism of action data for VCN-01; however, intratumoral injection did not appear to deliver sufficiently high VCN-01 levels for effective delivery to non-injected tumors. We believe these results supported the evaluation of the safety/tolerability and potential efficacy of VCN-01 via intravenous administration in combination with chemotherapy and/or immunotherapies for the treatment of advanced PDAC. The results of this study were published in the Journal for Immunotherapy of Cancer. 2021 Nov;9(11):e003254. doi: 10.1136/jitc-2021-003254.
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Phase 1 Trial of intravenous VCN-01 with or without nab-paclitaxel plus gemcitabine in patients with solid tumors and PDAC
In March 2022, we announced the peer-reviewed publication of a Phase 1, multicenter, open-label, dose-escalation study investigating the safety, tolerability and biodistribution of intravenous VCN-01 oncolytic adenovirus with or without standard-of-care (SoC) chemotherapy (gemcitabine/nab-paclitaxel) in patients with advanced solid tumors (NCT02045602). The data, published in the Journal for ImmunoTherapy of Cancer, suggests that intravenous treatment with VCN-01 is feasible and has an acceptable safety profile, with encouraging biological and clinical activity. (Journal for Immunotherapy of Cancer 2022;10:e003255. doi:10.1136/jitc-2021-003255).
Data from the recent publication had previously been presented, in part, in a poster at the ESMO 2019 annual meeting. The published study was a multicenter, open-label, dose-escalation phase I clinical trial of a single dose of intravenous VCN-01 alone (Part I, 16 patients with advanced refractory solid tumors) or in combination with nab-paclitaxel plus gemcitabine (Part II and III; patients with pancreatic adenocarcinoma). In Part II, 12 patients received VCN-01 dose concurrent with chemotherapy on day 1, whereas in Part III 14 additional patients received the dose of VCN-01 seven days before chemotherapy. The recommended Phase 2 doses (RP2D) were determined to be 1x1013 viral particles (vp)/patient in Part I, 3.3x1012 vp/patient in Part II and 1x1013 vp/patient in Part III. Based on its apparent safety profile and the absence of dose-limiting toxicities, 1x1013 vp/patient using sequential dosing schedule was selected for further clinical development.
Pharmacokinetic data showed dose linearity, as well as relevant VCN-01 exposure. Analysis of VCN-01 clearance in patients enrolled in Part II did not show significant differences with respect to patients receiving VCN-01 as a single agent. VCN-01 viral genomes were detected in tumor tissue in 5 out of 6 biopsies. A second viral peak in plasma and increased hyaluronidase serum levels suggested replication after intravenous injection in all patients. Increased levels of immune biomarkers (IFNγ, sLAG3, IL-6, IL-10) were found after VCN-01 administration. In patients with pancreatic adenocarcinoma, the overall response rate (ORR) was 50% for Part II and 50% for Part III, as assessed by the investigators. Median progression free survival (PFS) for patients in Part III was 6.7 months, and median overall survival (OS) was 13.5 months. Eight patients (66.7%) survived more than 12 months. In addition, in April 2021, a subgroup analysis of patients at the RP2D (1.x1013 vp/patient followed by nab-paclitaxel plus gemcitabine one week later, n=6) was conducted and showed an ORR of 83%, with a median PFS of 6.3 months and median OS of 20.8 months. Some VCN-01 treated patients appeared to benefit from late-onset responses. This form of delayed anti-tumor activity is not common with chemotherapy but is frequently observed with immunotherapies. We believe an immune mechanism of action associated with the oncolytic activity of VCN-01 may be the underlying explanation. VCN-01 appeared to convert the typically immunosuppressive tumor microenvironment of pancreatic adenocarcinomas into an enhanced inflammatory microenvironment (IDO, CD28, PD-1, CTL signature up-regulation, and collagen formation) after treatment.
Phase 2 Trial of intravenous VCN-01 with or without nab-paclitaxel plus gemcitabine in patients with solid tumors and PDAC
In January 2023, we dosed the first patients in VIRAGE, the Phase 2b randomized, open-label, placebo-controlled, multicenter clinical trial of systemically administered VCN-01 in combination with standard-of-care (SoC) chemotherapy (gemcitabine/nab-paclitaxel) as a first line therapy for patients with newly-diagnosed metastatic pancreatic ductal adenocarcinoma. The study is expected to enroll 92 patients and be conducted at approximately 25 sites in the US and EU. Two doses of VCN-01 are included in the treatment arm: the 1st dose is administered on day 1, then one week later 3 cycles of gemcitabine and nab-paclitaxel as standard of care is administered. The second VCN-01 dose is administered 7 days before the 4th cycle of chemotherapy (approximately 90 days after the first VCN-01 dose), followed by additional cycles of gemcitabine/nab-paclitaxel chemotherapy. The first patients were dosed in the study in January 2023.
Retinoblastoma
Retinoblastoma is a tumor that originates in the retina and it is the most common type of eye cancer in children. It occurs in approximately 1 / 14,000-1 / 18,000 live newborns and accounts for 15% of the tumors in the pediatric population < 1 year old. The average age of pediatric patients at diagnosis is 2, and it rarely occurs in children older than 6. In the US, retinoblastoma shows an incidence rate of 3.3 per 1,000,000 with only about 200 to 300 children diagnosed per year according to the American Cancer Society. Bilateral retinoblastoma (Rb1 germinal mutation) represents 25-35% of the cases while unilateral retinoblastoma (sporadic mutation) accounts for 65-75%. While retinoblastoma is a highly curable disease in the US, with a current disease-free survival rate of >95%, the clinical challenge for those who treat retinoblastoma is to preserve life and to prevent the loss of an eye, blindness and other serious effects of treatment that reduce the patient’s life span or the quality of life. In addition, children with retinoblastoma have been more likely to lose their eye and die of metastatic disease in low-resource countries.
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Current treatments are not without significant morbidity, which may include visual impairment and severe cosmetic deformity secondary to enucleation and/or irradiation of the orbital region. The use of intravenous chemotherapy and more recently intra-arterial and intravitreal chemotherapy have resulted in a significantly greater number of eyes preserved with fewer long-term effects compared to past treatments such as external radiation therapy. However, allowing patients with advanced intraocular disease to be treated conservatively, led to the appearance of a subgroup of patients with advanced intraocular disease who relapsed after an initial response. Most of these cases include those patients who present gross vitreous or subretinal seeding. Once the aforementioned treatments are exhausted, these patients rarely manage to preserve the eyes and vision and must be enucleated. The ocular preservation rate of these eyes with advanced disease is still less than 50%.
In February 2022, the FDA granted orphan drug designation to VCN-01 for the treatment of retinoblastoma.
Phase 1 Trial of intravitreal VCN-01 in patients with retinoblastoma
During the third quarter of 2017, VCN entered into a Clinical Trial Agreement with Hospital Sant Joan de Déu (Barcelona, Spain) to conduct an investigator sponsored Phase 1 clinical study evaluating the safety and tolerability of two intravitreal injections of VCN-01 in patients with intraocular retinoblastoma refractory to systemic, intra-arterial or intravitreal chemotherapy, or radiotherapy, in whom enucleation was the only recommended treatment (NCT03284268). Patients received two doses of VCN-01 injected 14 days apart using a dose escalation regimen. At this time, the dose-escalation phase of the study has already been completed in 6 patients distributed in two cohorts (2 x 109 vp/eye and 2 x 1010 vp/eye). VCN-01 was well tolerated to date after intravitreal administration, although some degree of intravitreal inflammation and associated turbidity were observed. Inflammation has been managed and potential turbidity minimized with local and systemic administration of anti-inflammatory drugs. VCN-01 does not appear to change the retinal function, and selective VCN-01 replication in retinoblastoma cells has been observed by immunohistochemical analysis. Replication within retinoblastoma tumors over time was detected and VCN-01 reduced the number of vitreous seeds in 4 out of 5 patients treated at 2 x 1010 vp/eye (n=5). The investigator has reported that one patient treated with VCN-01 has had a complete regression lasting more than 30 months.
Six (6) patients have been treated with VCN-01 to date. This study is ongoing and the enrollment period has been extended to include additional patients. We anticipate meeting with the FDA during 2023 to discuss the path forward for VCN-01 as an adjunct to chemotherapy in pediatric patients with advanced retinoblastoma.
On September 30, 2022, we issued a press release announcing an oral presentation entitled “Topotecan enhances oncolytic adenovirus infection, replication and antitumor activity in retinoblastoma,” featuring Dr. Angel Montero-Carcaboso, Researcher at Fundació Sant Joan de Déu at the SIOP 2022 Congress of the International Society of Pediatric Oncology, being held in Barcelona, Spain from September 28-October 1, 2022. The new data from the study for which Dr. Angel Montero-Carcaboso is the lead investigator further support evaluation of VCN-01, an oncolytic adenovirus expressing hyaluronidase, and topotecan for the treatment of refractory retinoblastoma. Key data and conclusions showcased in the SIOP presentation include:
| ● | VCN-01 treatment in combination with topotecan, but not with carboplatin or melphalan, significantly increased VCN-01 infection and replication in retinoblastoma cells (p=0.0007) in vitro. |
| ● | In athymic mice engrafted with human retinoblastomas, topotecan administered systemically after intratumoral VCN-01 increased viral genome replication and the number of VCN-01 infected cells when compared to administration of VCN-01 alone (p = 0.0002). |
| ● | Sequential administration of intratumoral VCN-01 followed by systemic topotecan significantly increased median ocular survival, compared to VCN-01 alone (p =0.0364). |
VCN-01 in combination with Immunomodulatory therapeutics
Based on the clinical and pre-clinical data described below, we believe that the administration of VCN-01, can elicit an anti-tumor immune response that could potentiate the effects of VCN-01 and co-administered therapeutics. Biopsies from the Phase 1 trial of PDAC patients administered intravenous VCN-01 demonstrated lymphocyte (CD8+) infiltration and modulated levels of immune markers in tumors, including an induction of the PD1/PD-L1 expression in tumor tissue from some of the patients. Preclinical experiments demonstrated that VCN-01 significantly increased extravasation of an anti-PD-L1 antibody into subcutaneous xenograft tumors compared to non-treated (PBS) tumors and also that PH20 hyaluronidase improves the ingress of T-cells in animal models. Thus, we
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hypothesize that the administration of VCN-01 into the tumor will help to overcome the observed resistance to PD-L1 checkpoint inhibitors and to mesothelin-directed CAR-T cells.
Phase 1 Trial of intravenous VCN-01 in Combination with Durvalumab in Subjects with Recurrent/ Metastatic SCCHN
In February 2019, VCN entered into a Clinical Trial Agreement with Catalan Institute of Oncology (ICO) (Spain) to conduct an investigator sponsored Phase 1 clinical study to evaluate the safety, tolerability and RP2D of a single intravenous injection of VCN-01 combined with durvalumab in two administration regimens: VCN-01 concomitantly with durvalumab, or sequentially with durvalumab starting two weeks after VCN-01 administration (NCT03799744). The study is also designed to evaluate whether VCN-01 treatment can re-sensitize PD-(l)-1 refractory tumors to subsequent anti-PD-L1 therapy. Durvalumab is a human monoclonal antibody (mAb) of the immunoglobulin G (IgG) 1 kappa subclass that inhibits binding of PD-L1. It is marketed as IMFINZI® by AstraZeneca/MedImmune, who supplied the product for its use in the clinical study. This Phase I trial is a multicenter, open label, dose escalation study in patients with histologically confirmed head and neck squamous cell carcinoma from specific sites: oral cavity, oropharynx, larynx or hypopharynx that is recurrent/metastatic (R/M) and not amenable to curative therapy by surgery or radiation. In addition, all patients should have undergone prior exposure to anti-PD-(L) 1 and progressed. Patients are entered at each dose level, according to a planned dose escalation schedule. The treatment is a single intravenous VCN-01 dose combined with concomitant intravenous durvalumab (MEDI4736) 1500 mg Q4W (Arm I) or durvalumab starting two weeks after VCN-01 administration (“sequential schedule”; Arm II). Patient recruitment into Arm I and Arm II was performed concurrently. Intravenous VCN-01 was administered to each patient only once during the trial at the VCN-01 dose level to which they were randomized. Durvalumab was administered Q4W until disease progression, unacceptable toxicity, withdrawal of consent, or another discontinuation criterion. Patient recruitment into the study was completed in February 2022 with a total of 18 patients enrolled. On September 05, 2022 we announced a presentation of initial data from this study in a poster at the European Society for Medical Oncology (ESMO) Congress. The poster reported that treatment with VCN-01 had an acceptable safety profile when administered with durvalumab in the sequential schedule and the most common treatment-related adverse events were dose-dependent and reversible pyrexia, flu-like symptoms and increases in liver transaminases. Sustained blood levels of VCN-01 viral genomes and increased serum hyaluronidase levels were maintained for over six weeks and analysis of tumor samples showed an increase in CD8 T cells (a marker of tumor inflammation); upregulation of PD-L1; and downregulation of matrix-related pathways after VCN-01 administration. The last patients in this study are currently being followed for overall survival and patent samples are being analyzed to evaluate potential VCN-01 pharmacodynamic effects. We expect to report additional results from this study in H2 2023 as data become available.
Phase 1 Trial evaluating the safety and feasibility of huCART-meso cells when given in combination with VCN-01
In July 2021, VCN entered into a Clinical Trial Agreement with the University of Pennsylvania (Philadelphia) to conduct an investigator sponsored Phase 1 clinical study to evaluate the safety, tolerability and feasibility of intravenous administration of VCN-01 in combination with lentiviral transduced huCART-meso cells (developed by the laboratory of Dr. Carl June) in patients with histologically confirmed unresectable or metastatic pancreatic adenocarcinoma and serous epithelial ovarian cancer (NCT05057715). This is a Phase I study evaluating the combination of VCN-01 when given in combination with huCART-meso cells in a dose-escalation design in two cohorts (N = 3-6), where patients receive VCN-01 as a single IV infusion (at 3.3x1012 or 1x1013 vp) on Day 0, followed by a single dose of 5x107 huCART-meso cells on Day 14 via IV infusion. huCART-meso cells are modified T-cells targeting the mesothelin antigen, which is frequently expressed in multiple tumor types, particularly in pancreatic and ovarian cancers. Dr. June’s previous clinical studies have shown that huCART-meso cells encounter significant challenges in the tumor microenvironment, including immunosuppressive cells and soluble factors as well as metabolic restrictions. Initial VCN-01 clinical data from the studies described above suggest that administration of VCN-01 may increase tumor immunogenicity and improve access of the huCART-meso cells to tumor cells. This Phase I study will evaluate the safety and tolerability of the VCN-01 huCART-meso cell combination and test the hypothesis that administration of VCN-01 may enhance the potential antitumor effects of the co-administered huCART-meso cells.
On July 8, 2022, we were notified that the first patient to be dosed with VCN-01 had passed the safety evaluation period in this study. The study is on-going.
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Phase 1 Trial evaluating the intravenous administration of VCN-01 in patients prior to surgical resection of high-grade brain tumors
In the second quarter of 2021, VCN entered into a Clinical Trial Agreement with the University of Leeds (UK) to sponsor a proof-of-concept Phase 1 clinical study to evaluate whether intravenously administered VCN-01 can cross the blood-brain barrier and infect the target brain tumor. This is an open-label, non-randomized, single center study of VCN-01 given intravenously at a dose of 1x1013 virus particles to patients prior to planned surgery for recurrent high-grade primary or metastatic brain tumors. We believe that the intravenous delivery of anti-cancer therapy to brain tumors, if effective, may enable the treatment of systemically disseminated brain metastases and may allow for reduction in the need to use neurosurgery to administer the drugs. This study aims to assess the presence of VCN-01 within the resected surgical specimen after systemic VCN-01 delivery and determine the safety of intravenous VCN-01 in patients with recurrent high-grade glioma or brain metastases. By confirming the presence of VCN-01 in high grade brain tumors following intravenous delivery, this study may pave the way for larger trials to study VCN-01 efficacy, both as a monotherapy and in combination with PD-1/PD-L1 blockade. This trial has already received approval from Medicines & Healthcare Products Regulatory Agency (MHRA) from UK Government.
On January 9, 2023, we issued a press release announcing that the first patient was dosed in this study and recruitment is on-going.
Our Current Gastrointestinal (GI) and Microbiome-Focused Pipeline
Our SYN-004 (ribaxamase) and SYN-020 clinical programs are focused on the gastrointestinal tract (GI) and the gut microbiome, which is home to billions of microbial species and composed of a natural balance of both “good” beneficial species and potentially “bad” pathogenic species. When the natural balance or normal function of these microbial species is disrupted, a person’s health can be compromised. All of our programs are supported by our growing intellectual property portfolio. We are maintaining and building our patent portfolio through: filing new patent applications; prosecuting existing applications; and licensing and acquiring new patents and patent applications.
SYN-004 (ribaxamase) — Prevention of antibiotic-mediated microbiome damage, thereby preventing overgrowth and infection by pathogenic organisms such as Clostridioides difficile infection (CDI) and vancomycin resistant Enterococci (VRE), and reducing the incidence and severity of acute graft-versus-host disease (aGVHD) in allogeneic HCT recipients
SYN-004 (ribaxamase) is a proprietary oral capsule prophylactic therapy designed to degrade certain IV beta-lactam antibiotics excreted into the GI tract and thereby maintain the natural balance of the gut microbiome. Preventing beta-lactam damage to the gut microbiome has a range of potential therapeutic outcomes, including prevention of CDI, suppression of the overgrowth of pathogenic species (particularly antimicrobial-resistant organisms) and potentially reducing the incidence and/or severity of aGVHD in allogeneic hematopoietic cell transplant (HCT) patients. SYN-004 (ribaxamase) 75 mg capsules are intended to be administered orally while patients are administered certain IV beta-lactam antibiotics. The capsule dosage form is designed to release the SYN-004 (ribaxamase) enzyme into proximal small intestine, where it has been shown to degrade beta-lactam antibiotics in the GI tract without altering systemic antibiotic levels. Beta-lactam antibiotics are a mainstay in hospital infection management and include the commonly used penicillin and cephalosporin classes of antibiotics.
Clostridioides difficile Infection
Clostridioides difficile (formerly known as Clostridium difficile and often called C. difficile or CDI) is a leading type of hospital acquired infection and is frequently associated with IV beta-lactam antibiotic treatment. The Centers for Disease Control and Prevention (CDC) identified C. difficile 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 IV antibiotics, which may adversely 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 (estimated at 7 days), underlying illness, and immune-compromising conditions including the administration of chemotherapy and advanced age. According to a paper published in BMC Infectious Diseases (Desai K et al. BMC Infect Dis. 2016; 16: 303) the economic cost of CDI was approximately $5.4 billion in 2016 ($4.7 billion in healthcare settings; $725 million in the community) in the U.S., mostly due to hospitalizations.
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Limitations of Current Treatments and Market Opportunity
CDI is a widespread and often drug resistant infectious disease. Approximately 20% of patients who have been diagnosed with CDI experience a recurrence of CDI within one to three months. Furthermore, 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 with inanimate objects. There is currently no vaccine or approved product for the prevention of primary (incident) CDI. The current standard of care for primary CDI, as outlined by the Infectious Disease Society of America (IDSA), is to treat with powerful antibiotics such as fidaxomicin or vancomycin. Prolonged use of fidaxomicin and vancomycin has been shown to further exacerbate damage to the gut microbiome, leading to increased risk of CDI recurrence as well as the emergence of pathogenic and antimicrobial-resistant (AMR) organisms, such as vancomycin-resistant enterococci (VRE). AMR is a serious global threat and one which world leaders have begun to take action against. According to the European Society of Clinical Microbiology and Infections Disease (ECCMID), failure to address AMR could lead to a potential “antibiotic Armageddon”, resulting in 10 million deaths worldwide by 2050 and may cost as much as $100 trillion in worldwide economic output.
According to a paper published in BMC Infectious Diseases,”Epidemiological and economic burden of Clostridium difficile in the United States: estimates from a modeling approach”. (Desai et.al., BMC Infect Dis 16: 303), it is estimated that approximately 606,000 patients are infected with C. difficile annually in the U.S., and it has been reported that approximately 44,500 deaths are attributable to CDI-associated complications each year. According to IMS Health Incorporated*, in 2016, the potential addressable market for SYN-004 (ribaxamase) included approximately 227 million doses of intravenous Penicillin and Cephalosporin antibiotics which were administered in the United States and which may contribute to the onset of CDI. Additional data derived from IMS Health Incorporated states that in 2016, the worldwide market for SYN-004 (ribaxamase)-addressable intravenous beta-lactam antibiotics was approximately 7.5 billion doses, which may represent a multi-billion-dollar market opportunity for us. If approved, SYN-004 (ribaxamase) would be the first therapeutic intervention indicated to prevent the onset of antibiotic-mediated primary CDI.
Phase 1a and 1b Clinical Trial Pharmacokinetic Data
In March 2015, we reported supportive pharmacokinetic data from a Phase 1a clinical trial, which suggested that SYN-004 (ribaxamase) should have no effect on the IV antibiotic in the bloodstream, allowing the antibiotic to fight the primary infection. In February 2015, we reported supportive topline results from a subsequent Phase 1b clinical trial of escalating doses of oral SYN-004 (ribaxamase), with no safety or tolerability issues reported at dose levels and dosing regimens that were equivalent to or exceeded those expected to be studied in subsequent clinical trials. The Phase 1a (40 participants) and 1b (24 participants) clinical trials of SYN-004 (ribaxamase) were initiated in December 2014.
Two Phase 2a Clinical Trials: Topline Results
In December 2015, we reported supportive topline results from our first Phase 2a clinical trial of SYN-004 (ribaxamase, NCT02419001). The study demonstrated that SYN-004 (ribaxamase) successfully degraded IV ceftriaxone in the chyme of ten participants with ileostomies without affecting the levels of ceftriaxone in the bloodstream. In May 2016, we reported supportive topline results from a second Phase 2a clinical trial of SYN-004 (ribaxamase) in 14 healthy participants with functioning ileostomies administered IV ceftriaxone with and without oral SYN-004 (ribaxamase) (NCT02473640). This second study demonstrated that the 150 mg dose of SYN-004 (ribaxamase), both alone and in the presence of the proton pump inhibitor (PPI), esomeprazole, degraded ceftriaxone excreted into the chyme resulting in ceftriaxone levels that were low or not-detectable. Ceftriaxone plasma concentrations in participants of the second study were not altered by SYN-004 (ribaxamase) in the presence or absence of an oral PPI, suggesting limited drug-drug interactions. The 150 mg dose of SYN-004 (ribaxamase) was well tolerated by all participants in this clinical trial.
Phase 2b Proof of Concept Clinical Trial Design & Results
In September 2015, we initiated a multicenter, randomized, placebo-controlled Phase 2b proof-of-concept clinical study in 412 patients (206 per group; NCT02563106).
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On January 5, 2017, we announced positive topline data from our Phase 2b proof-of-concept clinical trial intended to evaluate the ability of SYN-004 (ribaxamase) to prevent CDI, CDAD (C. difficile-associated diarrhea) and AAD (antibiotic-associated diarrhea) in patients hospitalized for a lower respiratory tract infection and receiving IV ceftriaxone. Results from this study demonstrated that SYN-004 (ribaxamase) achieved its primary endpoint of significantly reducing CDI. Preliminary analysis of the data indicated seven confirmed cases of CDI in the placebo group compared to two cases in the SYN-004 (ribaxamase) treatment group. Patients receiving SYN-004 (ribaxamase) achieved a 71.4% relative risk reduction (p-value=0.045) in CDI rates compared to patients receiving placebo. SYN-004 (ribaxamase) treated patients also demonstrated a significant reduction in new colonization by vancomycin-resistant enterococci (VRE) compared to placebo (p-value=0.002). Results from this trial also demonstrated that patients administered ribaxamase in conjunction with IV-ceftriaxone demonstrated comparable cure rates (approximately 94%) for the treatment of primary infection compared to the placebo group. Results from this trial also demonstrated that the percentage of subjects reporting at least one treatment emergent adverse event (TEAE) was similar between SYN-004 (ribaxamase) and placebo treatment groups (40.8% vs 44.2%). Adverse events reported during this trial were comparable between treatment and placebo arms. Serious adverse events (SAEs) in the treatment arm, including fatal AEs, which exceeded those in the placebo arm, were not considered drug-related by investigators at the clinical sites, or by an independent third-party, each of whom determined SAEs were attributable to disparities in the underlying health and comorbidities between the groups.
* | This information is an estimate derived from the use of information under license from the following IMS Health Incorporated information service: IMS Health Analytics for the full year 2016. IMS expressly reserves all rights, including rights of copying, distribution, and republication. |
On October 6, 2016 we were awarded a government contract in the amount of $521,014 by the CDC’s Broad Agency Announcement (BAA) 2016-N-17812 to examine changes in the gut resistome of patients in our Phase 2b clinical study. Data generated under this contract are consistent with SYN-004’s (ribaxamase) mode of action of preserving the normal gut flora by degrading ceftriaxone in the upper GI tract of study participants treated with SYN-004 (ribaxamase). The data further demonstrated that SYN-004 (ribaxamase) significantly reduced the loss of microbial diversity, reduced overgrowth of opportunistically pathogenic species, and reduced the emergence of antimicrobial resistance (AMR) genes (such as VRE) caused by ceftriaxone treatment in SYN-004 (ribaxamase) treated patients compared to placebo.
Future Planning and Potential Regulatory Strategy for Prevention of Primary CDI
On November 21, 2018, we announced results from our End-of-Phase 2 meeting with the FDA during which key elements of a Phase 3 clinical program were confirmed. Pursuant to the meeting, the FDA proposed criteria for Phase 3 clinical efficacy and safety which, if achieved, may support submission for marketing approval of SYN-004 (ribaxamase) on the basis of a single Phase 3 clinical trial. The proposed SYN-004 (ribaxamase) Phase 3 clinical program entails a single, global, event-driven clinical trial with a fixed maximum number of approximately 4,000 patients for total enrollment and evaluates the potential efficacy and safety of ribaxamase in a broad patient population by enrolling patients with a variety of underlying infections treated with a range of IV beta-lactam antibiotics.
The proposed Phase 3 clinical trial incorporates co-primary safety and efficacy endpoints (mortality and the reduction in the incidence of CDI at one month after the last drug dose in the SYN-004 (ribaxamase) treatment group versus placebo,respectively). We expect the clinical development costs to complete this trial to be in excess of $80 million and anticipate initiating the Phase 3 clinical program only after securing additional potential financing via a strategic partnership.
Acute Graft-Versus-Host-Disease in Allogeneic Hematopoietic Cell Transplant (allogeneic HCT) Recipients & SYN-004 (ribaxamase)
In parallel with our clinical and regulatory efforts, we completed a Health Economics Outcomes Research (HEOR) study, which was conducted to generate key insights on how we can expect Health Care Practitioners, or HCPs, to evaluate patient access for SYN-004 (ribaxamase) while also providing a framework for potential reimbursement strategies. After evaluating findings from the study, we believe that there is significant potential value in exploring the development of SYN-004 (ribaxamase) in a narrower patient population where the incidence of the disease endpoint is high and the clinical development may be less costly.
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We believe allogeneic hematopoietic cell transplant (HCT) recipients, who have a very high risk of CDI, VRE colonization and potentially fatal bacteremia, and acute-graft-vs-host disease (aGVHD), represent such a patient population. Published literature has demonstrated a strong association between these adverse outcomes and microbiome damage caused by IV beta-lactam antibiotics in these patients. Approximately 80-90% of HCT recipients receive IV beta-lactam antibiotics to treat febrile neutropenia. Penicillins and cephalosporins are first-line therapies in the USA and EU, whereas carbapenems are first-line in China. Antibiotic-mediated damage to the gut microbiome is strongly associated with GVHD, bloodstream infections, VRE bacteremia, transplant relapse, and increased mortality in HCT recipients, raising concern over the spectrum of antibiotics used during HCT.
CDI occurs in up to 31% of HCT patients and is associated with GVHD and increased mortality. aGVHD occurs in 30-60% of allogeneic HCT recipients and is recognized as a primary contributor to morbidity and mortality in this patient population. In 2018, there were approximately 9,000 reported allogeneic HCT procedures in the USA, an estimated 19,800 procedures in Europe, 9,600 in China, and 3,500 in Japan. First-line treatments for aGVHD fail in more than 50% of patients and 2-year survival in patients with steroid refractory aGVHD is only 20%. At least one U.S. study found allogeneic HCT recipients who developed aGVHD had 3-times higher in-hospital mortality and almost 2-fold higher median hospital costs than patients who did not develop aGVHD. It has been reported that in-patient costs for allogeneic HCT in the USA range from $180,000-$300,000 depending on the disease severity. In 2014, all-cause costs for allogeneic HCT in the USA were greater than $600,000 per patient (up to 12 months post-transplant). VRE infection is a persistent problem in HCT patients and VRE colonization after HCT has been associated with decreased patient survival.
Phase 1b/2a Clinical Study in Allogeneic HCT Recipients
In August 2019, we entered into a Clinical Trial Agreement (CTA) with the Washington University School of Medicine (Washington University) to conduct a Phase 1b/2a clinical trial of SYN-004 (ribaxamase). Under the terms of this agreement, we serve as the sponsor of the study and supply SYN-004 (ribaxamase). Dr. Erik R. Dubberke, Professor of Medicine and Clinical Director, Transplant Infectious Diseases at Washington University and a member of the SYN-004 (ribaxamase) steering committee serves as the principal investigator of the clinical trial in collaboration with his Washington University colleague Dr. Mark A. Schroeder, Associate Professor of Medicine, Division of Oncology, Bone Marrow Transplantation and Leukemia.
On January 7, 2020, we announced the receipt of official meeting minutes from the FDA following a Type-C meeting held on December 2, 2019, at our request to discuss the development of SYN-004 (ribaxamase) for treatment of allogeneic HCT recipients who are administered IV beta-lactam antibiotics in response to fever. Based on the final meeting minutes, the Phase 1b/2a clinical trial will comprise a single center, randomized, double-blinded, placebo-controlled clinical trial of oral SYN-004 (ribaxamase) in up to 36 evaluable adult allogeneic HCT recipients. The goal of this study is to evaluate the safety, tolerability and potential absorption into the systemic circulation (if any) of oral SYN-004 (ribaxamase; 150 mg four times daily) administered to allogeneic HCT recipients who receive an IV carbapenem or beta-lactam antibiotic to treat fever. Study participants will be enrolled into three sequential cohorts administered a different study-assigned IV antibiotic. Each cohort seeks to complete eight evaluable participants treated with SYN-004 (ribaxamase) and four evaluable participants treated with placebo. Safety and pharmacokinetic data for each cohort will be reviewed by an independent Data and Safety Monitoring Committee, which will make a recommendation on whether to proceed to the next IV antibiotic cohort. The study will also evaluate potential protective effects of SYN-004 on the gut microbiome as well as generate preliminary information on potential therapeutic benefits and patient outcomes of SYN-004 in allogeneic HCT recipients.
On July 30, 2020, we received written notification from the FDA informing us that they determined the Phase 1b/2a clinical program in adult allogeneic HCT recipients may proceed per the submitted clinical study protocol. On December 22, 2020, we announced that we received approval from the Institutional Review Board (IRB) at Washington University to commence the Phase 1b/2a clinical trial of SYN-004. During the first quarter of 2021, Washington University began screening patients for enrollment of the first of three antibiotic cohorts in the Phase 1b/2a clinical trial of SYN-004 in allogeneic HCT recipients. On April 14, 2021, we announced that the first patient had been dosed in our Phase 1b/2a clinical trial of SYN-004 (ribaxamase) in allogeneic hematopoietic cell transplant (HCT) recipients for the prevention of acute graft-versus-host-disease (aGVHD.
On September 27, 2022, we issued a press release announcing positive outcomes from the Data and Safety Monitoring Committee (“DSMC”) review of results from the first Cohort of the Company’s Phase 1b/2a randomized, double-blinded, placebo-controlled clinical trial of SYN-004 (ribaxamase) in allogeneic hematopoietic cell transplant (HCT) recipients for the prevention of acute graft-versus-host-disease (aGVHD).
To date, we have completed Cohort 1, which enrolled 19 patients who received at least 1 dose of study drug (SYN-004 or Placebo randomized 2:1). Sixteen patients received at least one dose of intravenous (IV) meropenem and 12 of these patients completed sufficient
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doses of IV meropenem to be evaluable towards the study endpoints. The study is on-going and remains blinded; however, key findings from blinded data for Cohort 1 are included below:
| ● | Adverse events (AEs) and serious adverse events (SAEs) observed in Cohort 1 were typical of those observed in allo-HCT patients and no AEs or SAEs were determined to be related to study drug treatment by the investigators. |
| o | A total of 13 SAEs were reported among 10 patients, with the most common SAE being infections and infestations including sepsis. |
| o | One patient died 14 days after the last dose of study drug (within the 30-day reporting period) due to sepsis that was not related to study drug. |
| ● | Consistent with previous studies of SYN-004 in healthy volunteers, SYN-004 was not observed in blood samples from the majority of the evaluable patients. |
| o | A total of 3 plasma samples (~2% of all analyzed samples) had low but quantifiable levels of SYN-004 using a sensitive ECL assay. |
| o | None of the 3 ECL positive plasma samples were found to contain active SYN-004 using a functional enzyme activity assay. |
| ● | Meropenem pharmacokinetics were as expected for this patient population. |
Based on a review of the safety and pharmacokinetic data, the DSMC recommended that the study may proceed to enroll Cohort 2 in which study drug (SYN-004 or Placebo) will be administered in combination with the IV beta-lactam antibiotic piperacillin/tazobactam. If enrollment proceeds on the current schedule, we may be positioned to announce data readouts for the second cohort during the first half of 2024 and the third cohort during the first half of 2025.
On November 3, 2022 we announced the first patient has been dosed in Cohort 2 of its Phase 1b/2a randomized, double-blinded, placebo-controlled clinical trial of SYN-004 (ribaxamase) in allogeneic hematopoietic cell transplant (HCT) recipients for the prevention of acute graft-versus-host-disease (aGVHD, NCT04692181).
SYN-020 — Oral Intestinal Alkaline Phosphatase (IAP)
SYN 020 is a quality-controlled, recombinant version of bovine Intestinal Alkaline Phosphatase (IAP) produced under cGMP conditions and formulated for oral delivery. The published literature indicates that IAP functions to diminish GI and systemic inflammation, tighten the gut barrier to diminish “leaky gut,” and promote a healthy microbiome. Despite its broad therapeutic potential, a key hurdle to commercialization has been the high cost of IAP manufacture which is commercially available for as much as $10,000 per gram. We believe we have developed technologies to traverse this hurdle and now have the ability to produce more than 3 grams per liter of SYN-020 for roughly a few hundred dollars per gram at commercial scale. Based on the known mechanisms as well as our own supporting animal model data, we intended to initially develop SYN-020 to mitigate the intestinal damage caused by radiation therapy that is routinely used to treat pelvic cancers. While we believe SYN-020 may play a pivotal role in addressing acute and long-term complications associated with radiation exposure to the GI tract, we have also begun planning for potential development of SYN-020 in large market indications with significant unmet medical needs. Such indications include celiac disease, non-alcoholic fatty liver disease (“NAFLD”), and indications to treat and prevent metabolic and inflammatory disorders associated with aging which are supported by our collaboration with Massachusetts General Hospital (“MGH”). Across the six major markets, the total prevalent cases of celiac disease are expected to increase from 5.8 million cases in 2013 to an expected 8.1 million cases in 2023, representing an annual growth rate of approximately 4%. During the same period, prevalent cases in the U.S. are expected to increase from 2.8 million in 2013 to an expected 4.3 million in 2023, representing a significant market opportunity.
On June 30, 2020, we submitted an IND application to the FDA in support of an initial indication for the treatment of radiation enteropathy secondary to pelvic cancer therapy. On July 30, 2020, we announced that we received a study-may-proceed letter from the FDA to conduct a Phase 1a single-ascending-dose (“SAD”) study in healthy volunteers designed to evaluate SYN-020 for safety, tolerability and pharmacokinetic parameters(NCT04815993). On April 1, 2021, we announced that enrollment had commenced in the Phase 1 SAD clinical trial of SYN-020. On June 29, 2021, we announced that enrollment, patient dosing and observation had been completed in the Phase 1, open-label, SAD study of SYN-020. The SAD study enrolled 6 healthy adult volunteers into each of four
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cohorts with SYN-020 given orally as single doses ranging from 5 mg to 150 mg. Analyses of preliminary data demonstrated that SYN-020 maintained a favorable safety profile, was well tolerated at all dose levels, and no adverse events were attributed to the study drug. No serious adverse events were reported.
During the third quarter of 2021 we initiated a Phase 1 clinical study evaluating multiple ascending doses (“MAD”) of SYN-020 (NCT05045833). On October 21, 2021 we announced that patient enrollment, dosing and observation commenced in the Phase 1 MAD of SYN-020. The placebo-controlled, blinded study enrolled 32 healthy adult volunteers into four cohorts with SYN-020 administered orally in doses ranging from 5 mg to 75 mg twice daily for 14 days with a follow-up evaluation at day 35. Each cohort included six subjects who received SYN-020 and two who received placebo. On May 10, 2022, we announced positive safety data from the Phase 1 MAD study demonstrating that SYN-020 maintained a favorable safety profile and was well-tolerated across all dose levels. There were a few treatment-related adverse events, and all were mild (grade 1) and resolved without medical intervention. The most common adverse event, constipation, occurred in three out of 24 subjects in the treatment arm and in one out of eight subjects in the placebo arm. No adverse event led to discontinuation of the study drug and there were no serious adverse events. Additionally, fecal SYN-020 analyses verified intestinal bioavailability while plasma levels of SYN-020 were below the limit of quantitation in all samples at all timepoints verifying that SYN-020 was not absorbed into the systemic circulation.
During the second quarter of 2020, we announced that we entered into an agreement with Massachusetts General Hospital ('MGH”) granting us an option for an exclusive license to intellectual property and technology related to the use of IAP to maintain GI and microbiome health, diminish systemic inflammation, and treat age-related diseases. During the second quarter of 2021, we announced an amendment to our option for an exclusive license agreement with MGH to include intellectual property and technology related to the use of SYN-020 to inhibit liver fibrosis in select diseases, including NAFLD. Research published by a team of investigators led by Richard Hodin, MD, Chief of the Massachusetts General Hospital Division of General and Gastrointestinal Surgery and Professor of Surgery, Harvard Medical School, evaluated long-term oral supplementation of IAP, including SYN-020, in mice. Dr. Hodin’s research demonstrated that IAP administration, starting at 10 months of age, slowed the microbiome changes, gut-barrier dysfunction, and gastrointestinal and systemic inflammation that normally accompany aging. Additionally, the IAP administration resulted in improved metabolic profiles in the aged mice, diminished frailty, and extended lifespan. Under the terms of the agreement, we are granted exclusive rights to negotiate a worldwide license with MGH to commercially develop SYN-020 to treat and prevent metabolic and inflammatory diseases associated with aging. If executed, we plan to use this license in the advancement of an expanded clinical development program for SYN-020.
The Phase 1 data from our SAD and MAD studies are intended to support the development of SYN-020 in multiple clinical indications including radiation enteritis, NAFLD, celiac disease, and indications supported by our collaboration with Massachusetts General Hospital. With our transition to an oncology focused Company, we are exploring strategic opportunities to enable advancement of this potentially valuable asset.
Research Programs
VCN-11 Albumin Shield™ Technology
VCN-11 is a novel virus that we believe has the potential to extend our OV platform. VCN-11 has been engineered to contain all of the features of VCN-01 as well as an additional modification to include an albumin binding domain (ABD) in the virus capsid. The virus capsid is the target for neutralizing antibodies (NAbs) that are generated by the host immune system to destroy circulating viruses. The presence of an albumin binding domain, however, blocks the binding of most neutralizing antibodies, which allows the virus to reach the tumor following intravenous administration. This “Albumin Shield” works because human blood contains a large amount of albumin to coat the VCN-11 virus. Importantly, this coating of albumin appears to be displaced after the virus reaches tumor cells to infect them. In pre-clinical mouse studies to test the functionality of the “albumin shield”, mice pre-immunized with virus are able to completely neutralize an unmodified OV because they have a large concentration of neutralizing antibodies in their blood. By contrast, viruses containing the albumin binding domain such as VCN-11 are not neutralized and retain their ability to infect and destroy tumor cells. We believe these results support the further development of VCN-11 for tumors in which rapid multi-dosing may be beneficial.
In the second quarter of 2020, VCN had several interactions with Spanish regulatory authorities (AEMPS) to agree on the design of the non-clinical GLP toxicology and biodistribution studies that are required to support a first-in-human clinical trial for VCN-11.
In March 2021, preclinical data obtained with VCN-11 was published (J Control Release. 2021 Apr 10;332:517-528), showing that VCN-11 induced 450 times more cytotoxicity in tumor cells than in normal cells. VCN confirmed VCN-11 hyaluronidase production by measuring the activity of the PH20 enzyme with a hyaluronic acid-degradation assay, and by measuring PH20 activity in VCN-11
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infected tumors in vivo. VCN-11 evaded NAbs from different sources and tumor level were demonstrated in the presence of high levels of NAbs in vivo, whereas the control virus without ABD was neutralized. VCN-11 showed a low toxicity profile in athymic nude mice and Syrian hamsters, allowing treatments with high doses and fractionated administrations without major toxicities (up to 1.2x1011vp/mouse and 7.5x1011vp/hamster). VCN-11 increased ALT levels on day 3 within an acceptable range that returned to normal levels by day 9. Fractionated intravenous administration of VCN-11 (splitting the dose into two portions administered 4 h apart) appeared to improve VCN-11 circulation kinetics and increase tumor levels. VCN-11 showed antitumor efficacy in the presence of NAbs against Ad5 and itself.
In May 2022, we presented on VCN-11 at the 25th Annual Meeting of the American Society of Gene & Cell Therapy (ASGCT). The presentation included preclinical results showcasing the potential of VCN-11 to balance safety, with no major toxicities observed, and effectively target tumors after intravenous re-administration, even in the presence of high level NAbs. Our internal discovery programs are currently evaluating new oncolytic viruses derived from VCN-11 that may expand the potential efficacy of Albumin Shield viruses.
SYN-006, SYN-007
To date, our research programs have been primarily directed to the development of GI acting products that have generated preclinical proof-of-concept with two pipeline products (SYN-006 and SYN-007) that expand the potential utility of our beta-lactamase strategy. SYN-007 is a specially formulated version of SYN-004 (ribaxamase) designed to be used with orally administered beta-lactam antibiotics to protect the gut microbiome from antibiotic-mediated dysbiosis. SYN-006 is a carbapenemase designed to degrade intravenous (IV) carbapenem antibiotics within the GI tract to maintain the natural balance of the gut microbiome for the prevention of CDI, overgrowth of pathogenic organisms and the emergence of antimicrobial resistance (AMR). Our research programs may be expanded to include development of new oncolytic virus products and/or explore oncology applications of our existing products such as SYN-006 and SYN-007.
Intellectual Property
All of our programs are supported by growing patent estates. In total, Theriva Biologics has over 100 U.S. and foreign patents and over 70 U.S. and foreign patents pending. VCN, through assignment or exclusive licenses, controls over 40 U.S. and foreign patents and over 15 U.S. and foreign patents pending.
The SYN-004 (ribaxamase) program is supported by IP that is assigned to Theriva Biologics, namely U.S. patents and foreign patents (in most major markets, e.g. Europe (including Germany, Great Britain and France), Japan, China and Canada, among others) and U.S. and foreign patents pending (in most major markets, e.g. Europe (including Germany, Great Britain and France), Japan, China and Canada, among others). For instance, U.S. Patent Nos. 8,894,994 and 9,587,234, which include claims to compositions of matter and pharmaceutical compositions of beta-lactamases, including SYN-004 (ribaxamase), have patent terms to at least 2031. Further, U.S. Patent 9,301,995 and 9,301,996, both of which will expire in at least 2031, cover various uses of beta-lactamases, including SYN-004 (ribaxamase), in protecting the microbiome, and U.S. Patent Nos. 9,290,754, 9,376,673, 9,404,103, 9,464,280, and 9,695,409 which will expire in at least 2035, covers further beta-lactamase compositions of matter related to SYN-004 (ribaxamase).
The SYN-020 (oral intestinal alkaline phosphatase (IAP)) program is supported by IP that is assigned to Theriva Biologics, namely U.S. and foreign patent applications (in many major markets, e.g. Europe, China, Japan, Korea, Canada, and Australia). These patent applications, which cover various formulations, medical uses and manufacture of SYN-020, are expected to expire in 2038-2040, if granted, and without taking potential patent term extensions or patent term adjustment into account.
The VCN-01 and VCN-11 programs are supported by patents and patent applications that are assigned to VCN or exclusively licensed from Fundacio Privada Institut d’Investigacio Biomedica de Bellvitge (IDIBELL), Institut Catala d’Oncologia (ICO), and Hospital Sant Joan de Déu in Barcelona. The patents and patent applications include U.S. patents and foreign patents (in most major markets, e.g. Europe, China, Japan, Korea, Canada, Israel, Mexico, Russia, and Australia) and U.S. and foreign patents pending (in most major markets, e.g. Europe, China, Korea, Canada, Mexico, and India). The patents and patent applications cover compositions of matter and pharmaceutical compositions of oncolytic adenoviruses and various medical uses of the same. For instance, U.S. Patent No. 10,316,065, which expires in 2030 without taking potential patent term extensions or patent term adjustment into account, provides composition of matter and pharmaceutical composition coverage for a genus of engineered oncolytic adenovirus suitable for the treatment of solid tumors. Other patents and patent applications, if granted, will provide protection to 2037 without taking potential patent term extensions or patent term adjustment into account.
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Our goal is to (i) obtain, maintain, and enforce patent protection for our products, formulations, processes, methods, and other proprietary technologies, (ii) preserve our trade secrets, and (iii) operate without infringing on the proprietary rights of other parties worldwide. We seek, where appropriate, the broadest intellectual property protection for product candidates, proprietary information, and proprietary technology through a combination of contractual arrangements and patents.
Our Current Collaborations
IDIBELL Technology Transfer Agreement
On August 31, 2010, VCN entered into a Technology Transfer Agreement (the “Technology Transfer Agreement”) with the Bellvitge Biomedical Research Institute (“IDIBELL”) for the exclusive license of the right to use a Spanish patent number P200901201 titled “Oncolytic adenoviruses for treating cancer” which is co-owned by IDIBELL and Catalan Oncology Institute (“ICO”) for the term of the patent. The Technology Transfer Agreement provides that IDIBELL is entitled to a low single digit percentage royalty on the income collected by VCN from the utilization of products derived from the licensed technology, prior to applying any value-added tax, if any, and low single digit percentage royalty on other income received by VCN arising from the use of the licensed technology, including income related to sublicenses of the licensed technology to third parties and advance payments or payments made for goals that were met and/or services associated with the licensed technology. The Technology Transfer Agreement terminates upon the expiration of the patent rights and is subject to early termination by either party in the event of a breach by the other party of its obligations thereunder. In addition, IDIBELL has the right to revoke the license if VCN ceases business activities for a continuous year or ceases to utilize the technology subject of the Technology Transfer Agreement, uses the technology in violation of the principals of IDIBELL or ICO or stops maintaining the patent licensed under the Technology Transfer Agreement
ICO Marketing License
On May 16, 2009, VCN entered into a Contract to Grant a Marketing License (the “ICO License Agreement”) with the Catalan Institute of Oncology (the “ICO”) for a manufacturing and marketing license of a patent P200700665 titled “Adenovirus with mutations in the area of endoplasmic retention of protein E3-19k and their use in the treatment of cancer” in connection with a sublicense identified therein. The validity period of the license granted is unlimited with the only applicable limit being the patent’s own validity. The ICO License Agreement provides that the ICO is entitled to a royalty of low double digit percentage of the net value of the income from the concession of the identified sublicense and low double digit precentage on other lump sums received thereunder. VCN and its sublicensees have an obligation to o use all diligent and commercially reasonable efforts for the exploitation of the patent, otherwise, ICO may proceed to recover the license. The ICO License terminates upon the expiration of the patent rights and is subject to early termination by either party in the event of a breach by the other party of its obligations thereunder.
IDIBELL/ICO License Agreement
On March 4, 2016, VCN entered into a License Agreement (the “IDIBELL/ICO License Agreement”) with IDIBELL and the ICO, for the exclusive license of the right to use a family of patents whose priority application is European patent application EP 14 38 2162.7 titled “Adenovirus comprising an albumin-binding molety”. The License Agreement provides that IDIBELL and ICO, as licensors, are entitled to share a low single digit percentage royalty on the annual Net Sales (as defined in the IDIBELL/ICO License Agreement)collected by VCN from the utilization of products derived from the licensed technology and a royalty on sublicensing income received from the licensed technology at a rate of: low double digit percentage during the first 3 years following the effective date of the agreement, mid single digit percentage during the term of 3 to 7 years following the effective date and low single digit percentage thereafter. The IDIBELL/ICO License Agreement also provides for certain fixed payments, including a payment 25 days following the date of concession of the licensed patent in a minimum of three European jurisdictions and a payment 25 days following the date of concession of an American patent derived from the licensed patent. The IDIBELL/ICO License is for an indefinite term subject to early termination (i) by mutual agreement of the parties; (ii) by licensor in the event of at least two successive breaches or three alternate breaches calculated annually of the obligation to pay any consideration; (iii) by VCN at its discretion due to certain patent infringements of rights protected by the patents or due to the absence of protection of the patent in any countries in the territory which is worldwide or (iv) in the event of a breach by the other party of its obligations thereunder which are not remedied within thirty (30) days. In addition, the licensors have the right to revoke the IDIBELL/ICO License Agreement if VCN during a continuous period of two years abandons its research or development activities of the licensed patent or activities aimed at exploitation of the resulting products, VCN has undertaken no marketing whatsoever during the term of the IDIBELL/ICO License Agreement or uses the patent licensed for purposes other those as set forth in the IDIBELL/ICO License Agreement.
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Saint Joan De Déu Collaboration and License Agreement
On February 15, 2016, VCN entered into a Collaboration Agreement to Conduct a Clinical Trial and Grant an Operating License (the “Collaboration and License Agreement”) with the Saint Joan De Déu Hospital (the “Hospital”) and the Saint Joan De Déu Foundation (the “Foundation”, and together with the Hospital, the “Institution”) regarding the conduct of a clinical trial to evaluate the safety and activity of VCN-01 in patients with refractory retinoblastoma. The Collaboration and License Agreement provides that if the trial results are positive and VCN is interested in continuing with the development of VCN-01 for the treatment of retinoblastoma; (a) the parties undertake to apply their best efforts to negotiate and, where appropriate, sign an agreement to collaborate in the development and execution of the following phases of the development of VCN-01 for the treatment of retinoblastoma; (b) the Institution shall grant to VCN an exclusive, worldwide and indefinite license to use and exploit the trial results and their possible patents exclusively for the treatment of retinoblastoma; (c) VCN shall pay the Foundation five hundred thousand Euros (€500,000), subject to reduction for any public and/or private economic aid that third parties may grant to the Institution for the conduct of the trial and/or any advance payments made by VCN before the end of the trial; (d) VCN shall pay the Foundation three hundred twenty thousand Euros (€320,000) once following the trial results of a pivotal study, to be carried out by VCN, has been completed which allows it to obtain the marketing authorization of the product following from the results, which payment must be made within a maximum period of four (4) years from the date on which Institution has delivered the final report of the trial to VCN ; and (e) the parties will use their best efforts to negotiate and, where appropriate, sign a product supply agreement in order that the Hospital can use VCN-01 for compassionate use in the treatment of retinoblastoma. The Collaboration and License Agreement continues in force and effect until all obligations arising from the trial have been fulfilled, subject to early termination for a material breach by a party of any of their contractual and/or legal obligations, or, in the case of any other type of breach, when the breaching party has been asked in writing to remedy the breach and the breach is not cured within thirty (30) days from the date on which the written request was sent.
Washington University School of Medicine in St. Louis Clinical Trial Agreement
On August 7, 2019, we entered into a clinical trial agreement (“CTA”) with Washington University School of Medicine in St. Louis (“Washington University”) to conduct a Phase 1b/2a single-center, randomized, double-blinded, placebo-controlled clinical trial designed to evaluate the safety, tolerability and pharmacokinetics of oral SYN-004 (ribaxamase) in up to 36 adult allogeneic hematopoietic cell transplant (HCT) recipients (the “Study”). Under the terms of the CTA, we will serve as the sponsor of the Study and supply SYN-004 (ribaxamase), as well as compensate Washington University for all research services to be provided in connection with the Study which is estimated to cost approximately $3,200,000. Dr. Erik R. Dubberke, Professor of Medicine and Clinical Director, Transplant Infectious Diseases at Washington University will serve as the principal investigator of the trial in collaboration with his Washington University colleague Dr. Mark A. Schroeder, Associate Professor of Medicine, Division of Oncology, Bone Marrow Transplantation and Leukemia.
The CTA continues in effect until completion of all obligations under the CTA. Either party may terminate the CTA prior to completion of its obligations (i) if authorization of the study is withdrawn by the FDA; (ii) if the emergence of any adverse reaction or side effect with SYN-004 (ribaxamase) administered in the Study is of such magnitude or incidence in the opinion of either party to support termination; or (iii) upon a breach of the terms of the CTA if the breaching party fails to cure the breach within 30 days after receipt of notice. We have the right to terminate the CTA (i) effective immediately if Washington University fails to perform the study in accordance with the terms of the protocol, the CTA or applicable laws or regulations or if Washington University or the principal investigator become debarred or (ii) upon 14 days written notice and Washington University has the right to terminate the CTA upon 14 days notice if the principal investigator becomes unable to perform or complete the Study and the parties have not, prior to the expiration of such fourteen (14) day period, agreed to an alternative principal investigator.
Massachusetts General Hospital Exclusive Option License Agreement
On May 27, 2020, we entered into an agreement with Massachusetts General Hospital (“MGH”) granting us an option for an exclusive license to intellectual property and technology related to the use of intestinal alkaline phosphatase (“IAP”) to maintain gastrointestinal (GI) and microbiome health, diminish systemic inflammation, and treat age-related diseases. If executed, we plan to use this license in the advancement of an expanded clinical development program for SYN-020, our proprietary recombinant version of bovine IAP currently in pre-clinical development. Under the terms of the agreement, we are granted exclusive rights to negotiate a worldwide license with MGH to commercially develop SYN-020 to treat and prevent metabolic and inflammatory diseases associated with aging. During the second quarter of 2021, we announced an amendment to our option for an exclusive license agreement with MGH to include intellectual property and technology related to the use of SYN-020 to inhibit liver fibrosis in select diseases, including NAFLD. To date, we have not exercised the option.
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The University of Texas at Austin License Agreement and Sponsored Research Agreement
On December 19, 2012, we entered into a Patent License Agreement (the “Texas License Agreement”) with UT Austin for the exclusive license of the right to use, develop, manufacture, market and commercialize certain research and patents related to pertussis antibodies developed in the lab of Dr. Jennifer A. Maynard, Associate Professor of Chemical Engineering. In accordance with the terms of the Texas License Agreement we made the following payments to the UT Austin: a payment of past patent expenses, an annual payment of $50,000 per year commencing on the effective date through December 31, 2014 and a $25,000 payment on December 31, 2015. The Texas License Agreement also provides that UT Austin is entitled to milestone payments of $50,000 upon commencement of Phase 1 Clinical Trials, $100,000 upon commencement of Phase 3 Clinical Trials, $250,000 upon NDA submission in the United States, $100,000 upon European Medicines Agency approval and $100,000 upon regulatory approval in an Asian country. In addition, the University is entitled to a running royalty upon Net Product Sales and Net Service Sales (as defined in the Texas License Agreement and currently projected to be 2037 (not accounting for possible extensions)). The License Agreement terminates upon the expiration of the patent rights (as defined in the Texas License Agreement); provided, however that the Texas License Agreement is subject to early termination by us in our discretion and by the University for a breach of the Texas License Agreement by us.
In connection with the Texas License Agreement, we also entered into a Sponsored Research Agreement (the “Sponsored Research Agreement”) with the University pursuant to which the University will perform certain research work related to pertussis under the direction of Dr. Jennifer Maynard. All inventions conceived during such research shall be subject to the Texas License Agreement and we will obtain certain rights to patents and technology developed during the course of such research. We paid the University a fixed fee for the first year of $303,287 and the second and third years of $316,438 and $328,758, respectively. The Sponsored Research Agreement was amended on October 22, 2015 to extend its termination date to January 15, 2017: on September 2, 2016 to extend the agreement until January 15, 2018; on August 22, 2017 to extend the agreement until January 17, 2019;on August 24, 2018 to extend the agreement until January 21, 2021; and again on August 18, 2020 which extended the agreement until January 17, 2023; provided, however, the Sponsored Research Agreement is subject to early termination upon the written agreement of the parties, a default in the material obligations under the Sponsored Research Agreement which remain uncured for 60 days after receipt of notice, automatically upon our bankruptcy or insolvency and by us in our sole discretion at any time after the one year anniversary of the date of execution thereof upon no less than 90 days’ notice. Upon a termination or due to a breach by the University, we will only be responsible for all reasonable expenses that do not exceed the fixed annual amount and that are incurred by the University prior to the termination date for services performed prior to the termination date.
We have an issued U.S. patent and patents pending in the U.S. and internationally (e.g. Europe, China, Japan, Australia, and China) on compositions and uses of SYN-005 that are co-owned by UT Austin and ourselves or licensed to us, and we have an issued U.S. patent and patent applications on other pertussis mAbs licensed from UT Austin.
Manufacturing
VCN-01 & VCN-11
Our oncolytic virus platform viruses (e.g. VCN-01, VCN-11) are biologics that can be readily synthesized by processes that we have developed in collaboration with Contract and Development Manufacturing Organizations (CDMOs) such as Thermo Fisher, BioReliance, GenIBET, and others. We do not own or operate manufacturing facilities for the production of our product candidates, VCN-01 and VCN-11, but we do produce and test viruses and virus processes at our facilities in Spain. Our cell and virus seed stocks and master/working cell banks are used for current and future production. Our cells for manufacturing are approved by and licensed from US regulatory authorities. Clinical and commercial supplies will be manufactured in facilities and by processes that comply with the FDA and other regulatory agency requirements. We plan to rely on third parties to manufacture commercial quantities of products that we successfully develop through regulatory approval. We have contracted with two CDMOs to provide what it believes are adequate clinical supplies for our planned clinical trials.
Our upstream and downstream processes for producing oncolytic viruses are well understood in the industry and use industry standard cell factories and single use bioreactors for manufacturing. All downstream purifications employ single-use columns and filters, and release testing is performed by third-party vendors using qualified or validated assays. Critical quality attributes and other product testing specifications for our clinical supplies are agreed to with regulatory authorities prior to release and use.
We have previously encountered some delays in manufacturing due to the impact of COVID-19 on the supply chain. The potential impact of similar supply chain issues from a COVID-19 resurgence or other pandemic, if any, on our on-going and future clinical trials is currently unknown.
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SYN-004 and SYN-020
Our product candidates SYN-004 and SYN-020 are biologics that can be readily synthesized by processes that we have developed; however, the manufacturing for our clinical programs, including SYN-004 and SYN-020 may require long lead times and has in the past been subject to COVID-19 related global supply chain interruptions. We do not own or operate manufacturing facilities for the production of these product candidates for preclinical and clinical activities. We rely on third-party contract manufacturers, and in most cases only one third-party, to manufacture critical raw materials, drug substance and final drug product for our research, preclinical development and clinical trial activities. Commercial quantities of any drugs we seek to develop will have to be manufactured in facilities and by processes that comply with the FDA and other regulations, and we plan to rely on third parties to manufacture commercial quantities of products we successfully develop through FDA approval. We believe we have sufficient quantities of SYN-004 to complete our planned Phase 1b/2a clinical trial of SYN-004, and are working with qualified third-party vendors for the potential manufacture of additional quantities of SYN-004 and SYN-020 for potential future preclinical studies and clinical trials.
Research and Development
During the years ended December 31, 2022 and 2021, we incurred approximately $11.7 million and $7.8 million, respectively, in research and development expenses.
Government Regulation
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 primarily the FDA. 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 prescription drugs, 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.
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 in the United States. 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 pharmaceutical 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 and Public Health Service Act (for biologics) generally involves:
| ● | preclinical laboratory and animal tests; |
| ● | submission of an IND, prior to commencing human clinical trials; |
| ● | 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 BLA; and |
| ● | FDA review and approval of an NDA or BLA. |
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. OVs such as VCN-01 are genetically modified organisms and their import and use are subject to additional review and approval by dedicated agencies in some countries where we propose to run clinical trials, including Spain and Germany.
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. The timing and requirements of IND review may differ from the FDA in other countries, potentially delaying study initiation at sites in those countries.
Clinical trials must be supervised by qualified investigators in accordance with current good clinical practice (cGCP) regulations, which include informed consent requirements. Each study must be approved and monitored by the appropriate Institutional Review Boards (IRBs) or ethics committees (ECs) which are periodically informed of the study’s progress, adverse events and changes in research. OVs such as VCN-01 are genetically modified organisms and their use is also subject to review and approval by the Institutional Biosafety Committee (IBC) at each clinical trial site. Annual updates are submitted to the FDA and comparable foreign regulators (if required) with more frequent reporting if certain serious adverse events occur.
Human clinical trials of drug candidates typically have three sequential phases that may overlap:
Phase 1: The drug is initially tested in healthy human subjects or patients for safety, dosage tolerance, absorption, metabolism, distribution, and excretion.
Phase 2: 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 3: When Phase 2 evaluations demonstrate that a dosage range is effective with an acceptable safety profile, Phase 3 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 1, Phase 2, or Phase 3 testing of our product candidates within any specific time period, if at all. Furthermore, the FDA or comparable foreign regulator, an IRB/EC 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. Under the Pediatric Research Equity Act, we also must prepare, within 60 days of an End of Phase 2 meeting, a pediatric study plan or request for waiver or deferral of pediatric studies in the indication under development. Concurrent with these trials and studies, we also develop chemistry and physical characteristics data and finalize a manufacturing process in accordance with cGMP 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 an 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. A 60-day period after the sponsor’s submission of an NDA or BLA is used by the FDA to determine whether the application is sufficiently complete to permit substantive review, in which case the application is accepted for filing. The timing and requirements of NDA or BLA review may differ from the FDA in other countries,
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
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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 substantial fee. In return, the FDA assigns a goal for review and decision on the application, in which the FDA may approve or deny the NDA or BLA, or issue a complete response letter outlining information needed to support approval, including a potential need for 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 4 studies, as a condition of approval, and Risk Evaluation and Mitigation Strategies (REMS) 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.
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 or comparable foreign regulatory agency may change their policies, 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. Public perception and sentiment regarding genetically modified organisms and/or viral therapies (including vaccines) can be highly variable and may impact legislation regarding the potential sue of our products. 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.
Orphan Drug Act
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United States a drug for this type of disease or condition will be recovered from sales in the United States for that drug. Orphan drug designation must be requested before submitting an NDA or BLA. After the FDA grants orphan drug designation, the name of the sponsor, identity of the drug or biologic and its potential orphan use are disclosed publicly by the FDA. The orphan drug designation does not shorten the duration of the regulatory review or approval process, but does provide certain advantages, such as a waiver of Prescription Drug User Fee Act (“PDUFA”) fees, enhanced access to FDA staff and potential waiver of pediatric research requirements.
If a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including a full NDA, to market the same drug or biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. Orphan drug exclusivity does not prevent FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the application user fee. A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.
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Orphan Drug Designation is also available in Europe from the European Medicines Agency (EMA) and provides for 10 years of market exclusivity if granted. The requirements, costs and timing for obtaining and maintaining EMA Orphan Drug Designation differ from the FDA.
In May 2011, the Committee for Orphan Medicinal Products ("COMP") from the EMA recommended granting Orphan Medicinal Product Designation to VCN-01 for the treatment of pancreatic cancer and in June 2011, the European Commission confirmed the designation under Regulation ("EC") No 141/2000 of the European Parliament and of the Council.
In February 2022, the FDA granted orphan drug designation to VCN-01 for the treatment of retinoblastoma.
Other Healthcare Laws and Compliance Requirements
In the United States, the research, manufacturing, distribution, sale and promotion of drug products and medical devices are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including the U.S. Department of Justice, state Attorneys General, and other state and local government agencies. The federal Anti-Kickback Statute prohibits any person, including a prescription drug manufacturer (or a party acting on its behalf), from knowingly and willfully soliciting, receiving, offering or providing remuneration, directly or indirectly, to induce or reward either the referral of an individual, or the furnishing, recommending or arranging for a good or service, for which payment may be made under a federal healthcare program such as the Medicare and Medicaid programs. The federal False Claims Act imposes liability on any person or entity that, among other things, knowingly presents or causes to be presented, a false or fraudulent claim for payment by a federal healthcare program. The qui tam provisions of the False Claims Act allow a private individual to bring civil actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government, and to share in any monetary recovery. In addition, various states have enacted anti-kickback statues and false claims laws analogous to the False Claims Act. Also, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) created several federal crimes, including healthcare fraud, and false statements relating to the delivery of or payments for healthcare benefits, items or services. HIPAA and its implementing regulations also established uniform federal standards for certain “covered entities” (healthcare providers, health plans and healthcare clearinghouses) governing the conduct of certain electronic healthcare transactions and protecting the security and privacy of protected health information.
Because of the breadth of these and other laws and the narrowness of available statutory and regulatory exemptions, it is possible that some of our business activities could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any of the federal and state laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including criminal and significant civil monetary penalties, damages, fines, imprisonment, exclusion from participation in government healthcare programs, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, private “qui tam” actions brought by individual whistleblowers in the name of the government or refusal to allow us to enter into supply contracts, including government contracts, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
In order to market any product outside of the United States, a company also must comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of products. Whether or not it obtains FDA approval for a product, an applicant will need to obtain the necessary approvals by the comparable foreign regulatory authorities before it can initiate clinical trials or market products in those countries or jurisdictions. Specifically, the process governing approval of medicinal products in the EU generally follows the same lines as in the United States. It entails satisfactory completion of pharmaceutical development, nonclinical studies and adequate and well-controlled clinical trials to establish the safety and efficacy of the medicinal product for each proposed indication. It also requires the submission to relevant competent authorities for clinical trials authorization and to the EMA or to competent authorities in EU Member States for a marketing authorization application, or MAA, and granting of a marketing authorization by competent authorities in EU Member States or the European Commission before the product can be marketed and sold in the EU.
Data Privacy
Strict data privacy laws regulating the collection, transmission, storage and use of employee data and consumers’ personally-identifying information are evolving in the European Union, U.S. and other jurisdictions in which we operate. Outside of the United States, the laws, regulations and standards in many jurisdictions apply broadly to the collection, use, and other processing of personal information. For example, in the European Union, the collection and use of personal data are governed by the provisions of the General Data Protection Regulation (the “GDPR”). The GDPR, together with national legislation, regulations and guidelines of the European Union.
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member states governing the processing of personal data, impose strict obligations on entities subject to the GDPR, including but not limited to: (i) accountability and transparency requirements, and enhanced requirements for obtaining valid consent from data subjects; (ii) obligations to consider data protection as any new products or services are developed and to limit the amount of personal data processed; (iii) obligations to comply with the data protection rights of data subjects; and (iv) obligations to report certain personal data breaches to governmental authorities and individuals. Data protection authorities from the different E.U. member states and other European countries may enforce the GDPR and national data protection laws differently, and introduce additional national regulations and guidelines, which adds to the complexity of processing European personal data. Failure to comply with the requirements of the GDPR and the related national data protection laws may result in significant monetary fines and other administrative penalties (the GDPR authorizes fines for certain violations of up to 4% of global annual revenue or €20 million, whichever is greater) as well as civil liability claims from individuals whose personal data was processed. Additionally, expenses associated with compliance could reduce our operating margins.
The GDPR also prohibits the transfer of personal data from the E.U. to countries outside of the E.U. unless made to a country deemed by the European Commission to provide adequate protection for personal data or accomplished by means of an approved data transfer mechanism (e.g., standard contractual clauses). Data protection authority guidance and enforcement actions that restrict companies’ ability to transfer data may increase risk relating to data transfers or make it more difficult or impossible to transfer E.U. personal data to the U.S.
Competitive Environment
The pharmaceutical and biotechnology industries 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.
Companies that currently sell or are developing proprietary products for the prevention and treatment of C. difficile infection include: Actelion Pharmaceutical Ltd., Artugen Therapeutics, Inc., AzurRx, Inc., Deinove, Pfizer Inc., Merck & Co. Inc., Merus B.V., Pfizer Inc., Rebiotix, Inc., Seres Therapeutics, Inc., Summit Therapeutics plc. and Vedanata Biosciences Inc. Companies that sell or are developing products for the treatment or prevention of acute graft-versus-host-disease (aGVHD) include: Amgen, Inc., Astellas Pharma, Janssen Biotech, Inc., Mallinckrodt plc, Mesoblast, Inc., Novartis International AG, Pfizer, Inc. Roche AG and Takeda Pharmaceutical Company Ltd.
Only three oncolytic virus (OV) products have been approved in different global markets. Amgen Inc.’s Imlygic® (T-VEC, OncoVEX) for melanoma (USA); Daiichi Sankyo Company, Limited‘s DELYTACT® for malignant glioma (Japan) and Shanghai Sunway Biotech Co., Ltd Oncorine® for patients with late-stage refractory nasopharyngeal cancer (China).
More than 60 companies have publicly identified that they are pursuing clinical development of different forms of OV products. Adenoviruses are the most commonly used viruses in these programs, with modified adenoviruses under development by companies including AdCure Bio LLC, Candel Therapeutics, Inc., CG Oncology, Inc., DNAtrix, Inc., EpicentRx, Inc., GeneMedicine, Co Ltd., IconOVir Bio, Inc., Lokon Pharma AB, Multivir, Inc., NewGenPharm Incorporation, Oncolys BioPharma, Inc., Orca Therapeutics B.V., PsiOxus Therapeutics Ltd, Shanghai Sunway Biotech Co., Ltd , Targovax Oy|Targovax ASA, Tessa Therapeutics, TILT Biotherapeutics, Ltd., and Valo Therapeutics Oy.
OV products have been or are being developed using other virus backbones, including: Coxsackie virus (Viralytics Ltd., Oncorus Inc.); herpes simplex virus (Amgen, Inc., Candel Therapeutics, Inc., Daiichi Sankyo Company Ltd., Oncorus, Inc., Replimune, Inc., Takara Bio, Inc., Wuhan Binhui Biotechnology Co., Ltd.); Maraba virus (Turnstone Biologics, Inc.); measles virus (Vyriad, Inc.); myxoma virus (OncoMyx Therapeutics, Inc.); parvovirus (Oryx GmbH & Co. KG), reovirus (Oncolytics Biotech, Inc.); Seneca Valley virus
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(Seneca Therapeutics Inc., Oncorus Inc.); vesicular stomatitis virus (Vyriad, Inc.); and vaccinia viruses (Genelux Corporation, KaliVir Immunotherapeutics LLC, SillaJen, Inc., Transgene SA, Turnstone Biologics, Corp.).
OV companies that have identified pancreatic cancer or PDAC as a proposed clinical indication include Candel Therapeutics, Inc., GeneMedicine, Co Ltd., Lokon Pharma AB, NewGenPharm Incorporation, Oncolytics Biotech, Oryx GmbH & Co. KG, V2ACT Therapeutics™ LLC (a Genelux Corporation joint venture), and Wuhan Binhui Biotechnology Co., Ltd. OV companies that have identified retinoblastoma as a potential target indication include Seneca Therapeutics Inc. and Shanghai Sunway Biotech Co., Ltd.
Theriva Biologics’ OV products are designed to be systemically, intratumorally or intravitreally injected; selectively replicate only in tumor cells versus normal host cells; have reduced liver tropism compared to wild type adenovirus type 5; and express an enzyme (PH20) that degrades the tumor stroma barrier. If confirmed in Phase 2 and later clinical trials, we believe these features significantly differentiate Theriva Biologics’ products from competing OVs and will enable our products to be co-administered with other therapeutic modalities such as chemotherapy and immune therapy to improve cancer treatment outcomes.
Corporate History
Our predecessor, Sheffield Pharmaceuticals, Inc., was incorporated in 1986, and in 2006 engaged in a reverse merger with Pipex Therapeutics, Inc., a publicly-traded Delaware corporation formed in 2001. After the reverse merger, we changed our name to Pipex Pharmaceuticals, Inc., and in October 2008 we changed our name to Adeona Pharmaceuticals, Inc. On October 15, 2009, we engaged in a merger with a wholly owned subsidiary for the purpose of reincorporating in the State of Nevada. On February 15, 2012, we changed our name to Synthetic Biologics, Inc. On August 10, 2018, we effected a one for thirty-five reverse stock split of our authorized, issued and outstanding common stock. On July 15, 2022, we effected a one for ten reverse stock split of our authorized, issued and outstanding common stock. On October 12, 2022, we changed our name to Theriva Biologics, Inc.
Human Capital
We believe that our success depends upon our ability to attract, develop and retain key personnel. Prior to the VCN Acquisition, we employed 9 individuals, all of whom were full-time employees, of which 5 were part of our research and clinical development team and clinical development team and 4 were part of our financial reporting and accounting team. As of March 30, 2023, we employed 21 individuals, all of whom are full-time employees, of which 6 were part of our research and clinical development team in the United States and 9 are part of VCN’s research and clinical development team located in Spain, 1 is part of VCN’s management team located in Spain and 4 are part of our financial reporting and accounting team located in the United States.
A significant number of our management and professional employees have had prior experience with pharmaceutical, biotechnology or medical product companies. None of our employees in the United States are covered by collective bargaining agreements, and management considers relations with our employees to be in good standing. As is the usual situation in Spain, all the employees are currently covered by a collective bargaining system specific for the pharma sector. Although we continually seek to add additional talent to our work force, management believes that it has sufficient human capital to operate its business successfully.
Competitive Pay and Benefits
Our compensation programs are designed to align the compensation of our employees with our performance and to provide the proper incentives to attract, retain and motivate employees to achieve superior results. The structure of our compensation programs balances incentive earnings for both short-term and long-term performance. Specifically:
| ● | we provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location; |
| ● | we engage nationally recognized outside compensation and benefits consulting firms to independently evaluate the effectiveness of our executive compensation and benefit programs and to provide benchmarking against our peers within the industry; |
| ● | we align our executives’ long-term equity compensation with our shareholders’ interests by linking realizable pay with stock performance; and |
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| ● | all employees are eligible for health insurance, paid and unpaid leaves, a retirement plan and life and disability/accident coverage. We also offer a variety of voluntary benefits that allow employees to select the options that meet their needs, including flexible time-off, telemedicine, and unpaid parental leave. |
Health and Safety
The health and safety of our employees is our highest priority, and this is consistent with our operating philosophy. Accordingly, with the global spread of the ongoing novel coronavirus pandemic, we have implemented plans designed to address and mitigate the impact of the COVID-19 pandemic on the safety of our employees and our business, which include:
| ● | adding work from home flexibility; |
| ● | adjusting attendance policies to encourage those who are sick to stay home; |
| ● | increasing cleaning protocols across all locations; and |
| ● | initiating regular communication regarding impacts of the COVID-19 pandemic, including health and safety protocols and procedures. |
Properties
Our principal executive offices are located at 9605 Medical Center Drive, Suite 270, Rockville, Maryland 20850. VCN personnel will continue to operate from laboratories and office space leased from Grifols at Torrent de Can Ninou, naus 5-6, 08150 – Parets del Vallès, Barcelona, Spain.
Available Information
Additional information about Theriva Biologics is contained at our website, www.Therivabio.com. Information contained on our website is not incorporated by reference into, and does not form any part of, this Annual Report. We have included our website address as a factual reference and do not intend it to be an active link to our website. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge through the investor relations page of our internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”). The following Corporate Governance documents are also posted on our website: Code of Conduct, Code of Ethics for Financial Management and the Charters for the Audit Committee, Compensation Committee and Nominations Committee of the Board of Directors. Our phone number is (301) 417-4364 and our facsimile number is (301) 417-4367. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission. The address of that website is www.sec.gov.
Item 1A. Risk Factors.
Investing in our securities involves a high degree of risk. In addition to the risks related to our business set forth in this Annual Report and the other information included in this Annual Report, you should carefully consider the risks described below before purchasing our securities. Additional risks, uncertainties and other factors not presently known to us or that we currently deem immaterial may also impair our business operations.
RISKS RELATED TO OUR FINANCIAL POSITION AND CAPITAL REQUIREMENTS
We will need to raise additional capital to operate our business and our failure to obtain funding when needed may force us to delay, reduce or eliminate certain of our development programs or commercialization efforts.
During the year ended December 31, 2022, our operating activities used net cash of approximately $19.1 million and as of December 31, 2022 our cash and cash equivalents were $41.8 million. With the exception of the three months ended December 31, 2017 and June 30, 2010, we have experienced significant losses since inception and have a significant accumulated deficit. As of December 31, 2022, our accumulated deficit totaled approximately $291 million on a consolidated basis. Pursuant to the VCN Purchase Agreement, we have agreed to use reasonable efforts to commercialize VCN-01 and we agreed as a post- closing covenant to commit to fund VCN's research
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and development programs, including but not limited to VCN-01 PDAC Phase 2 clinical trial, VCN-01 RB pivotal trial and necessary G&A within a budgetary plan of approximately $27.8 million over the next three years. We expect to incur additional operating losses in the future and therefore expect our cumulative losses to increase. With the exception of the quarter ended June 30, 2010, and limited laboratory revenues from Adeona Clinical Laboratory, which we sold in March 2012, we have generated very minimal revenues. We do not expect to derive revenue from any source in the near future until we or our potential partners successfully commercialize our products. We expect our expenses to increase in connection with our anticipated activities, particularly as we continue research and development, initiate and conduct clinical trials, and seek marketing approval for our product candidates. We do not expect to derive revenue from the sale of VCN-01 or any of our product candidates for many years and there can be no assurance that regulatory approvals will be received or if received that they will be received when anticipated. 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 and collaboration fees and grants, if any.
We will need to raise additional capital to fund our operations and meet our current timelines and we cannot be certain that funding will be available on acceptable terms on a timely basis, or at all. Based on our current plans, our cash and cash equivalents will be sufficient to advance our Phase 2b clinical trials of VCN-01 in PDAC (but not to complete the trial) and to complete our Phase 1a/2a clinical trial of SYN-004 but may not be sufficient to initiate additional trials, which are expected to require significant cash expenditures. In addition, based on the significant anticipated cost of a Phase 3 clinical program in a broad indication for SYN-004, we expect it will not be feasible for us to initiate and complete a Phase 3 clinical trial in CDI prevention at this time without a partner given the capital constraints tied to our current market cap and share price. Further development of our OV product candidates will require additional funding. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that may impact our ability to conduct our business and also have a dilutive effect on our stockholders. A failure otherwise to secure additional funds when needed in the future whether through an equity or debt financing or a sufficient amount of capital without a strategic partnership could result in us being 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. Our ability to raise capital through the sale of securities may be limited by number of shares we have available for issuance and the rules of the SEC and NYSE American that place limits on the number and dollar amount of securities that may be sold. There can be no assurances that we will be able to raise the funds needed, especially in light of the fact that our ability to sell securities registered on our registration statement on Form S-3 will be limited until such time the market value of our voting securities held by non-affiliates is $75 million or more. We also may be required to seek collaborators for our product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available.
We expect to continue to incur significant operating and capital expenditures and we will need additional funds to support our operations, and such funding may not be available to us on acceptable terms, or at all, which would force us to delay, reduce or suspend our research and development programs and other operations or commercialization efforts.
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 anticipate a need for additional employees as we undertake later stage clinical trials. We have also incurred certain obligations pursuant to the terms of the VCN Purchase Agreement including the assumption of $2.4 million of liabilities and have agreed to a post-closing covenant to commit to fund research and development of VCN-01 and OV pipeline programs, including but not limited to the VCN-01 PDAC Phase 2 trial, a VCN-01 RB pivotal trial and necessary G&A within a budgetary plan of approximately $27.8 million.
Further development of VCN-01 and pipeline OV product candidates will require additional expenditures. 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:
| ● | continue to undertake preclinical development of our OV pipeline and mid and late-stage clinical trials for our product candidates, including VCN-01; |
| ● | seek regulatory approvals for our product candidates; |
| ● | develop our product candidates for commercialization; |
| ● | implement additional internal systems and infrastructure; |
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| ● | license or acquire additional technologies; |
| ● | lease additional or alternative office facilities; |
| ● | manufacture product for clinical trials and commercial use; and |
| ● | hire additional personnel, including members of our management team. |
We may experience negative cash flow for the foreseeable future as we fund our development and clinical programs with capital expenditures. As a result, we will need to raise additional capital or 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, which we do not anticipate will occur in the near future, could negatively impact the value of our common stock and underlying securities. There can be no assurance that funding will be available on acceptable terms on a timely basis, or at all. The various ways that we could raise capital carry potential risks. Any additional sources of financing will likely involve the issuance of our equity securities, which will have a dilutive effect on our stockholders. If we raise funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our technologies or tests or grant licenses on terms that are not favorable to us.
The actual amount of funds we will need to operate is subject to many risk factors, some of which are beyond our control.
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:
| ● | the progress of our research activities; |
| ● | the number and scope of our research programs; |
| ● | the progress of our preclinical and clinical development activities; |
| ● | the progress of the development efforts of parties with whom we have entered into research and development agreements and amount of funding received from partners and collaborators; |
| ● | our ability to maintain current research and development licensing arrangements and to establish new research and development and licensing arrangements; |
| ● | our ability to achieve our milestones under licensing arrangements; |
| ● | the costs associated with manufacturing-related services to produce materials for use in our clinical trials; |
| ● | the costs involved in prosecuting and enforcing patent claims and other intellectual property rights; |
| ● | the costs incurred to screen and enroll patients; and |
| ● | The costs and timing of regulatory approvals. |
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. Additionally, 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.
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We currently have a limited operating history as an oncology company, no products approved for commercial sale, have no significant source of revenue and may never generate significant revenue.
We are a clinical-stage biopharmaceutical company that recently began to focus on development of oncolytic viruses for treatment of various types of cancer. We have never generated any product revenue, do not expect to generate revenue in the near future and do not have any products approved for sale. Our operations to date have been primarily focused on developing our product candidates. We have not yet successfully obtained marketing approval, manufactured any product candidate at commercial scale, or conducted sales and marketing activities that will be necessary to successfully commercialize our product candidates. Consequently, predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing product candidates.
All of our existing product candidates are in various stages of development and will require extensive additional clinical evaluation, regulatory review and approval, significant marketing efforts and substantial investment before they could provide us with any revenue. As a result, even if we successfully develop, achieve regulatory approval and commercialize our products, we may be unable to generate revenue for many years, if at all. We do not anticipate that we will generate revenue from product sales for at least several years, if at all. If we are unable to generate revenue from product sales, we will not become profitable, and we may be unable to continue our operations.
Our ability to generate revenue depends heavily on:
| ● | our ability to raise additional capital on a timely basis to continue to fund our clinical trials; |
| ● | demonstration in current and future clinical trials that our lead product candidate, VCN-01 is safe and effective;and |
| ● | our ability to seek and obtain regulatory approvals, including with respect to the indications we are seeking; |
Even if we receive regulatory approval for the sale of any of our product candidates, we do not know when we will begin to generate revenue, if at all. Our ability to generate revenue depends on a number of factors, including our ability to:
| ● | set an acceptable price for our products and obtain coverage and adequate reimbursement from third-party payors; |
| ● | establish sales, marketing, manufacturing and distribution systems; |
| ● | add operational, financial and management information systems and personnel, including personnel to support our clinical, manufacturing and planned future clinical development and commercialization efforts and operations as a public company; |
| ● | develop manufacturing capabilities for bulk materials and manufacture commercial quantities of product candidates at acceptable cost levels; |
| ● | achieve broad market acceptance of our product candidates in the medical community and with third-party payors and consumers; |
| ● | attract and retain an experienced management and advisory team; |
| ● | successfully launch commercial sales of our products, whether alone or in collaboration with others; and |
| ● | maintain, expand and protect our intellectual property portfolio. |
Because of the numerous risks and uncertainties associated with development and manufacturing, we are unable to predict if we will generate revenue. If we cannot successfully execute on any of the factors listed above, our business may not succeed, we may never generate revenue and your investment will be adversely affected.
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We face risks related to the Restatement of our previously issued financial statements for the quarters ended June 30, 2022 and September 30, 2022
As discussed in the Explanatory Note, in Note 14 to the consolidated financial statements in this Annual Report, we reached a determination to restate our unaudited consolidated financial statements included in the quarterly reporting periods during fiscal year 2022, consisting of June 30, 2022 and September 30, 2022 and that such interim financial statements should no longer be relied upon. As a result, we have incurred unanticipated costs for accounting and legal fees in connection with or related to the restatement, and have become subject to a number of additional risks and uncertainties, which may affect investor confidence in the accuracy of our financial disclosures and may raise reputational issues for our business. we expect to continue to face many of the risks and challenges related to the restatement, including the following:
| ● | we may fail to remediate material weaknesses in our internal control over financial reporting and other material weaknesses may be identified in the future, which would adversely affect the accuracy and timing of our financial reporting; |
| ● | the processes undertaken to effect the restatement may not have been adequate to identify and correct all errors in our historical financial statements and, as a result, we may discover additional errors and our financial statements remain subject to the risk of future restatement; |
| ● | the incurrence of restatement-related expenses; and |
| ● | diversion of management and other human resources attention from the operation of our business. |
We cannot assure that all of the risks and challenges described above will be eliminated and that lost business opportunities can be recaptured or that general reputational harm will not persist. If one or more of the foregoing risks or challenges persist, our business, operations and financial condition are likely to be materially and adversely affected
We have identified material weaknesses in our internal controls, and we cannot provide assurances that these weaknesses will be effectively remediated or that additional material weaknesses will not occur in the future. In addition, we are not yet required to perform an assessment of internal controls for VCN.
If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud, or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a- 15(f) under the Exchange Act. During the preparation of our annual tax provision for the year ended December 31, 2022, we identified a material weakness over non-routine transactions related to the review of internally and externally prepared reports and analysis used in the financial reporting process and the related income tax implication of the non-routine transactions, a material weakness over information technology general controls over logical access and program change management for certain of our key information systems used to support the financial reporting process and a material weakness relating to performance over certain controls not being adequately documented. In addition, during the course of the review for the Quarterly Report for the quarter ended March 31, 2022, we identified a material weakness in our controls relating to accounting and disclosure controls for non-routine transactions. While we plan to take remedial action to address the material weaknesses, we cannot provide any assurance that such remedial measures, or any other remedial measures we take, will be effective. If we fail to maintain effective internal control over financial reporting, we may not be able to accurately report our financial results, detect or prevent fraud, or file our periodic reports in a timely manner, which may, among other adverse consequences, cause investors to lose confidence in our reported financial information and lead to a decline in our stock price. In addition, a material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are designed and operating effectively. Although management believes that the material weaknesses will be remediated by the end of the fiscal year there can be no assurance that the deficiencies will be remediated at such time or that the internal control over financial reporting, as modified, will enable us to identify or avoid material weaknesses in the future.
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We expect to seek to raise additional capital 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 consideration for acquisitions or part of license issue fees to our licensors, compensate consultants or settle outstanding payables using equity that may be dilutive. We are authorized to issue 350,000,000 shares of common stock, of which 15,124,061 shares of common stock were issued and outstanding as of December 31, 2022. At December 31, 2022, we had reserved 5,389,411 shares of common stock for issuance upon exercise of our outstanding options, preferred shares and warrants. In addition, at such date, we had 4,907,002 shares of our common stock reserved for future issuance under our equity incentive plans. If all of these securities were to be exercised, the total number of shares of our common stock that we would be required to issue is 10,296,413, which in addition to the 15,124,061 shares issued and outstanding, would leave 324,579,526 authorized but unissued shares of common stock.
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 paid by existing stockholders, thereby subjecting such stockholders to dilution. 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 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. In the event that we sell shares or other securities at prices below the exercise price of the warrants that we issued in our October 2018 offering, the price protection anti-dilution provisions of the warrant provide that the exercise price of the warrants sold in our October 2018 offering is to be reduced which may result in additional warrant exercises and additional dilution to 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.
Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or our guidance.
Our quarterly and annual operating results may fluctuate significantly in the future, which makes it difficult for us to predict our future operating results. The VCN Purchase Agreement requires that we make certain cash payments to Grifols upon attainment of certain milestones, which payments may vary significantly from period to period and any such variance could cause a significant fluctuation in our operating results from one period to the next. From time to time, we may enter into collaboration agreements with other companies that include development funding and significant upfront and milestone payments and/or royalties, which may become an important source of our revenue. Accordingly, our revenue may depend on development funding and the achievement of development and clinical milestones under any potential future collaboration and license agreements and sales of our products, if approved. These upfront and milestone payments may vary significantly from period to period and any such variance could cause a significant fluctuation in our operating results from one period to the next. In addition, our manufacturing and clinical trial expenses, which are anticipated to be significant, may fluctuate significantly quarter to quarter based upon whether or not we are engaged in clinical trials or manufacturing our product candidates, and timing of our process development work. Furthermore, we measure compensation cost for stock-based awards made to employees at the grant date of the award, based on the fair value of the award as determined by our board of directors, and recognize the cost as an expense over the employee's requisite service period. As the variables that we use as a basis for valuing these awards change over time, our underlying stock price and stock price volatility, the magnitude of the expense that we must recognize may vary significantly. Furthermore, our operating results may fluctuate due to a variety of other factors, many of which are outside of our control and may be difficult to predict, including the following:
| ● | the timing and cost of, and level of investment in, research and development activities relating to current product candidates and any future product candidates, which will change from time to time; |
| ● | our ability to enroll patients in clinical trials and the timing of enrollment; |
| ● | the timing and cost of manufacturing our current product candidates and any future product candidates, which may vary depending on FDA guidelines and requirements, the quantity of production and the terms of our agreements with manufacturers; |
| ● | expenditures that we will or may incur to acquire or develop additional product candidates and technologies; |
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| ● | the timing and outcomes of clinical studies or competing product candidates; |
| ● | changes in the competitive landscape of our industry, including consolidation among our competitors or partners; |
| ● | any delays in regulatory review or approval of our current product candidates or any of our future product candidates; |
| ● | the level of demand for our current product candidates and any future product candidates, should they receive approval, which may fluctuate significantly and be difficult to predict; |
| ● | the risk/benefit profile, cost and reimbursement policies with respect to our products candidates, if approved, and existing and potential future drugs that compete with our product candidates; |
| ● | competition from existing and potential future drugs that compete with our current product candidates or any of our future product candidates; |
| ● | our ability to commercialize our current product candidates or any future product candidate inside and outside of the United States, either independently or working with third parties; |
| ● | our ability to establish and maintain collaborations, licensing or other arrangements; |
| ● | our ability to adequately support future growth; |
| ● | potential unforeseen business disruptions that increase our costs or expenses; |
| ● | future accounting pronouncements or changes in our accounting policies; and |
| ● | the changing and volatile global economic environment. |
The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated revenue and/or earnings guidance we may provide.
If our acquired intangible assets become impaired, we may be required to record a significant charge to earnings.
We regularly review acquired intangible assets for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. We test goodwill and indefinite-lived intangible assets for impairment at least annually. Factors that may be considered a change in circumstances, indicating that the carrying value of the intangible assets may not be recoverable, include: macroeconomic conditions, such as deterioration in general economic conditions; industry and market considerations, such as deterioration in the environment in which we operate; cost factors, such as increases in labor or other costs that have a negative effect on earnings and cash flows; our financial performance, such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods; other relevant entity-specific events, such as changes in management, key personnel, strategy, or customers; and sustained decreases in share price.
RISKS RELATED TO OUR BUSINESS
Prior to 2022 we had not conducted any cancer research and development activities and there can be no assurance that we will successfully be able to do so.
Prior to the VCN Acquisition, our focus was on the microbiome and our research and development was focused primarily on therapeutics for various microbiome related diseases. Upon the VCN Acquisition, our focus has shifted to the use of oncolytic viruses to treat cancer.
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Although, our members of management and scientific/development teams have experience in this field, we may not be successful as a company with such focus.
In the past Oncolytic Viruses have experienced certain safety challenges.
Although current clinical trials of oncolytic virotherapies have supported their role as a potential treatment for cancer, there is the risk of uncontrolled replication in vivo and possible transmission to patients' contacts, such as other patients and health care workers. In recent years, clinical trials to address these concerns have been conducted. Any such transmission by VCN-01 or a competitor would have an adverse impact on our future OV research and development efforts.
Our research and development efforts may not result in 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.
The success of our business currently depends on our development, approval and commercialization of our lead product candidate, VCN-01. Our ongoing Phase 1b/2a clinical trial of SYN-004 for the prevention of aGVHD in allogeneic HCT recipients, our completed Phase 1 single ascending and multiple ascending dose studies of SYN-020 and ongoing early-stage clinical trials of VCN-01 are not designed as registrational clinical trials and we currently do not have the necessary funding to complete any late stage registrational clinical trials. There are many uncertainties known and unknown that may affect the outcome of future clinical trials. All of our product candidates, including VCN-01, SYN-004 (ribaxamase), and SYN-020 will require additional clinical and non-clinical development, regulatory review and approval in multiple jurisdictions, substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales. 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. Failure to obtain regulatory approvals of VCN-01, SYN-004 (ribaxamase) or SYN-020 in a timely manner would have a material adverse impact on our business. Even if we successfully develop VCN-01, SYN-004 (ribaxamase), SYN-020 or other 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.
We may form or seek strategic alliances or enter into additional licensing arrangements in the future, and we may not realize the benefits of such alliances or licensing arrangements.
We may form or seek strategic alliances, create joint ventures or collaborations or enter into additional licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to our product candidates and any future product candidates that we may develop. Any of these relationships may require us to incur non-recurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy. If we license products or businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture. We cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction. Any delays in entering into new strategic partnership agreements related to our product candidates could delay the development and commercialization of our product candidates in certain geographies for certain indications, which would harm our business prospects, financial condition and results of operations.
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We rely on licenses to use various technologies that are material to our business and 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 entered license agreements upon which our OV technology is dependent. If we breach the terms of any of our license agreements or collaborations, including any failure to make royalty payments required thereunder or failure to reach certain developmental milestones or fulfill our obligations under the agreements could result in a termination of the agreements. The Technology Transfer Agreement”) between VCN and IDIBELL for the exclusive license of the right to use a Spanish patent number P200901201 titled “Oncolytic adenoviruses for treating cancer” provides IDIBELL with the right to revoke the license if VCN ceases business activities for a continuous year or ceases to utilize the technology subject of the Technology Transfer Agreement, uses the technology in violation of the principals of IDIBELL or ICO or stops maintaining the patent licensed under the Technology Transfer Agreement. The ICO License provides that VCN and its sublicensees have an obligation to use all diligent and commercially reasonable efforts for the exploitation of the patent, otherwise, ICO may proceed to recover the license. The “IDIBELL/ICO License Agreement provides that the licensors have the right to revoke the IDIBELL/ICO License Agreement if VCN during a continuous period of two years abandons its research or development activities of the licensed patent or activities aimed at exploitation of the resulting products. We entered into an option agreement with MGH to enter into an exclusive license to intellectual property and technology related to the use of IAP to maintain GI and microbiome health, diminish systemic inflammation, and treat age-related diseases. There can be no assurance that we will be able to reach agreement on license terms or that the terms will be favorable to us. This license agreement is expected to require us to meet certain diligence requirements and timelines in order to keep the license agreement in effect. In addition, certain license agreements, including the one that may potentially be entered into with MGH, typically contain provisions requiring royalty free non-exclusive licenses to the U.S government if any federal funding was used to invent any of the patents being licensed. In the event we or our sublicensee are not able to meet our diligence requirements contained in the license agreement with MGH or any other license agreement, we may not be able to retain the rights granted under our agreement or renegotiate with our arrangement institution on reasonable terms, or at all. If any license were to terminate and we were to lose the right to commercialize our products, our business opportunity would be adversely affected. 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 agreement with UT Austin allows UT Austin to terminate its agreement if we fail to comply with the terms of the agreement.
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 may incur additional expenses in connection with our licenses and collaboration arrangements and our development of our product candidates.
VCN’s collaboration agreements require that Theriva Biologics SL engage in certain research and development activities that require additional expenditures. Our agreements with Washington University and MGH may require that we initiate certain studies and file or have accepted 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. Due to our small work force, we expect in future years to require additional personnel to support our later stage research and development efforts. Manufacturing of VCN-01, SYN-004 (ribaxamase) and SYN-020 to support potential future clinical studies will require us to incur additional expenses.
Because development activities in our collaborations are sometimes determined pursuant to joint steering committees, future development costs associated with these programs may be difficult to anticipate and may 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, enrollment 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.
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Developments by competitors may render our products or technologies obsolete or non-competitive.
The pharmaceutical and biotechnology industries, including the oncolytic virus industry and 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 our competitors have drugs that have already been commercialized and therefore benefit from being first to market their products. 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, including for different indications of the same active ingredients that comprise our pipeline products. These competitors will compete with us in product sales as well as recruitment and retention of qualified scientific and management personnel, establishment of clinical trial sites and patient enrollment for clinical trials, as well as in the acquisition of technologies and technology licenses complementary to our programs or advantageous to our business. Companies pursuing clinical development of modified oncolytic adenoviruses include AdCure Bio LLC, Candel Therapeutics, Inc., CG Oncology, Inc., DNAtrix, Inc., EpicentRx, Inc., GeneMedicine, Co Ltd., IconOVir Bio, Inc., Lokon Pharma AB, Multivir, Inc., NewGenPharm Incorporation, Oncolys BioPharma, Inc., Orca Therapeutics B.V., PsiOxus Therapeutics Ltd, Shanghai Sunway Biotech Co., Ltd , Targovax Oy|Targovax ASA, Tessa Therapeutics, TILT Biotherapeutics, Ltd., and Valo Therapeutics Oy. OV products have been or are being developed using other virus backbones, including: Coxsackie virus (Viralytics Ltd., Oncorus Inc.); herpes simplex virus (Amgen, Inc., Candel Therapeutics, Inc., Daiichi Sankyo Company Ltd., Oncorus, Inc., Replimune, Inc., Takara Bio, Inc., Wuhan Binhui Biotechnology Co., Ltd.); Maraba virus (Turnstone Biologics, Inc.); measles virus (Vyriad, Inc.); myxoma virus (OncoMyx Therapeutics, Inc.); parvovirus (Oryx GmbH & Co. KG), reovirus (Oncolytics Biotech, Inc.); Seneca Valley virus (Seneca Therapeutics Inc., Oncorus Inc.); vesicular stomatitis virus (Vyriad, Inc.); and vaccinia viruses (Genelux Corporation, KaliVir Immunotherapeutics LLC, SillaJen, Inc., Transgene SA, Turnstone Biologics, Corp.). In addition, academic research centers may develop technologies that compete with our VCN-01, SYN-004 and SYN-020, products and our other technologies. Should clinicians or regulatory authorities view alternative 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 may seek to selectively establish collaborations, and, if we are unable to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans.
Our product development programs and the potential commercialization of our clinical product candidates will require substantial additional cash to fund expenses. For some of our product candidates we may decide to collaborate with governmental entities or additional pharmaceutical and biotechnology companies for the development and potential commercialization of our product candidates.
We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with our product candidate.
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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 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. 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 or even if procured, that we can do so in quantities and in a timely manner to allow our clinical trials to proceed as planned. 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 manufacturer 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.
The third-party manufacturers of the active pharmaceutical ingredient (API) and drug product for our lead product candidates, VCN -01, SYN-004 (ribaxamase) and SYN-020, are established cGMP manufacturers. For all other therapeutic areas, we have not yet established cGMP manufacturers for our biologic and drug candidates. We have used only one API manufacturer for each of our product candidates (VCN-01, SYN-004 or SYN-020) used in clinical trials to date. Although we believe additional manufacturers are available, if any of our manufacturers were to limit or terminate production or otherwise fail to meet the quality or delivery requirements needed to satisfy the supply commitments, the process of locating and qualifying alternate sources could require up to several months, during which time our production could be delayed. Any curtailment in the availability of VCN-01, SYN-004 (ribaxamase) or SYN-020 could have a material adverse effect on our business, financial position and results of operations. In addition, because regulatory authorities must generally approve raw material sources for pharmaceutical products, changes in raw material suppliers may result in production delays or higher raw material costs.
The manufacture of our product candidates requires significant expertise and manufacturers may encounter difficulties in production, particularly in scaling up production. These problems include difficulties with production costs and yields, quality control, including stability of the product and quality assurance testing, shortages of qualified personnel, as well as compliance with federal, state and foreign regulations. We may experience longer than expected lead times with respect to the manufacture of clinical drug supply, which may result from the increase in manufacturing scale necessary to conduct our anticipated late-stage clinical trials and result in trial delays. Furthermore, during the COVID-19 pandemic, many manufacturers prioritized the manufacture of COVID-19 related products, increasing the manufacturing lead times for non-COVID-19 related products. In addition, any delay or interruption in the supply of clinical trial supplies could delay the completion of our clinical trials, increase the costs associated with conducting our clinical trials and, depending upon the period of delay, require us to commence new clinical trials at significant additional expense or to terminate a clinical trial.
We are responsible for ensuring that each of our contract manufacturers comply with the cGMP requirements of the FDA and other regulatory authorities from which we seek to obtain product approval. While we oversee compliance, we do not have control over our manufacturers and their compliance with regulatory requirements. These requirements include, among other things, quality control, quality assurance and the maintenance of records and documentation. The approval process for NDAs includes a review of the manufacturer’s compliance with cGMP requirements. We are responsible for regularly assessing a contract manufacturer’s compliance with cGMP requirements through record reviews and periodic audits and for ensuring that the contract manufacturer takes responsibility and corrective action for any identified deviations.
A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. Furthermore, if our manufacturers fail to deliver the required commercial quantities on a timely basis and at commercially reasonable prices, we may be unable to meet demand for any approved products and would lose potential revenues.
For our Phase 2 clinical trial of VCN-01 in patients with PDAC, we are administering our clinical product candidate, VCN-01, in combination with other approved standard of care drugs. Any problems obtaining the standard of care drugs could result in a delay or interruption in our clinical trials.
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For our planned Phase 2 clinical trial of VCN-01 in patients with PDAC, we are administering VCN-01 in combination with the already approved standard of care drugs, gemcitabine/nab-paclitaxel, for which there has recently been a supply shortage. Therefore, our success will be dependent upon the continued use of and ability to obtain the standard of care drugs. We expect that in any other clinical trials we conduct for additional indications, our clinical product candidate will also be administered in combination with drugs owned by third parties. If any of the standard of care or third-party drugs that are used in our clinical trials are unavailable while the trials are continuing, the timeliness and commercialization costs could be impacted. In addition, if any of these other drugs are determined to have safety or efficacy problems, our clinical trials and commercialization efforts would be adversely affected.
If third-party vendors, upon whom we rely to conduct our preclinical studies or clinical trials, do not perform or fail to comply with strict regulations, these studies or trials may be delayed, terminated, or fail, or we could incur significant additional expenses, which could materially harm our business.
We have limited resources dedicated to designing, conducting and managing our preclinical studies and clinical trials. We rely on, third parties, including CROs, consultants and principal investigators, to assist us in designing, managing, conducting, monitoring and analyzing the data from our preclinical studies and clinical trials. We rely on these vendors and individuals to perform many facets of the clinical development process on our behalf, including conducting preclinical studies, the recruitment of sites and subjects for participation in our clinical trials, maintenance of good relations with the clinical sites, and ensuring that these sites are conducting our trials in compliance with the trial protocol and applicable regulations. If these third parties fail to perform satisfactorily, or do not adequately fulfill their obligations under the terms of our agreements with them, we may not be able to enter into alternative arrangements without undue delay or additional expenditures, and therefore the preclinical studies and clinical trials of our clinical product candidates may be delayed or prove unsuccessful.
Further, the FDA, the EMA, or similar regulatory authorities in other countries, may inspect some of the clinical sites participating in our clinical trials or our third-party vendors’ sites to determine if our clinical trials are being conducted according to good clinical practices, or GCPs, or similar regulations. If we or a regulatory authority determine that our third-party vendors are not in compliance with, or have not conducted our clinical trials according to applicable regulations, we may be forced to exclude certain data from the results of the trial, or delay, repeat or terminate such clinical trials.
We may fail to retain or recruit necessary personnel, and we may be unable to secure the services of consultants.
As of March 30, 2023, we employed 21 full-time employees, including employees located at Theriva Biologics’ offices in Barcelona, Spain. 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. Due to our small work force, we expect in future years to require additional personnel to support our later stage research and development efforts. We have been and may be required to retain additional consultants and employees in order to fulfill our obligations under our licenses and collaborations for our development of VCN-01, SYN-004 (ribaxamase), SYN-020, and our agreements with Washington University and other collaborators. 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.
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.
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Global health crises may adversely affect our planned operations.
Our business and the business of the supplier of our clinical product candidates and the suppliers of the standard of care drugs that are administered in combination with our product candidates could be materially and adversely affected by the risks, or the public perception of the risks, related to a pandemic or other health crisis, such as the recent outbreak of COVID-19. We have experienced delays in patient enrollment due to the COVID-19 pandemic. To date, we are on track to meet all of our previously announced future clinical milestones; however, if the COVID-19 pandemic increases in severity or we should experience another pandemic, we could once again experience delays in patient enrollment and experience significant disruptions to our clinical development timelines. If we experience delays in patient enrollment or patients drop outs and we deem it necessary or advisable to improve patient recruitment by, among other things, opening additional clinical sites, we could incur increased clinical program expenses. Any such disruptions or delays would, and any such increased clinical program expenses could, adversely affect our business, financial condition, results of operations and growth prospects. In addition to delays or difficulties in enrolling patients in our clinical trials, we could experience the following disruptions that could severely impact our business and clinical trials, including:
| ● | unwillingness of potential study participants to enroll in new clinical trials and/or visit healthcare facilities; |
| ● | postponement of enrollment in our clinical studies; |
| ● | diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials; |
| ● | interruption of key clinical trial activities, such as clinical site visits by study participants and clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others; |
| ● | limitations in employee resources that would otherwise be focused on the conduct of our clinical trials, including because of sickness of employees or their families, the desire of employees to avoid contact with large groups of people, or substantial numbers of resignations; |
| ● | delays in receiving approval from local regulatory authorities to initiate our planned clinical trials; |
| ● | delays in clinical site initiation due to understaffing in departments required for contracting and study start-up; |
| ● | delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials; |
| ● | interruption in global shipping that may affect the manufacture and transport of clinical trial materials, such as investigational drug product used in our clinical trials; |
| ● | changes in local regulations as part of a response to the COVID-19 coronavirus outbreak which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether; |
| ● | delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees; and |
| ● | delay in the timing of interactions with the FDA and other regulatory agencies due to absenteeism by employees or by the diversion of their efforts and attention to approval of other therapeutics or other activities related to COVID-19. |
In addition, a significant outbreak of contagious diseases in the human population could result in the complete or partial closure of one or more manufacturing facilities which could impact our supply of our product candidates or the standard of care drugs that are administered in combination with our product candidates. In addition, an outbreak near where our clinical trial sites are located, has in the past, and may in the future impact our ability to recruit patients, and would likely delay our clinical trials, and could affect our ability to complete our clinical trials within the planned time periods. In addition, it could impact economies and financial markets, resulting in an economic downturn that could impact our ability to raise capital or slow down potential partnering relationships.
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Our business and the business of the suppliers of our clinical product candidates has been and is expected to continue to be materially and adversely affected by the pandemic and post-pandemic workforce and supply-chain issues. While we are currently not experiencing material delays, such events could result in the delay or complete or partial closure of clinical trial sites or one or more manufacturing facilities which could impact our supply of our clinical product candidates. In addition, it could impact economies and financial markets, resulting in an economic downturn that could impact our ability to raise capital or slow down potential partnering relationships.
In addition, the outbreak of a pandemic could disrupt our operations due to absenteeism by infected or ill members of management or other employees, or absenteeism by members of management and other employees who elect not to come to work due to the illness affecting others in our office, or due to quarantines. Pandemics could also impact members of our Board of Directors resulting in absenteeism from meetings of the directors or committees of directors, and making it more difficult to convene the quorums of the full Board of Directors or its committees needed to conduct meetings for the management of our affairs.
The extent to which the virus may continue to impact our business and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and Spain, business closures or business disruptions and the effectiveness of actions taken in the United States, Spain, and other countries to contain and treat the disease. We do not yet know the full extent of potential delays or impacts on our business, operations, or the global economy as a whole. While the original spread of COVID-19 has been mitigated, the continued emergence of novel virus strains mean there is no guarantee that a future outbreak of this or any other widespread epidemics will not occur, or that the global economy will recover, either of which could seriously harm our business.
Business disruptions could seriously harm our future revenue and financial condition and increase costs and expenses.
Our operations and those of our third-party suppliers and collaborators could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes or other extreme weather conditions, medical epidemics, labor disputes, war or other business interruptions. Any interruption could seriously harm our ability to timely proceed with any clinical programs or to supply product candidates for use in our clinical programs or during commercialization. For example, the COVID-19 pandemic did, at points, cause an interruption in our clinical trial activities. Additionally, supply chain disruptions impacted and may continue to impact our research activities. Moreover, at the end of 2021 and into 2022, tensions between the United States and Russia escalated when Russia amassed large numbers of military ground forces and support personnel on the Ukraine-Russia border and, in February 2022, Russia invaded Ukraine. In response, North Atlantic Treaty Organization, or NATO has deployed additional military forces to Eastern Europe and the Biden administration announced certain sanctions against Russia. The invasion of Ukraine and the retaliatory measures that have been taken, or could be taken in the future, by the United States, NATO, and other countries have created global security concerns that could result in a regional conflict and otherwise have a lasting impact on regional and global economies, any or all of which could disrupt our supply chain, and despite the fact that we currently do not plan any clinical trials in Eastern Europe, may adversely impact the cost and conduct of our international clinical trials of our product candidates.
Unfavorable U.S. or global economic conditions could adversely affect our business, financial condition or results of operations.
Our results of operations could be adversely affected by general conditions in the global economy and financial markets. A severe or prolonged economic downturn could result in a variety of risks to our business, including weakened demand for our technologies and our ability to raise additional capital when needed on favorable terms, if at all. Recently, the rate of inflation has increased throughout the U.S. economy. Inflation may adversely affect us by increasing the costs associated with performing research and development on internal research initiatives and partnered programs. We may experience significant increases in the prices of labor, consumables, and other costs of doing business. In an inflationary environment, such cost increases may outpace our expectations, causing us to use cash faster than forecasted. A weak or declining economy may also strain our partners, possibly resulting in supply disruption, or cause delays in their payments to us. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.
We rely extensively on our information technology systems and are vulnerable to damage and interruption.
We rely on our information technology systems and infrastructure to process transactions, summarize results and manage our business, including maintaining client and supplier information. Additionally, we utilize third parties, including cloud providers, to store, transfer and process data. Our information technology systems, as well as the systems of our suppliers and other partners, whose systems we do not control, are vulnerable to outages and an increasing risk of continually evolving deliberate intrusions to gain access to company sensitive information. Likewise, data security incidents and breaches by employees and others with or without permitted access to our
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systems pose a risk that sensitive data may be exposed to unauthorized persons or to the public. A cyber-attack or other significant disruption involving our information technology systems, or those of our vendors, suppliers and other partners, could also result in disruptions in critical systems, corruption or loss of data and theft of data, funds or intellectual property. We may be unable to prevent outages or security breaches in our systems. We remain potentially vulnerable to additional known or yet unknown threats as, in some instances, we, our suppliers and our other partners may be unaware of an incident or its magnitude and effects. We also face the risk that we expose our vendors or partners to cybersecurity attacks. Any or all of the foregoing could adversely affect our results of operations and our business reputation.
Any failure to maintain the security of information relating to our patients, customers, employees and suppliers, whether as a result of cybersecurity attacks or otherwise, could expose us to litigation, government enforcement actions and costly response measures, and could disrupt our operations and harm our reputation.
In connection with the pre-clinical and clinical development, sales and marketing of our products and services, we may from time to time transmit confidential information. We also have access to, collect or maintain private or confidential information regarding our clinical trials and the patients enrolled therein, employees, and suppliers, as well as our business. Cyberattacks are rapidly evolving and becoming increasingly sophisticated. It is possible that computer hackers and others might compromise our security measures, or security measures of those parties that we do business with now or in the future, and obtain the personal information of patients in our clinical trials, vendors, employees and suppliers or our business information. A security breach of any kind, including physical or electronic break-ins, computer viruses and attacks by hackers, employees or others, could expose us to risks of data loss, litigation, government enforcement actions, regulatory penalties and costly response measures, and could seriously disrupt our operations. Any resulting negative publicity could significantly harm our reputation, which could cause us to lose market share and have an adverse effect on our results of operations.
We may face particular data protection, data security and privacy risks in connection with the European Union’s Global Data Protection Regulation and other privacy regulations.
Outside of the United States, the laws, regulations and standards in many jurisdictions apply broadly to the collection, use, and other processing of personal information. For example, in the European Union, the collection and use of personal data are governed by the provisions of the General Data Protection Regulation (the “GDPR”). The GDPR, together with national legislation, regulations and guidelines of the European Union. member states governing the processing of personal data, impose strict obligations on entities subject to the GDPR, including but not limited to: (i) accountability and transparency requirements, and enhanced requirements for obtaining valid consent from data subjects; (ii) obligations to consider data protection as any new products or services are developed and to limit the amount of personal data processed; (iii) obligations to comply with the data protection rights of data subjects; and (iv) obligations to report certain personal data breaches to governmental authorities and individuals. Data protection authorities from the different E.U. member states and other European countries may enforce the GDPR and national data protection laws differently, and introduce additional national regulations and guidelines, which adds to the complexity of processing European personal data. Failure to comply with the requirements of the GDPR and the related national data protection laws may result in significant monetary fines and other administrative penalties (the GDPR authorizes fines for certain violations of up to 4% of global annual revenue or €20 million, whichever is greater) as well as civil liability claims from individuals whose personal data was processed. Additionally, expenses associated with compliance could reduce our operating margins.
The GDPR also prohibits the transfer of personal data from the E.U. to countries outside of the E.U. unless made to a country deemed by the European Commission to provide adequate protection for personal data or accomplished by means of an approved data transfer mechanism (e.g., standard contractual clauses). Data protection authority guidance and enforcement actions that restrict companies’ ability to transfer data may increase risk relating to data transfers or make it more difficult or impossible to transfer E.U. personal data to the U.S.
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REGULATORY RISKS
If we do not obtain the necessary regulatory approvals in the U.S. and/or other countries we will not be able to develop or sell our product candidates.
We cannot assure you that we will receive the approvals necessary to commercialize any of our product candidates or any product candidates we acquire or develop in the future. We will need FDA approval to commercialize our product candidates in the U.S. and approvals from the FDA-equivalent regulatory authorities in foreign jurisdictions to commercialize our product candidates in those jurisdictions. We will be required to conduct clinical trials that will be costly and we currently do not have the funding to complete any registrational clinical trials. We cannot predict whether our clinical trials will demonstrate the safety and efficacy of our product candidates or if the results of any clinical trials will be sufficient to advance to the next phase of development or for approval from the FDA (or equivalent foreign regulatory authorities). We also cannot predict whether our research and clinical approaches will result in drugs or therapeutics that the FDA considers safe and effective for the proposed indications. The FDA has substantial discretion in the drug approval process. The approval process may be delayed by changes in government regulation, future legislation or administrative action or changes in FDA policy that occur prior to or during our regulatory review. Delays in obtaining regulatory approvals may prevent or delay commercialization of, and our ability to derive product revenues from our product candidates; and diminish any competitive advantages that we may otherwise believe that we hold.
Even if we comply with all FDA (or equivalent foreign regulatory authorities) requests, the FDA may ultimately reject one or more of our NDAs or BLAs. We may never obtain regulatory clearance for any of our product candidates. Failure to obtain FDA approval of any of our product candidates will severely undermine our business by leaving us without a saleable product, and therefore without any source of revenues, until another product candidate can be developed. There is no guarantee that we will ever be able to develop or acquire another product candidate.
In addition, the FDA (or equivalent foreign regulatory authorities) may require us to conduct additional pre-clinical and clinical testing or to perform post-marketing studies, as a condition to granting marketing approval of a product. The results generated after approval could result in loss of marketing approval, changes in product labeling, and/or new or increased concerns about the side effects or efficacy of a product. The FDA has significant post-market authority, including the explicit authority to require post-market studies and clinical trials, labeling changes based on new safety information, and compliance with FDA-approved risk evaluation and mitigation strategies. The FDA’s exercise of its authority has in some cases resulted, and in the future could result, in delays or increased costs during product development, clinical trials and regulatory review, increased costs to comply with additional post-approval regulatory requirements and potential restrictions on sales of approved products.
In foreign jurisdictions, we must also receive approval from the appropriate regulatory authorities before we can commercialize any products, which can be time consuming and costly. Foreign regulatory approval processes generally include all of the risks associated with the FDA approval procedures described above but processes, requirements and timelines for approval by these agencies may differ significantly from the FDA. There can be no assurance that we will receive the approvals necessary to commercialize our product candidate for sale outside the United States.
If the FDA approves any of our product candidates, the labeling, manufacturing, packaging, adverse event reporting, storage, advertising, promotion and record-keeping for our products will be subject to ongoing FDA requirements and continued regulatory oversight and review. Our drug manufacturers and subcontractors that we retain will be required to comply with FDA and other regulations. We may also be subject to additional FDA post-marketing obligations. If we are not able to maintain regulatory compliance, we may not be permitted to market our product candidates and/or may be subject to product recalls, seizures, suspension of regulatory approval, suspension of production, injunctions or civil or criminal sanctions. The subsequent discovery of previously unknown problems with any marketed product, including adverse events of unanticipated severity or frequency, may result in restrictions on the marketing of the product, and could include withdrawal of the product from the market.
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 for 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:
| ● | obtaining an IND application with the FDA or foreign equivalent to commence clinical trials; |
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| ● | identification of, and acceptable arrangements with, one or more clinical sites; |
| ● | obtaining IRB or EC approval to commence clinical trials; |
| ● | obtaining IBC approval for use of a genetically modified organism; |
| ● | unforeseen safety issues; |
| ● | determination of dosing; |
| ● | lack of effectiveness during clinical trials; |
| ● | slower than expected rates of patient recruitment; |
| ● | inability to monitor patients adequately during or after treatment; |
| ● | lower than expected rates of patient completion of clinical trials; |
| ● | inability to obtain supply of our drug candidate in a timely manner; |
| ● | inability or unwillingness of medical investigators to follow our clinical protocols; and |
| ● | unwillingness of the FDA or foreign equivalent, IRBs/ECs, or IBCs to permit the clinical trials to be initiated. |
In addition, we, IRBs/ECs or the FDA or foreign equivalent may suspend our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or if IRBs/ECs or the FDA or foreign equivalent 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 as was the case with SYN-010. 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. Success in Phase 1 studies of VCN-01 in PDAC or retinoblastoma does not ensure success of VCN-01, especially in light of the small number of patients treated in those trials. Success of our predecessor P1A clinical product or positive topline data from our previous SYN-004 (ribaxamase) Phase 1 and Phase 2 clinical trials, does not ensure success of SYN-004 (ribaxamase). Furthermore, the FDA could determine that VCN-01 or SYN-004 (ribaxamase) have not demonstrated appropriate safety and thus require additional clinical trials and safety data, despite prior positive clinical trial results. 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. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety issues, notwithstanding promising results in earlier trials. Most product candidates that commence clinical trials are never approved as products. 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.
Difficulties enrolling patients in our clinical trials or delays in enrollment are expected to result in our clinical development activities being delayed or otherwise adversely affected.
Delays in patient enrollment may result in increased costs or may adversely affect timing or outcome of planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of our product candidates. This can
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lead to delays in completion of clinical trials as well as additional expense for recruitment of patients. In addition, any pandemic may result in fewer clinical study personnel being available to conduct clinical testing for patients currently enrolled in our clinical trials.
Patients who are administered our product candidates may experience unexpected side effects or other safety risks that could cause a halt in their clinical development, preclude approval of our product candidates or limit their commercial potential.
Our clinical trials may be suspended at any time for a number of reasons. We may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to the clinical trial subjects. In addition, the FDA or other regulatory agencies may order the temporary or permanent discontinuation of our clinical trials at any time if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements or that they present an unacceptable safety risk to the clinical trial subjects. For example, the FDA or foreign equivalents could determine that VCN-01 or SYN-004 has not demonstrated appropriate safety, that adverse events are drug related and require additional clinical trials and safety data, despite positive results from Phase 1 clinical trials of VCN-01 or our SYN-004 Phase 2b clinical trial.
Administering any product candidate to humans may produce undesirable side effects. These side effects could interrupt, delay or halt clinical trials of our product candidates and could result in the FDA or other regulatory authorities denying further development or approval of our product candidates for any or all targeted indications. Ultimately, some or all of our product candidates may prove to be unsafe for human use. Moreover, we could be subject to significant liability if any volunteer or patient suffers, or appears to suffer, adverse health effects as a result of participating in our clinical trials. Any of these events could prevent us from achieving or maintaining market acceptance of our product candidates and could substantially increase commercialization costs.
It is possible that we may not be able to obtain or maintain orphan drug designation or exclusivity for our drug candidates, which could limit the potential profitability of our product candidates.
Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for the treatment or prevention of rare diseases or conditions with relatively small patient populations as orphan drugs. Under the Orphan Drug Act of 1983, the (“Orphan Drug Act”), the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is defined as a patient population of fewer than 200,000 individuals in the United States. We received orphan drug designation from the FDA for VCN-01 for the treatment of retinoblastoma and from the EMA for the treatment of pancreatic cancer. If a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a seven-year period of marketing exclusivity, which precludes the FDA from approving another marketing application for the same drug for the same indication during that time period with some exceptions. A similar provision in the European Union allows 10 years of exclusivity in Europe. The European exclusivity period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so that marketing exclusivity is no longer justified. Orphan drug exclusivity may be lost in Europe under certain situations, such as the inability of the holder of the orphan drug designation to produce sufficient quantities of the drug to meet the needs of patients with the rare disease or condition or for certain other reasons.
Our product candidates, if approved for sale, may not gain acceptance among physicians, patients and the medical community, thereby limiting our potential to generate revenues.
If one of our product candidates is approved for commercial sale by the FDA or other regulatory authorities, the degree of market acceptance of any approved product by physicians, healthcare professionals and third-party payors and our profitability and growth will depend on a number of factors, including:
| ● | demonstration of safety and efficacy; |
| ● | changes in the practice guidelines and the standard of care for the targeted indication; |
| ● | relative convenience and ease of administration; |
| ● | the prevalence and severity of any adverse side effects; |
| ● | budget impact of adoption of our product on relevant drug formularies; |
| ● | the availability, cost and potential advantages of alternative treatments, including less expensive generic drugs; |
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| ● | pricing, reimbursement and cost effectiveness, which may be subject to regulatory control; |
| ● | effectiveness of our or any of our partners’ sales and marketing strategies; |
| ● | the product labeling or product insert required by the FDA or regulatory authority in other countries; and |
| ● | the availability of adequate third-party insurance coverage or reimbursement. |
If any product candidate that we develop does not provide a treatment regimen that is as beneficial as, or is perceived as being as beneficial as, the current standard of care or otherwise does not provide patient benefit, that product candidate, if approved for commercial sale by the FDA or other regulatory authorities, likely will not achieve market acceptance. Our ability to effectively promote and sell any approved products will also depend on pricing and cost-effectiveness, including our ability to produce a product at a competitive price and our ability to obtain sufficient third-party coverage or reimbursement. If any product candidate is approved but does not achieve an adequate level of acceptance by physicians, patients and third-party payors, our ability to generate revenues from that product would be substantially reduced. In addition, our efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources, may be constrained by FDA rules and policies on product promotion, and may never be successful.
We depend on third parties, including researchers and sublicensees, who are not under our control. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to seek or obtain regulatory approval for or commercialize our product candidates.
We depend on 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.
We have in the past, and expect to have in the future, agreements with third-party contract research organizations (CROs) under which we have delegated to the CROs the responsibility to coordinate and monitor the conduct of our VCN-01, SYN-004 and SYN-020 clinical trials and to manage data for our clinical programs. We also rely upon CROs to monitor and manage data for our clinical programs, as well as the execution of future nonclinical studies. We expect to control only certain aspects of our CROs’ activities. Nevertheless, we will be responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities.
Our Phase 1b/2a clinical trial of SYN-004, and Phase 1 and Phase 2 clinical trials for VCN-01 are being conducted by clinical sites over which we have little direct control. We, our CROs and our clinical sites are required to comply with current Good Clinical Practices, or cGCPs, regulations and guidelines issued by the FDA and by similar governmental authorities in other countries where we are conducting clinical trials. We have an ongoing obligation to monitor the activities conducted by our CROs and at our clinical sites to confirm compliance with these requirements. In the future, if we, our CROs or our clinical sites fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our marketing applications. In addition, our clinical trials must be conducted with product produced under cGMP regulations and will require a large number of test subjects. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. Our CROs are not our employees, and we do not control whether or not they devote sufficient time and resources to our future clinical and nonclinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials, or other drug development activities which could harm our competitive position. We face the risk of potential unauthorized disclosure or misappropriation of our intellectual property by CROs, which may reduce our trade secret protection and allow our potential competitors to access and exploit our proprietary technology. If our CROs or investigator-sponsored clinical sites do not successfully carry out their contractual duties or
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obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase, and our ability to generate revenue could be delayed.
If our relationship with these CROs terminate, we may not be able to enter into arrangements with alternative CROs or do so on commercially reasonable terms. Switching or adding additional CROs involves substantial cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though we intend to carefully manage our relationships with our CROs, there can be no assurance that it will not encounter challenges or delays in the future or that these delays or challenges will not have an adverse impact on our business, financial condition and prospects.
We currently have no marketing, sales or distribution organization and have no experience in marketing products as a company. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to generate product revenue.
We currently have no marketing, sales or distribution capabilities and have no experience in marketing products. We may develop an in-house marketing organization and sales force, which will require significant capital expenditures, management resources and time. We will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel.
If we are unable or decide not to establish internal sales, marketing and distribution capabilities, we will pursue collaborative arrangements regarding the sales and marketing of our products; however, there can be no assurance that we will be able to establish or maintain such collaborative arrangements. Any revenue we receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates.
There can be no assurance that we will be able to develop in-house sales and distribution capabilities or establish or maintain relationships with third-party collaborators to commercialize any product in the United States or overseas.
Reimbursement may not be available for our product candidates, which would impede sales.
Market acceptance and sales of our product candidates may depend on coverage and reimbursement policies and health care reform measures. Decisions about formulary coverage as well as levels at which government authorities and third-party payers, such as private health insurers and health maintenance organizations, reimburse patients for the price they pay for our products as well as levels at which these payors pay directly for our products, where applicable, could affect whether we are able to commercialize these products. We cannot be sure that reimbursement will be available for any of our products. Also, we cannot be sure that coverage or reimbursement amounts will not reduce the demand for, or the price of, our products. If coverage and reimbursement are not available or are available only at limited levels, we may not be able to commercialize our products.
In recent years, officials have made numerous proposals to change the health care system in the United States. These proposals include measures that would limit or prohibit payments for certain medical treatments or subject the pricing of drugs to government control. In addition, in many foreign countries, particularly the countries of the European Union, the pricing of prescription drugs is subject to government control. If our products are or become subject to government regulation that limits or prohibits payment for our products, or that subjects the price of our products to governmental control, we may not be able to generate revenue, attain profitability or commercialize our products.
As a result of legislative proposals and the trend towards managed health care in the United States, third-party payors are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement of new drugs. They may also impose strict prior authorization requirements and/or refuse to provide any coverage of uses of approved products for medical indications other than those for which the FDA or foreign equivalent has granted market approvals. As a result, significant uncertainty exists as to whether and how much third-party payors will reimburse patients for their use of newly-approved drugs, which in turn will put pressure on the pricing of drugs.
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Healthcare reform measures could hinder or prevent our product candidates’ commercial success.
The U.S. government and other governments have shown significant interest in pursuing continued healthcare reform. Any government-adopted reform measures could adversely impact the pricing of healthcare products and services in the United States or internationally and the amount of reimbursement available from governmental agencies or other third-party payors. The continuing efforts of the U.S. and foreign governments, insurance companies, managed care organizations and other payors of health care services to contain or reduce health care costs may adversely affect our ability to set prices for our products which we believe are fair, and our ability to generate revenues and achieve and maintain profitability.
New laws, regulations and judicial decisions, or new interpretations of existing laws, regulations and decisions, that relate to healthcare availability, methods of delivery or payment for products and services, or sales, marketing or pricing, may limit our potential revenue, and we may need to revise our research and development programs. The pricing and reimbursement environment may change in the future and become more challenging due to several reasons, including policies advanced by the current executive administration in the United States, new healthcare legislation or fiscal challenges faced by government health administration authorities. Specifically, in both the United States and some foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the health care system in ways that could affect our ability to sell our products profitably.
If we fail to comply with state and federal healthcare regulatory laws, we could face substantial penalties, damages, fines, disgorgement, exclusion from participation in governmental healthcare programs, and the curtailment of operations, any of which could harm our business.
Although we do not provide healthcare services or submit claims for third party reimbursement, we are subject to healthcare fraud and abuse regulation and enforcement by federal and state governments which could significantly impact our business. The laws that may affect our ability to operate include, but are not limited to:
| ● | the federal anti-kickback statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering, or paying remuneration, directly or indirectly, in cash or in kind, in exchange for or to induce either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service for which payment may be made, in whole or in part, under federal healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of this statute or specific intent to violate it; |
| ● | the civil FCA, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent; knowingly making using, or causing to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the government; or knowingly making, using, or causing to be made or used, a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government; |
| ● | the criminal FCA, which imposes criminal fines or imprisonment against individuals or entities who make or present a claim to the government knowing such claim to be false, fictitious or fraudulent; |
| ● | HIPAA, which created federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; |
| ● | the federal civil monetary penalties statute, which prohibits, among other things, the offering or giving of remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular supplier of items or services reimbursable by a Federal or state governmental program; |
| ● | the federal physician sunshine requirements under the ACA, which require certain manufacturers of drugs, devices, biologics, and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members; and |
| ● | state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the device industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other |
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| potential referral sources; and state laws that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. |
Further, the ACA, among other things, amended the intent requirements of the federal anti-kickback statute and certain criminal statutes governing healthcare fraud. A person or entity can now be found guilty of violating the statute without actual knowledge of the statute or specific intent to violate it. In addition, the ACA provided that the government may assert that a claim including items or services resulting from a violation of the federal Anti- Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. If a government authority were to conclude that we provide improper advice to our customers or encouraged the submission of false claims for reimbursement, we could face action against us by government authorities. Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could result in a material adverse effect on our reputation, business, results of operations and financial condition.
We have entered into consulting and scientific advisory board arrangements with physicians and other healthcare providers. Compensation for some of these arrangements includes the provision of stock options. While we have worked to structure our arrangements to comply with applicable laws, because of the complex and far-reaching nature of these laws, regulatory agencies may view these transactions as prohibited arrangements that must be restructured, or discontinued, or for which we could be subject to other significant penalties. We could be adversely affected if regulatory agencies interpret our financial relationships with providers who influence the ordering of and use our products to be in violation of applicable laws.
The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry.
Responding to investigations can be time- and resource-consuming and can divert management’s attention from the business. Additionally, as a result of these investigations, healthcare providers and entities may have to agree to additional onerous compliance and reporting requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business.
If we obtain approval to commercialize our clinical product candidates outside of the United States, a variety of risks associated with international operations could harm our business.
If our clinical product candidate is approved for commercialization, we intend to enter into agreements with third parties to market them in certain jurisdictions outside the United States. We expect that we will be subject to additional risks related to international operations or entering into international business relationships, including:
| ● | different regulatory requirements for drug approvals and rules governing drug commercialization in foreign countries; |
| ● | reduced protection for intellectual property rights; |
| ● | unexpected changes in tariffs, trade barriers and regulatory requirements; |
| ● | economic weakness, including inflation, or political instability in particular foreign economies and markets; |
| ● | compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; |
| ● | foreign reimbursement, pricing and insurance regimes; |
| ● | foreign taxes; |
| ● | foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country; |
| ● | workforce uncertainty in countries where labor unrest is more common than in the United States; |
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| ● | potential noncompliance with the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.K. Bribery Act 2010 and similar anti-bribery and anticorruption laws in other jurisdictions; |
| ● | product shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and |
| ● | business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires. |
We have no prior experience in these areas. In addition, there are complex regulatory, tax, labor and other legal requirements imposed by both the European Union and many of the individual countries in Europe with which we will need to comply.
If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.
We face an inherent risk of product liability lawsuits related to the testing of our product candidates and will face an even greater risk if we sell our product candidates commercially. Currently, we are not aware of any anticipated product liability claims with respect to our product candidates. In the future, an individual may bring a liability claim against us if one of our product candidates causes, or merely appears to have caused, an injury. If we cannot successfully defend ourselves against the product liability claim, we may incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
| ● | decreased demand for our product candidates; |
| ● | injury to our reputation; |
| ● | withdrawal of clinical trial participants; |
| ● | costs of related litigation; |
| ● | initiation of investigations by regulators; |
| ● | substantial monetary awards to patients or other claimants; |
| ● | distraction of management’s attention from our primary business; |
| ● | product recalls; |
| ● | loss of revenue; and |
| ● | the inability to commercialize our product candidates. |
We have clinical trial liability insurance. We intend to expand our insurance coverage to include the sale of commercial products if marketing approval is obtained for our product candidates. Our current insurance coverage may prove insufficient to cover any liability claims brought against us. In addition, because of the increasing costs of insurance coverage, we may not be able to maintain insurance coverage at a reasonable cost or obtain insurance coverage that will be adequate to satisfy liabilities that may arise.
INTELLECTUAL PROPERTY RISKS
We rely on patents, patent applications, trade secrets 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.
The patent positions of pharmaceutical companies are uncertain and may involve complex legal and factual questions. The issuance, scope, validity, enforceability, and commercial value of our current or future patent rights are highly uncertain. We cannot be sure that patent coverage will issue, or will be maintained, to protect our products, in some or all relevant jurisdictions. Our patents may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. Even if patents do successfully issue and even if such patents cover our product candidates and extend for a commercially relevant time, third parties may
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initiate invalidity, non-infringement, opposition, interference, re-examination, post-grant review, inter partes review, nullification, or derivation actions in court or before patent offices, or similar proceedings challenging the validity, inventorship, ownership, enforceability, or scope of such patents, which may result in the patent claims being narrowed, invalidated, or held unenforceable or circumvented. Additionally, some countries, including China and India, have compulsory licensing laws under which we may be compelled to grant licenses to others.
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. Even for our issued patents, we do not have a guarantee of patent term restoration and marketing exclusivity of the ingredients for our drugs under the Hatch-Waxman Amendments, even if we are granted FDA approval of our products.
Furthermore, 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. We cannot be sure our measures to protect our trade secrets will be sufficient. 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 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 European Patent Office and some national patent authorities have formal patent opposition processes where the validity of issued patents may be challenged. If a patent opposition is filed, we, or our licensors, may also need to participate in opposition proceedings involving our issued patents
The intellectual property environment in the oncolytic viruses 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.
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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.
We enjoy restricted geographical protection with respect to certain patents.
Patents are of national or regional effect. While we will try to protect our technologies, products and product candidates with intellectual property rights such as patents throughout the world in major markets, the process of obtaining patents is time-consuming, expensive, and sometimes unpredictable in other countries. We may not pursue or obtain patent protection in all markets. Filing, prosecuting, and defending patents on all of our research programs and product candidates in all countries throughout the world would be prohibitively expensive, and, therefore, the scope and strength of our intellectual property rights will vary from jurisdiction to jurisdiction.
We may become subject to claims challenging inventorship or ownership of our patents and other intellectual property.
We generally enter into confidentiality and intellectual property assignment agreements with our employees, consultants, and contractors. These agreements generally provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, those agreements may not be honored and may not effectively assign intellectual property rights to us. Moreover, there may be some circumstances where we are unable to negotiate for such ownership rights. Disputes regarding ownership or inventorship of intellectual property can also arise in other contexts, such as collaborations and sponsored research. If we are subject to a dispute challenging our rights in or to patents or other intellectual property, such a dispute could be expensive and time consuming. If we were unsuccessful, we could lose valuable rights in intellectual property that we regard as our own.
RISKS RELATING TO OUR SECURITIES
We cannot assure you that our common stock will be liquid or that it will remain listed on the NYSE American.
Our common stock is listed on the NYSE American. The NYSE American’s listing standards generally mandate that we meet certain requirements relating to stockholders’ equity, stock price, market capitalization, aggregate market value of publicly held shares and distribution requirements. We cannot assure you that we will be able to maintain the continued listing standards of the NYSE American. The NYSE American requires companies to meet certain continued listing criteria including a minimum stockholders’ equity of $6.0 million if an issuer has sustained losses from continuing operations and/or net losses in its five most recent years, as outlined in the NYSE American Company Guide. The NYSE American Company Guide also states that the NYSE normally will not consider removing from listing securities of an issuer if it is in compliance with all of the following:a total value of market capitalization of at least $50.0 million; 1,100,000 publicly-held shares; a market value of publicly held shares of at least $15.0 million; and 400 round lot shareholders.
If our common stock falls below $0.20 per share on a 30-trading-day average it will become subject to the continued listing evaluation and follow-up procedures set forth in Section 1009 of the NYSE American Company Guide which could, among other things, result in initiation of immediate delisting procedures. In the event that we were to fail to meet the requirements of NYSE American per share price requirement or stockholders’ equity requirement and we could not timely cure such deficiency, our listing could become subject to NYSE American continued listing evaluation and follow-up procedures, which could result in delisting procedures.
We previously received notification from the NYSE American citing failure to comply with the minimum stockholders’ equity continued listing standard as set forth in Part 10, Section 1003 of the Company Guide. Although in the past we have been able to cure previously cited deficiencies, there can be no assurance that we will continue to meet the NYSE American continued listing requirements.
In addition, in the future we may not be able to maintain minimum stockholders’ equity 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 American. If we are delisted from the NYSE American 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 American 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. We cannot assure you that our common stock will be liquid or that it
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will remain listed on the NYSE American. A failure to regain compliance with the NYSE American stockholders’ equity requirements or failure to continue to meet the other listing requirements could result in a de-listing of our common stock.
Holders of our warrants issued in our October 2018 offering have no rights as common stockholders until they exercise their warrants and acquire our common stock.
Until the holders of the warrants we issued in our October 2018 offering acquire shares of our common stock by exercising their warrants, the holders of the warrants have no rights as a stockholder with respect to the shares of common stock underlying their securities. Upon exercise of the warrants they will be entitled to the rights of a common stockholder only as to matters for which the record date occurs after the exercise date.
Whether the outstanding warrants will have any value will depend on the market conditions for, and the price of, our common stock, which conditions will depend on factors related and unrelated to the success of our clinical development program, and cannot be predicted at this time. If our common stock price does not increase to an amount sufficiently above the exercise price of the warrants during the periods the warrants are exercisable, holders of warrants will be unable to recover any of their investment in the warrants.
Because there is no established public trading market for the October 2018 warrants we issued, the liquidity of each such security is limited. We do not expect a market to develop, nor do we intend to apply to list the warrants on any securities exchange. Upon exercise of the warrants, our stockholders will experience dilution.
The market price of our common stock has been and may continue to be volatile and adversely affected by various factors.
Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future. By way of example, on March 21, 2022, the price of our common stock closed at $3.80 per share while on December 27, 2022, our stock price closed at $0.40 per share with no discernable announcements or developments by the company or third parties. We may incur rapid and substantial decreases in our stock price in the foreseeable future that are unrelated to our operating performance or prospects. In addition, the recent outbreak of the novel strain of coronavirus (COVID-19) has caused broad stock market and industry fluctuations. The stock market in general and the market for biotechnology and pharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may experience losses on their investment in our common stock. The market price of our common stock could fluctuate significantly in response to various factors and events, including:
| ● | investor reaction to our business strategy; |
| ● | the success of competitive products or technologies; |
| ● | our continued compliance with the listing standards of the NYSE American; |
| ● | regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to our products; |
| ● | results of our clinical trials; |
| ● | actions taken by regulatory agencies with respect to our products, clinical studies, manufacturing process or sales and marketing terms; |
| ● | variations in our financial results or those of companies that are perceived to be similar to us; |
| ● | the success of our efforts to acquire or in-license additional products or product candidates; |
| ● | developments concerning our collaborations or partners; |
| ● | developments or disputes concerning patents or other proprietary rights, litigation matters and our ability to obtain patent protection for our products; |
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| ● | our ability or inability to raise additional capital and the terms on which we raise it; |
| ● | declines in the market prices of stocks generally; |
| ● | trading volume of our common stock; |
| ● | sales of our common stock by us or our stockholders; |
| ● | general economic, industry and market conditions; and |
| ● | other events or factors, including those resulting from such events, or the prospect of such events, including war, terrorism and other international conflicts, such as the recent Russian invasion of Ukraine as well as continued and new sanctions against Russia, which restrict a wide range of trade and financial dealings with Russia and Russian persons, public health issues including health epidemics or pandemics, such as the recent outbreak of the novel coronavirus (COVID-19), and natural disasters such as fire, hurricanes, earthquakes, tornados or other adverse weather and climate conditions, whether occurring in the United States or elsewhere, could disrupt our operations, disrupt the operations of our suppliers or result in political or economic instability. |
These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. Further, recent increases are significantly inconsistent with any improvements in actual or expected operating performance, financial condition or other indicators of value. Since the stock price of our common stock has fluctuated in the past, has been recently volatile and may be volatile in the future, investors in our common stock could incur substantial losses. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, financial condition, results of operations and growth prospects. There can be no guarantee that our stock price will remain at current prices or that future sales of our common stock will not be at prices lower than those sold to investors.
Additionally, recently, securities of certain companies have experienced significant and extreme volatility in stock price due to short sellers of shares of common stock, known as a “short squeeze.” These short squeezes have caused extreme volatility in those companies and in the market and have led the price per share of those companies to trade at a significantly inflated rate that is disconnected from the underlying value of the company. Many investors who have purchased shares in those companies at an inflated rate face the risk of losing a significant portion of their original investment as the price per share has declined steadily as interest in those stocks have abated. While we have no reason to believe our shares would be the target of a short squeeze, there can be no assurance that we won’t be in the future, and you may lose a significant portion or all of your investment if you purchase our shares at a rate that is significantly disconnected from our underlying value.
Our articles of incorporation and bylaws and Nevada law may have anti-takeover effects that could discourage, delay or prevent a change in control, which may cause our stock price to decline.
Our articles of incorporation, as amended, our amended and restated bylaws and Nevada law could make it more difficult for a third party to acquire us, even if closing such a transaction would be beneficial to our stockholders. The Board of Directors could authorize the issuance of an additional series of preferred stock that would grant holders preferred rights to our assets upon liquidation, special voting rights, 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 additional preferred stock, the rights of holders of common stock could be impaired thereby, including without limitation, with respect to liquidation.
Provisions of our articles of incorporation, as amended and our amended and restated bylaws may also prevent or frustrate attempts by our stockholders to replace or remove our management. In particular, our articles of incorporation, as amended, and amended and restated bylaws, among other things:
| ● | provide the board of directors with the ability to alter the bylaws without stockholder approval; and |
| ● | provide that vacancies on the board of directors may be filled by a majority of directors in office, although less than a quorum. |
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We do not intend to pay dividends in the foreseeable future on our common stock.
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.
The shares of common stock offered under our current Amended and Restated At The Market Issuance Sales Agreement may be sold in “at the market” offerings, and investors who buy shares at different times will likely pay different prices.
Investors who purchase shares that are sold under our current Amended and Restated At The Market Issuance Sales Agreement at different times will likely pay different prices, and so may experience different outcomes in their investment results. We will have discretion, subject to market demand, to vary the timing, prices, and numbers of shares sold, and there is no minimum or maximum sales price.
Investors may experience declines in the value of their shares as a result of share sales made at prices lower than the prices they paid.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters are located in Rockville, Maryland, where we occupy approximately 10,363 square feet of office space under a lease agreement expiring December 31, 2027, with monthly rent of $27,187. Our Spanish subsidiary Theriva Biologics S.L. (formerly VCN Biosciences S.L.) currently leases approximately 8,611 square feet of office and lab space office space in Parets de Vallès, Barcelona, Spain with a rent of 26,425 Euros per month. This lease was executed for an initial term beginning in January 2023 until October 2026, with an option to renew for an additional five years.
We do not own any real property. We believe that we have adequate space for our anticipated needs and that suitable additional space will be available at commercially reasonable prices as needed.
Item 3. Legal Proceedings.
From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock has traded on the NYSE American under the symbol “TOVX’ since October 13, 2022. Prior to October 13, 2022 our common stock traded under the symbol “SYN” since February 16, 2012. Prior to February 16, 2012, our common stock traded under the symbol “AEN” since October 16, 2008. The last price of our common stock as reported on the NYSE American on March 28, 2023 was $0.65 per share.
Dividend Policy
We have never paid or declared any cash dividends on our common stock to date, and do not anticipate paying such cash dividends on our common stock in the foreseeable future. Whether we declare and pay dividends is determined by our Board of Directors at their discretion, subject to certain limitations imposed under Nevada corporate law. The timing, amount and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by our Board of Directors.
The Series A Preferred Stock, none of which remains outstanding, ranked senior to the shares of our common stock and shares of our Series B Preferred Stock with respect to dividend rights and holders of Series A Preferred Stock were entitled to a cumulative dividend at the rate of 2.0% per annum, payable quarterly in arrears, as set forth in the Certificate of Designation of Series A Convertible Preferred Stock. The Series C Preferred Stock and Series D Preferred Stock is entitled to receive dividends on an as-if-converted-to-common-Stock basis to and in the same form as dividends actually paid on shares of the Common Stock when, as and if such dividends are paid on shares of the common stock.
Holders
As of March 30, 2023, we had approximately 33 stockholders of record of our common stock. This number does not include stockholders for whom shares are held in a “nominee” or “street” name.
Stock Performance Graph
The Company 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.
Equity Compensation Plan Information
See Part III–Item 12 under the heading “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters—Equity Compensation Plan Information” of this Annual Report for equity compensation plan information.
Recent Sales of Unregistered Securities
We did not sell any equity securities during the year ended December 31, 2022 in transactions that were not registered under the Securities Act, other than as previously disclosed in our filings with the SEC.
Issuer Purchases of Equity Securities
On December 22, 2022, we repurchased an aggregate of 720,000 shares of our common stock, par value $0.001 (the “Common Stock”) from three founders of its subsidiary Theriva Biologics S.L. (formerly known as VCN Biosciences S.L.) in a privately negotiated
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transaction pursuant to the terms of a Share Repurchase Agreement (the “Share Repurchase Agreement”) entered into on December 20, 2022 with each of the Selling Stockholders. Summary of the 2022 stock repurchase activity is as follows:
|
|
| Total number of |
| ||||||
|
|
| shares purchased as |
| Maximum number of | |||||
| part of publicly |
| shares that may yet be | |||||||
Total number of | Average price paid |
| announced plans or |
| purchased under the | |||||
shares purchased | per share |
| programs | plans or programs | ||||||
December 2022 |
| 720,000 | $ | 0.40 |
| 0 |
| 0 | ||
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read in conjunction with our audited financial statements and notes thereto for the years ended December 31, 2022 and 2021 included elsewhere in this Annual Report. In addition to historical information, the following discussion contains certain 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 expressed or implied by the forward-looking statements due to important factors and risks including, but not limited to, those set forth under “Risk Factors” in Part I, Item 1A of this Annual Report.
Overview
We are a diversified clinical-stage company developing therapeutics in areas of high unmet need. As a result of the Acquisition of VCN (now Theriva Biologics S.L.), described in more detail below, we began transitioning our strategic focus to oncology through the development of VCN’s new oncolytic adenovirus platform designed for intravenous and intravitreal delivery to trigger tumor cell death, improve access of co-administered cancer therapies to the tumor, and promote a robust and sustained anti-tumor response by the patient’s immune system. Prior to the Acquisition, our focus was on developing therapeutics designed to treat gastrointestinal (GI) diseases which included. our lead clinical development candidates: (1) SYN-004 (ribaxamase) which is designed to degrade certain commonly used intravenous (IV) beta-lactam antibiotics within the GI tract to prevent microbiome damage, thereby preventing overgrowth and infection by pathogenic organisms such Clostridioides difficile infection (CDI) and vancomycin resistant Enterococci (VRE), and reducing the incidence and severity of acute graft-versus-host-disease (aGVHD) in allogeneic hematopoietic cell transplant (HCT) recipients, and (2) SYN-020, a recombinant oral formulation of the enzyme intestinal alkaline phosphatase (IAP) produced under cGMP conditions and intended to treat both local GI and systemic diseases.
As part of our strategic transformation into an oncology focused company, we are exploring value creation options around our SYN-004 and SYN-020 assets. SYN-004 and SYN-020 both have significant potential opportunity in non-oncology related indications. Advancement of these products may be better achieved through out-licensing or partnering and we will explore opportunities for both SYN-004 and SYN-020 moving forward.
Name Change
Effective October 12, 2022, we changed our name to Theriva Biologics, Inc. by filing a Certificate of Amendment to its Articles of Incorporation (the “Certificate of Amendment”) with the Secretary of State of the State of Nevada on October 11, 2022. In addition, effective October 12, 2022, we amended and restated our Amended and Restated Bylaws (the “Bylaws”) to reflect the Name Change (the “Amended and Restated Bylaws”). The Amended and Restated Bylaws contain no other changes. In connection with the Name Change, our Common Stock began trading on the NYSE American LLC under the new ticker symbol “TOVX” effective as of the opening of trading hours on October 13, 2022. Effective November 15, 2022, our acquired subsidiary VCN Biosciences S.L. rebranded to Theriva Biologics S.L. without other changes to its corporate structure.
Acquisition of VCN Biosciences, S.L (now Theriva Biologics S.L.)
On March 10, 2022, pursuant to the terms of the Share Purchase Agreement (“Purchase Agreement”) we entered into with VCN and the shareholders of VCN Biosciences S.L. (the “Sellers”), we completed our acquisition of all the outstanding shares of VCN (the “VCN Shares”) from the shareholders of VCN. Pursuant to the Purchase Agreement, as consideration for the purchase of the VCN Shares of capital stock, we paid $4,700,000 (the “Closing Cash Consideration”) to Grifols Innovation and New Technologies Limited (“Grifols”),
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the owner of approximately 86% of the equity of VCN, and issued to the remaining Sellers 2,639,530 shares of our Common Stock, (the “Closing Shares”), representing 19.99% of the outstanding shares of our common stock on December 14, 2021, the date of the Purchase Agreement. As additional consideration for the purchase of the VCN Shares held by Grifols, we also agreed to make certain milestone payments to Grifols. In September 2022, we received approval from the FDA to proceed with our Phase 2 clinical trial of VCN-01. Due to this approval we paid Grifols $3.0 million in Q4 2022. Pursuant to the terms of the Purchase Agreement we loaned VCN $417,000 to help finance the costs of certain of VCN’s research and development activities. In addition, at Closing VCN and Grifols entered into a sublease agreement for the sublease by VCN of the laboratory and office space as well as a transitional services agreement. We agreed as a post- Closing covenant to commit to fund VCN’s research and development programs, including but not limited to VCN-01 PDAC Phase 2 trial, VCN-01 RB trial and necessary G&A within a budgetary plan of approximately $27.8 million.
VCN (now known as Theriva Biologics S.L.) is a clinical-stage biopharmaceutical company developing new oncolytic adenoviruses for the treatment of cancer. Theriva’s lead product candidate, VCN-01, is being studied in clinical trials for pancreatic cancer and retinoblastoma with additional investigator sponsored trials in indications including head and neck squamous cell carcinoma (HNSCC) and brain tumors. VCN-01 is designed to be administered systemically, intratumorally or intravitreally, either as a monotherapy or in combination with standard of care, to treat a wide variety of cancer indications. VCN-01 is designed to replicate selectively and aggressively within tumor cells, and to degrade the tumor stroma barrier that serves as a significant physical and immunosuppressive barrier to cancer treatment, Degrading the tumor stroma has been shown to improve access to the tumor by the virus and additional therapies such as chemo- and immuno-therapies. Importantly, degrading the stroma exposes tumor antigens, turning “cold” tumors “hot” and enabling a sustained anti-tumor immune response. Theriva has the exclusive rights to four patent families for proprietary technologies, as well as technologies developed in collaboration with the Virotherapy Group of the Catalan Institute of Oncology (ICO-IDIBELL) and with Hospital Sant Joan de Deu (HSJD), with a number of additional patents pending.
Financial Developments
Reverse Stock Split
On July 15, 2022, we announced a reverse stock split (the “Reverse Stock Split”) of our issued and outstanding Common Stock, at a ratio of one (1) share of Common Stock for every ten (10) shares of Common Stock, effective July 25, 2022 (the “Effective Date”). Our Common Stock began trading on a split-adjusted basis on the NYSE American when the market opened on July 25, 2022. The Reverse Stock Split was authorized by our Board of Directors on July 11, 2022.
Private Placement Offering
On July 29, 2022, we closed a private placement offering pursuant to the terms of a Securities Purchase Agreement (the “Purchase Agreement”) dated as of July 28, 2022 entered into with MSD Credit Opportunity Master Fund, L.P. (the “Investor”), pursuant to which we issued and sold (the “Offering”) 275,000 shares of the Company’s Series C Convertible Preferred Stock, par value $0.001 per share (the “Series C Preferred Stock”), and 100,000 shares of the Company’s Series D Convertible Preferred Stock, par value $0.001 per share (the “Series D Preferred Stock,” and together with the Series C Preferred Stock, the “Preferred Stock”), at an offering price of $8.00 per share, for gross proceeds of approximately $3.0 million in the aggregate, before the deduction of discounts, fees and offering expenses. The shares of Preferred Stock will be convertible, at a conversion price (the “Conversion Price”) of $1.22 per share (subject in certain circumstances to adjustments), into an aggregate of 2,459,016 shares of Common Stock, at the option of the holders of the Preferred Stock and, in certain circumstances, by the Company. The Purchase Agreement contains customary representations, warranties and agreements by the Company and customary conditions to closing.
Stock Repurchase
On December 22, 2022, we repurchased an aggregate of 720,000 shares of Common Stock from three founders of its subsidiary Theriva Biologics S.L. (formerly known as VCN Biosciences S.L.) in a privately negotiated transaction pursuant to the terms of a Share Repurchase Agreement (the “Share Repurchase Agreement”) entered into on December 20, 2022 with each of the Selling Stockholders. The price per share was $0.4001, which was the closing price of the Common Stock on the day prior to the closing for an aggregate purchase price was $288,072. The closing was subject to fulfillment of certain conditions, including delivery of certain closing documents. The Share Repurchase Agreement contains customary representations, warranties and covenants of the parties. The repurchase was funded from our cash on hand and the shares to be repurchased will be held as treasury stock. The Selling Stockholders acquired the shares of Common Stock as consideration for the sale of their shares of the subsidiary to the Company in March 2022.
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Stock Warrants
On August 3, 2022, we announced the exercise price of warrants issued in October 2018 was reduced from $6.90 per Warrant per full share of our Common Stock to $1.22 per Warrant per full share of Common Stock. The reduction was the result of the issuance of shares of Preferred Stock in a private placement. The effect of the change in the exercise price of the warrants as a result of the triggering of the down round protection clause in the Warrants was recorded as a deemed dividend of $340,000 during the year ended December 31, 2022, which reduces the income available to common stockholders. During January and February 2021, 1,165,575 of the 2018 Warrants were exercised for cash proceeds of $8.0 million.
Recent Clinical Developments
On July 8, 2022, we were notified of the clearance of the safety evaluation period by the first patient that had been dosed in the investigator sponsored Phase 1 clinical trial evaluating VCN-01 (NCT05057715), an intravenous oncolytic adenovirus, in combination with mesothelin-directed lentiviral transduced human chimeric antigen receptor modified T cells (huCART-meso) for patients with pancreatic and serious epithelial ovarian cancers.
On September 5, 2022, we issued a press release announcing presentation of a poster entitled “A Phase I Study to Evaluate the Safety, Tolerability, and Efficacy of VCN-01 in Combination with Durvalumab (MEDI4736) in Subjects with Recurrent/ Metastatic Squamous Cell Carcinoma of the Head and Neck (R/M HNSCC)” at the European Society for Medical Oncology (ESMO) Congress of initial data from a Phase 1 investigator-sponsored study evaluating VCN-01 in combination with durvalumab for patients with recurrent/metastatic squamous cell carcinoma of the head and neck (R/M HNSCC). We also issued a press release on September 12, 2022,
Key data and conclusions featured in the ESMO presentation included:
| ● | Safety: Treatment with VCN-01 had an acceptable safety profile when administered with durvalumab in the sequential regimen (single dose of VCN-01 administered 14 days prior to the first dose of durvalumab; n=14). |
| o | The most common treatment-related adverse events (TRAEs) were pyrexia, flu-like symptoms and increases in liver transaminases. |
| o | TRAEs were dose-dependent, reversible and consistent with TRAEs previously described for other adenovirus-based products. |
| ● | Pharmacokinetics (PK) and pharmacodynamics (PD): Based on toxicology and PK/PD analysis the recommended Phase 2 dose is 1x1013 viral particles (vp)/patient. |
| ● | Biological activity: Sustained blood levels of VCN-01 viral genomes and increased serum hyaluronidase levels were maintained for over six weeks. |
| o | Observed an increase in CD8 T cells, a marker of tumor inflammation and an upregulation of PD-L1 in tumors. |
| o | Analysis of serial tumor biopsies revealed differential gene expression profiles and downregulation of matrix-related pathways after VCN-01 administration. |
On September 27, 2022, we issued a press release announcing positive outcome from the DSMC review of results from the first Cohort of our Phase 1b/2a randomized, double-blinded, placebo-controlled clinical trial of SYN-004 (ribaxamase) in allogeneic hematopoietic cell transplant (HCT) recipients for the prevention of acute graft-versus-host-disease (aGVHD; NCT04692181).
Cohort 1 enrolled 19 patients who received at least 1 dose of study drug (SYN-004 or Placebo randomized 2:1). Sixteen patients received at least one dose of intravenous (IV) meropenem and 12 of these patients completed sufficient doses of IV meropenem to be evaluable towards the study endpoints. The study is on-going and remains blinded; however, key findings from blinded data for Cohort 1 are included below:
| ● | Adverse events (AEs) and serious adverse events (SAEs) observed in Cohort 1 were typical of those observed in allo-HCT patients and no AEs or SAEs were determined to be related to study drug treatment by the investigators. |
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| o | A total of 13 SAEs were reported among 10 patients, with the most common SAE being infections and infestations including sepsis. |
| o | One patient died 14 days after the last dose of study drug (within the 30-day reporting period) due to sepsis that was not related to study drug. |
| ● | Consistent with previous studies of SYN-004 in healthy volunteers, SYN-004 was not observed in blood samples from the majority of the evaluable patients. |
| o | A total of 3 plasma samples (~2% of all analyzed samples) had low but quantifiable levels of SYN-004 using a sensitive ECL assay. |
| o | None of the 3 ECL positive plasma samples was found to contain active SYN-004 using a functional enzyme activity assay. |
| ● | Meropenem pharmacokinetics were as expected for this patient population. |
Based on a review of the safety and pharmacokinetic data, the DSMC recommended that the study may proceed to enroll Cohort 2 in which study drug (SYN-004 or Placebo) will be administered in combination with the IV beta-lactam antibiotic piperacillin/tazobactam.
On September 30, 2022, we issued a press release announcing an oral presentation entitled “Topotecan enhances oncolytic adenovirus infection, replication and antitumor activity in retinoblastoma,” featuring Dr. Victor Burgueño, Professor at Fundació Sant Joan de Déu at the SIOP 2022 Congress of the International Society of Pediatric Oncology, being held in Barcelona, Spain from September 28-October 1, 2022. The new data from the study for which Dr. Victor Burgueño is the lead investigator further support evaluation of VCN-01, an oncolytic adenovirus expressing hyaluronidase, and topotecan for the treatment of refractory retinoblastoma.
Key data and conclusions showcased in the SIOP presentation included:
| ● | VCN-01 treatment in combination with topotecan, but not with carboplatin or melphalan, significantly increased VCN-01 infection and replication in retinoblastoma cells (p=0.0007) in vitro. |
| ● | In athymic mice engrafted with human retinoblastomas, topotecan administered systemically after intratumoral VCN-01 increased viral genome replication and the number of VCN-01 infected cells when compared to administration of VCN-01 alone (p = 0.0002). |
| ● | Sequential administration of intratumoral VCN-01 followed by systemic topotecan significantly increased median ocular survival, compared to VCN-01 alone (p =0.0364). |
On November 3, 2022, we issued a press release announcing the first patient has been dosed in Cohort 2 of its Phase 1b/2a randomized, double-blinded, placebo-controlled clinical trial of SYN-004 (ribaxamase) in allogeneic hematopoietic cell transplant (HCT) recipients for the prevention of acute graft-versus-host-disease (aGVHD).
On January 9, 2023, we issued a press release announcing that the first patient has been dosed in the Phase 1 investigator sponsored clinical trial of intravenous VCN-01 in patients with high-grade brain tumors who are scheduled for surgical resection.
On January 17, 2023, we issued a press release announcing the first patient has been dosed in VIRAGE, the Phase 2b randomized, open-label, placebo-controlled, multicenter clinical trial of systemically administered VCN-01 in combination with standard-of-care (SoC) chemotherapy (gemcitabine/nab-paclitaxel) as a first line therapy for patients with newly-diagnosed metastatic pancreatic ductal adenocarcinoma (PDAC; NCT05673811).
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Our Current Product Pipeline
*Based on management’s current beliefs and expectations
aGVHD acute graft-vs-host disease; allo-HCT allogeneic hematopoietic cell transplant. IAP recombinant bovine intestinal alkaline phosphatase II. CPI immune checkpoint inhibitor. Gem/Nab Gemcitabine + Abraxane® (nab-paclitaxel). HNSCC head and neck squamous cell carcinoma. IV intravenous. IVit intravitreal. MAD multiple ascending dose. ODD Orphan Drug Designation. OV oncolytic adenovirus engineered to selectively replicate in tumors and express hyaluronidase enzyme PH20.
¹Additional products with preclinical proof-of-concept include SYN-006 (carbapenemase) to prevent aGVHD and infection by carbapenem resistant enterococci and SYN-007 (ribaxamase) DR to prevent antibiotic associated diarrhea with oral β-lactam antibiotics.
²Depending on funding/partnership. SYN-004 may enter an FDA-agreed Phase 3 clinical trial for the treatment of Clostridioides difficile infection.
³We have an option-license agreement with Massachusetts General Hospital to develop SYN-020 in several potential indications related to inflammation and gut barrier dysfunction.
Critical Accounting Estimates
The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) which requires 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 condensed consolidated 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 may differ from the original estimates, requiring adjustments to these balances in future periods.
There are accounting policies, each of which requires significant judgments and estimates on the part of management, that we believe are significant to the presentation of our consolidated financial statements. The most significant accounting estimates relate to research and development costs, business combinations, contingent consideration, and impairment of long-lived assets.
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Business Combination
The Company accounts for acquisitions using the acquisition method of accounting, which requires that all identifiable assets acquired, and liabilities assumed be recorded at their estimated fair values. The excess of the fair value of purchase consideration over the fair values of identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from acquired patented technology. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
The Company classifies intangible assets into two categories: (1) intangible assets with indefinite lives not subject to amortization and (2) goodwill. Intangible assets that are deemed to have indefinite lives, including goodwill, are reviewed for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test for indefinite-lived intangibles, other than goodwill, consists of a comparison of the fair value of the intangible asset with its carrying amount. If the carrying amount exceeds the fair value, an impairment charge is recognized in an amount equal to that excess. Indefinite-lived intangible assets, such as goodwill, are not amortized. The Company tests the carrying amounts of goodwill for recoverability on an annual basis or when events or changes in circumstances indicate evidence a potential impairment exists, using a fair value-based test. If a reporting unit’s carrying value exceeds its fair value, then the Company will record a goodwill impairment charge for the excess amount.
In-process research and development, or IPR&D, assets are considered to be indefinite-lived until the completion or abandonment of the associated research and development projects. IPR&D assets represent the fair value assigned to technologies that the Company acquires, which at the time of acquisition have not reached technological feasibility and have no alternative future use. During the period that the assets are considered indefinite-lived, they are tested for impairment on an annual basis, or more frequently if the Company becomes aware of any events occurring or changes in circumstances that indicate that the fair value of the IPR&D assets are less than their carrying amounts. If and when development is complete, which generally occurs upon regulatory approval and the ability to commercialize products associated with the IPR&D assets, these assets are then deemed definite-lived and are amortized based on their estimated useful lives at that point in time. If development is terminated or abandoned, the Company may have a full or partial impairment charge related to the IPR&D assets, calculated as the excess of carrying value of the IPR&D assets over fair value.
Goodwill represents the excess of the purchase price paid when the Company acquired VCN in March 2022, over the fair values of the acquired tangible or intangible assets and assumed liabilities. The Company will conduct an impairment test of goodwill on an annual basis as of October 1 of each year and will also conduct tests if events occur or circumstances change that would, more likely than not, reduce the Company’s fair value below its net equity value. During the quarters ended September 30 and December 31, 2022, the Company experienced a sustained decline in the quoted market price of the Company’s common stock and the Company deemed this to be a triggering event. The Company performed an impairment analysis at both September 30 and December 31, 2022 and concluded that the Goodwill and IPR&D was not impaired at both dates.
Contingent Consideration
Consideration paid in a business combination may include potential future payments that are contingent upon the acquired business achieving certain milestones in the future (“contingent consideration”). Contingent consideration liabilities are measured at their estimated fair value as of the date of acquisition, with subsequent changes in fair value recorded in the consolidated statements of operations. The Company estimates the fair value of the contingent consideration as of the acquisition date using the estimated future cash outflows based on the probability of meeting future milestones. The milestone payments will be made upon the achievement of clinical and commercialization milestones as well as single low digit royalty payments and payments upon receipt of sublicensing income. Subsequent to the date of acquisition, the Company reassesses the actual consideration earned and the probability-weighted future earn-out payments at each balance sheet date. Any adjustment to the contingent consideration liability will be recorded in the consolidated statements of operations. Contingent consideration liabilities expected to be settled within 12 months after the balance sheet date are presented in current liabilities, with the non-current portion recorded under long term liabilities in the consolidated balance sheets.
Long-Lived Assets
Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Recoverability measurement and estimating of
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undiscounted cash flows is done at the lowest possible level for which we can identify assets. If such assets are considered to be impaired, impairment is recognized as the amount by which the carrying amount of assets exceeds the fair value of the assets.
Acquired In-Process Research & Development represents the fair value assigned to those research and development projects that were acquired in a business combination for which the related products have not received regulatory approval and have no alternative future use. IPR&D is capitalized at its fair value as an indefinite-lived intangible asset, and any development costs incurred after the acquisition are expensed as incurred. Upon achieving regulatory approval or commercial viability for the related product, the indefinite-lived intangible asset is accounted for as a finite-lived asset and is amortized on a straight-line basis over the estimated useful life. If the project is not completed or is terminated or abandoned, the Company may have an impairment related to the IPR&D which is charged to expense. Indefinite-lived intangible assets are tested for impairment annually and whenever events or changes in circumstances indicate that the carrying amount may be impaired. Impairment is calculated as the excess of the asset’s carrying value over its fair value. During the quarters ended September 30 and December 31, 2022, the Company experienced a sustained decline in the quoted market price of the Company’s common stock and the Company deemed this to be a triggering event. The Company performed an impairment analysis at both September 30 and December 31, 2022 and concluded that the Goodwill and IPR&D was not impaired at both dates.
Research and Development Costs
We expense research and development costs associated with developmental products not yet approved by the FDA to research and development expense as incurred. Research and development costs consist primarily of license fees (including upfront payments), milestone payments, manufacturing costs, salaries, stock-based compensation and related employee costs, fees paid to consultants and outside service providers for laboratory development, legal expenses resulting from intellectual property prosecution and other expenses relating to the design, development, testing and enhancement of our product candidates. Research and development expenses include external contract research organization (“CRO”) services. We make payments to the CROs based on agreed upon terms and may include payments in advance of study services. We review and accrue CRO expenses based on services performed and rely on estimates of those costs applicable to the stage of completion of study as provided by the CRO. Accrued CRO costs are subject to revisions as such studies progress to completion. At December 31, 2022 and 2021, we have accrued CRO expenses of $0.8 million and $0.7 million, respectively, that are included in accrued expenses. As of December 31, 2022, and 2021, we have prepaid CRO costs of $2.3 million and $0.5 million, respectively, that are included in prepaid expenses.
Results of Operations
Years Ended December 31, 2022 and 2021
General and Administrative Expenses
General and administrative expenses increased to $9.9 million for the year ended December 31, 2022, from $6.5 million for the year ended December 31, 2021. This increase of 50.8% is primarily comprised of increased expense related to the fair value of the contingent consideration, higher insurance costs, additional salary and benefits related to new headcount, public relations expenses, and VCN administrative expenses not included in the prior year, offset by a decrease in consulting and legal costs related to the VCN acquisition. The charge relating to stock-based compensation expense was $0.4 million for the year ended December 31, 2022, compared to $0.3 million for the year ended December 31, 2021. In addition, we expect general and administrative expenses to increase as we increase headcount and related overhead due to the VCN acquisition.
Research and Development Expenses
Research and development expenses increased to $11.7 million for the year ended December 31, 2022, from $7.8 million for the year ended December 31, 2021. This increase of 50% is primarily the result of increased clinical trial expenses related to VCN-01 not incurred in the prior year, offset by lower clinical and manufacturing expenses related to our Phase 1a clinical trial of SYN-020 and expenses related to our Phase 1b/2a clinical trial of SYN-004 (ribaxamase) in allogeneic HCT recipients. We anticipate research and development expense to increase as we continue enrollment in our VIRAGE Phase 2 clinical trial of VCN-01 in PDAC, and our ongoing Phase 1 clinical trial in retinoblastoma, expand GMP manufacturing activities for VCN-01, and continue supporting our VCN-11 and other preclinical and discovery initiatives. Research and development expenses also include a charge relating to non-cash stock-based compensation expense of $112,000 for the year ended December 31, 2022, compared to $76,000 for the year ended December 31, 2021. In addition, we expect research and development expenses to increase as we incur higher clinical program costs for our VCN product candidates.
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The following table sets forth our research and development expenses directly related to our therapeutic areas for the years ended December 31, 2022 and 2021. These direct expenses were external costs associated with preclinical studies and clinical trials. Indirect research and development costs related to employee costs, facilities, manufacturing, stock-based compensation and research and development support services are not directly allocated to specific drug candidates.
December 31, | December 31, | |||||
2022 | 2021 | |||||
Therapeutic Areas |
| (in thousands) |
| (in thousands) | ||
VCN-01 | $ | 4,344 | $ | — | ||
SYN-004 |
| 1,201 |
| 1,366 | ||
SYN-020 | 1,069 | 2,431 | ||||
SYN-010 |
| — |
| — | ||
Other therapeutic areas |
| 528 |
| 10 | ||
Total direct costs |
| 7,142 |
| 3,807 | ||
Total indirect costs | 4,581 | 3,993 | ||||
Total research and development | $ | 11,723 | $ | 7,800 | ||
Total Other Income
Other income was $471,000 for the year ended December 31, 2022, compared to other income of $6,000 for the year ended December 31, 2021. Other income for the year ended December 31, 2022 is primarily comprised of interest income of $512,000 offset by an exchange loss of $41,000. Other income for the year ended December 2021 was primarily comprised of interest income
Income Tax Benefit
Our income tax benefit was $1.4 million for the year ended December 31, 2022, solely as a result of net operating losses incurred by our VCN subsidiary acquired in 2022. The Company’s effective tax rate in 2022 was 6.75%, which differs from the federal statutory rate of 21% primarily due to the change in our valuation allowance, VCN’s foreign tax benefit, the fair market value adjustment for the contingent consideration, along with the effects of other nondeductible permanent differences. For the year ended December 31, 2021 we had no income tax provision or benefit due to the Company’s domestic net losses and full valuation allowance against our net deferred tax assets.
Net Loss
Our net loss for the year ended December 31, 2022 was $19.7 million, or ($1.31) per common share, compared to $14.3 million, or ($1.90) per common share for the year ended December 31, 2021. Net loss attributable to common stockholders for the year ended December 31, 2022 was $20 million and includes the deemed dividend for the effect of the Series C Preferred Stock and Series D Preferred Stock price adjustment of $0.3 million. Net loss attributable to common stockholders for the year ended December 31, 2021 was $23.2 million and excludes net loss attributable to non-controlling interest of $1,000, and includes the accretion of the Series B preferred stock deemed dividends of $1.5 million on converted shares and Series A preferred stock accrued dividends of $24,000 and the deemed dividend for the effect of the Series A preferred shares price adjustment of $7.4 million.
Liquidity and Capital Resources
As of December 31, 2022, the Company has a significant accumulated deficit, and with the exception of the three months ended June 30, 2010 and the three months ended December 31, 2017, the Company has experienced significant losses and incurred negative cash flows since inception. We have incurred an accumulated deficit of $291 million as of December 31, 2022, and expect to continue to incur losses in the foreseeable future with the recognition of revenue being contingent on successful phase 3 clinical trials and requisite approvals by the FDA or foreign equivalents.
Our cash and cash equivalents totaled $41.8 million as of December 31, 2022, a decrease of $25.5 million from December 31, 2021. During the year ended December 31, 2022, the primary use of cash was for working capital requirements and operating activities which resulted in a net loss of $19.7 million for the year ended December 31, 2022. Cash and cash equivalents includes the net proceeds from sales of our Series C Preferred Stock and Series D Preferred Stock issued during the year ended December 31, 2022, Common Stock in “at-the-market” (ATM) equity offerings during 2021 and cash proceeds through the exercise of a portion of the October 2018 warrants. With these additional sources of liquidity, we believe we will be able to fund our operations through the second quarter and into the
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third quarter of 2024. Management believes its plan, which includes the additional testing of SYN-004 (ribaxamase) and the advancement of VCN-01 will allow us to meet our financial obligations, further advance key products, and maintain our planned operations for at least one year from the issuance date of these consolidated financial statements. However, the amount of additional capital needed by us will also depend upon the costs to advance our VCN-01 clinical programs and whether we continue to develop SYN-004 and/or SYN-020 internally or we out-license or partner such development. If necessary, we may attempt to utilize the ATM or seek to raise additional capital on the open market, neither of which is guaranteed. Use of the ATM is limited by certain restrictions and management’s plan does not rely on additional capital from either of these sources. If we are not able to obtain additional capital (which is not assured at this time), our long-term business plan may not be accomplished, and we may be forced to cease certain development activities. More specifically, the completion of any later stage clinical trial will require significant financing or a significant partnership.
Historically, we have financed our operations primarily through public and private sales of our securities, and we expect to continue to seek and obtain additional capital in a similar manner. During the year ended December 31, 2022, our only source of cash was from the sales of our Series C Preferred Stock and Series D Preferred Stock. During the year ended December 31, 2021, our only source of cash was from the exercise of the 2018 Warrants and sales of our common stock through the Original ATM Sales Agreement and the Amended and Restated ATM Sales Agreement.
There can be no assurance that we will be able to continue to raise funds through the sale of shares of common stock through the Amended and Restated ATM Sales Agreement. 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 funding for future clinical trials when needed, we will be unable to carry out our business plan and we will be forced to delay the initiation of future clinical trials until such time as we obtain adequate financing.
We have committed, and expect to continue to commit, substantial capital in order to implement our business strategy, including our planned product development efforts, preparation for our planned clinical trials, and performance of clinical trials and our research and discovery efforts. We believe our cash position of $40.1 million in early March 2023 is sufficient to fund our operations through at least the end of the second quarter of and into the third quarter 2024, including continuation of our ongoing Phase 1b/2a clinical study of SYN-004 (ribaxamase) in allogeneic HCT recipients for the prevention of aGVHD, our ongoing Phase 1 and Phase 2 clinical trials for VCN-01, preclinical studies of VCN-11 and related discovery initiatives, and to fund our committed obligations under the VCN Purchase Agreement for the VCN Acquisition.
Following the anticipated completion of our ongoing Phase 1b/2a clinical study of SYN-004 (ribaxamase) in allogeneic HCT recipients, our ongoing Phase 1 and Phase 2 clinical trials for VCN-01, and the preclinical studies of VCN-11, and related discovery initiatives, we will need to obtain additional funds for future clinical trials. We anticipate that our future clinical trials will be much larger in size and require larger cash expenditures than the aforementioned clinical programs. We do not have any committed sources of financing for future clinical trials 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.
As the COVID-19 coronavirus has persisted around the globe and world governments have reacted to the on-going war in the Ukraine, we have experienced and may, in the future, experience disruptions that impact our business and clinical trials. These include postponement of clinical site initiation as was observed for the Phase 1b/2a clinical trial of SYN-004, increased costs of goods and services, supply chain constraints, and disruptions and changes in vendor personnel. The full impact of the COVID-19 and global economic downturn continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that these factors will have on our financial condition, liquidity, and future results of operations. We are actively monitoring the global situation and its potential impact on our financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of persistent COVID-19 and the global economic downturn, we are not able to estimate the future effects of these factors on our results of operations, financial condition, or liquidity.
License and Contractual Agreement Obligations
We have entered into several license and collaborative agreements for the right to use research, technology and patents. Some of these license and collaborative agreements may contain milestones. The specific timing of such milestones cannot be predicted and are dependent on future developments as well as regulatory actions which cannot be predicted with certainty (including actions which may never occur). Further, under the terms of certain licensing agreements, we may have the obligation to pay certain milestones contingent upon the achievement of specific levels of sales.
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Off-Balance Sheet Arrangements
During the years ended December 31, 2022 and 2021, we did not have, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.
Consulting Fees
In November 2017, we engaged a regulatory consultant to assist in our efforts to prepare, file and obtain FDA approval for ribaxamase. The term of the engagement was on a monthly basis, provided that either party may terminate the agreement at any time by providing the other party a six-month notice period. We were obligated to pay the consultant a monthly retainer in addition to the success fee payments of up to an aggregate of $4,500,000 for attainment of certain regulatory milestones. We do not deem the contingent fee is probable at this time.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company 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.
Item 8. Financial Statements and Supplementary Data.
| Page |
Report of Independent Registered Public Accounting Firm (BDO USA, LLP; Potomac, Maryland; PCAOB ID# | 69 |
72 | |
Consolidated Statements of Operations and Comprehensive Loss | 73 |
74 | |
75 | |
76 |
68
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Theriva Biologics, Inc.
Rockville, Maryland
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Theriva Biologics, Inc. as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, stockholders’ (deficit) equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Business combination – Fair value measurement of certain acquired intangible assets
As described in Note 3 to the consolidated financial statements, during 2022 the Company completed the acquisition of VCN Biosciences, S.L., now known as Theriva Biologics, S.L. (“VCN”), for total consideration of $22.8 million. The Company accounted for the transaction under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values on the acquisition date, including identifiable intangible assets related to in-progress research and development (“IPR&D”). Additionally, the Company recorded an adjustment to the preliminary estimates of fair value of the IPR&D within the measurement period of up to one year from the date of acquisition. The Company estimated the fair value of certain of the IPR&D intangible assets using expected cash flows and industry standard valuation techniques, which required the Company to make significant estimates and assumptions related to future cash flows, including those
69
related to forecasted development costs to bring the drug candidates to market, forecasted revenue to be derived from the drug candidates and associated cost of sales and selling, general and administrative expenses, and discount rates.
We identified the determination of the fair value of certain of the IPR&D as a critical audit matter because of the significant estimates and assumptions the Company makes to calculate its fair value for purposes of recording the acquisition and the measurement period adjustment. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of the Company’s forecasts of future cash flows, specifically forecasted revenues to be derived from the drug candidate and associated cost of sales and selling, general and administrative expenses, and discount rates used in the valuation of the IPR&D, including the need to involve our internal fair value specialists.
The primary procedures we performed to address this critical audit matter included:
| ● | Testing the completeness and accuracy of the underlying data supporting the determination of the various inputs. |
| ● | Evaluating the reasonableness of the Company’s forecasted revenues to be derived from the drug candidate and associated cost of sales and selling, general and administrative expenses by comparing these assumptions to those of those of comparable companies, as well as evaluated potentially contradictory information. |
| ● | Utilizing our valuation specialists, to evaluate the reasonableness of the valuation methodology and discount rates by: |
| o | Evaluating the reasonableness of the Company's valuation methods and testing the mathematical accuracy of the calculations. |
| o | Developing a range of independent estimates for the discount rate and comparing those to the discount rate selected by the Company. |
IPR&D Impairment Assessment
As described in Notes 4 and 14 to the consolidated financial statements, the Company’s consolidated IPR&D intangible asset balances at September 30 and December 31, 2022 were $17.5 million and $19.2 million, respectively. The Company performs an annual impairment test of IPR&D, and on a quarterly basis, monitors IPR&D for potential indicators of impairment. During 2022, the Company concluded that triggering events occurred at both September 30 and December 31, 2022. No impairment charges were recorded as a result of the Company's interim and annual impairment tests. The Company estimated the fair value of certain of the IPR&D intangible assets using expected cash flows and industry standard valuation techniques, which required the Company to make significant estimates and assumptions related to future cash flows, including those related to forecasted development costs to bring the drug candidates to market, forecasted revenue to be derived from the drug candidates and associated cost of sales and selling, general and administrative expenses, and discount rates.
We identified the determination of the fair value of certain of the IPR&D as a critical audit matter because of the significant estimates and assumptions the Company makes to calculate its fair value for purposes of the IPR&D impairment analysis. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of the Company’s forecasts of future cash flows, specifically forecasted revenues to be derived from the drug candidate and associated cost of sales and selling, general and administrative expenses, and discount rates used in the valuation of the IPR&D, including the need to involve our internal fair value specialists.
The primary procedures we performed to address this critical audit matter included:
| ● | Testing the completeness and accuracy of the underlying data supporting the determination of the various inputs. |
| ● | Evaluating the reasonableness of the Company’s forecasted revenues to be derived from the drug candidate and associated cost of sales and selling, general and administrative expenses by comparing these assumptions to those of those of comparable companies, as well as evaluated potentially contradictory information. |
| ● | Utilizing our valuation specialists, to evaluate the reasonableness of the valuation methodology and discount rates by: |
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| o | Evaluating the reasonableness of the Company’s valuation methods and testing the mathematical accuracy of the calculations. |
| o | Developing a range of independent estimates for the discount rate and comparing those to the discount rate selected by the Company. |
/s/
We have served as the Company's auditor since 2012.
March 30, 2023
71
Theriva Biologics, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands except share and par value amounts)
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2022 | 2021 | |||||
Assets |
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Current Assets |
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Cash and cash equivalents | $ | | $ | | ||
Prepaid expenses and other current assets |
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Total Current Assets |
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Non-Current Assets |
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Property and equipment, net |
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Restricted cash | | — | ||||
Right of use asset | | |||||
In-process research and development |
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Goodwill |
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Deposits and other assets | | | ||||
Total Assets | $ | | $ | | ||
Liabilities and Stockholders’ Equity |
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Current Liabilities: |
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Accounts payable | $ | | $ | | ||
Accrued expenses |
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Accrued employee benefits | | | ||||
Contingent consideration, current portion |
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Loans payable-current | | — | ||||
Operating lease liability | | | ||||
Total Current Liabilities |
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Non-current Liabilities | ||||||
Non-current contingent consideration | | — | ||||
Loan Payable - Long term | | — | ||||
Deferred tax liabilities, net | | — | ||||
Lease liability - Long term | | | ||||
Total Liabilities |
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Commitments and Contingencies |
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Temporary Equity | ||||||
Series C convertible preferred stock, $ |
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Series D convertible preferred stock, $ | | — | ||||
Stockholders’ Equity: |
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Common stock, $ |
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Additional paid-in capital |
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Treasury stock at cost, | ( | |||||
Accumulated other comprehensive loss | ( | — | ||||
Accumulated deficit |
| ( |
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Total Stockholders‘ Equity | | | ||||
Total Liabilities and Stockholders’ Equity | $ | | $ | | ||
See accompanying notes to consolidated financial statements
72
Theriva Biologics, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)
For the year ended | ||||||
December 31, | ||||||
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| 2021 | ||
Operating Costs and Expenses: |
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General and administrative | $ | | $ | | ||
Research and development |
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Total Operating Costs and Expenses |
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Loss from Operations |
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Other Income: |
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Exchange loss | ( | | ||||
Interest income |
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Total Other Income | | | ||||
Net Loss before income taxes | ( | ( | ||||
Income tax benefit | | | ||||
Net Loss |
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Net Loss Attributable to Non-controlling Interest |
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Net Loss Attributable to Theriva Biologics, Inc. and Subsidiaries | $ | ( | $ | ( | ||
Effect of Warrant exercise price adjustment |
| ( |
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Series A Preferred Stock Dividends |
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| ( | |||
Series B Preferred Stock Dividends |
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Effect of Series A Preferred Stock price adjustment | ( | |||||
Net Loss Attributable to Common Stockholders | $ | ( | $ | ( | ||
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Net Loss Per Share - Basic and Dilutive | $ | ( | $ | ( | ||
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Weighted average number of shares outstanding during the period - basic and dilutive |
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Net Loss | ( | ( | ||||
Loss on foreign currency translation | ( | |||||
Total comprehensive loss | ( | ( | ||||
Comprehensive loss attributable to non-controlling interest | ( | |||||
Comprehensive loss attributable to Theriva Biologics, Inc. and Subsidiaries | ( | ( | ||||
See accompanying notes to consolidated financial statements
73
Theriva Biologics, Inc. and Subsidiaries
Consolidated Statements of Stockholders (Deficit) Equity
(In thousands, except share and par value amounts)
Common Stock | Series B Preferred | |||||||||||||||||||||
Additional | Total | |||||||||||||||||||||
Paid-in | Accumulated | Non-Controlling | Stockholders’ | |||||||||||||||||||
| Shares |
| Amount |
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| Deficit |
| Interest |
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Balance at December 31, 2020 |
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| $ | | $ | | $ | ( | $ | ( | $ | ( | |||||
Stock-based compensation |
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Stock issued under "at-the-market" offering |
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Series A Preferred Stock Dividends |
| — |
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| ( |
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Warrants Exercised | | | — | — | | — | — | | ||||||||||||||
Effect of Series A Preferred Stock price adjustment | — | — | — | — | | ( | — | — | ||||||||||||||
Conversion of Series A Preferred Stock to Common | | | — | — | | — | — | | ||||||||||||||
Conversion of Series B Preferred Stock to Common | — | ( | ( | ( | — | — | ||||||||||||||||
Net Loss |
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| — |
| — |
| — |
| — |
| ( |
| ( |
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Reversal of noncontrolling interest due to return of Syn Biomics shares | — | — | — | — | ( | — | | — | ||||||||||||||
Balance at December 31, 2021 |
| | $ | |
| — | $ | — | $ | | $ | ( | $ | — | $ | | ||||||
Common Stock $0.001 Par Value | Accumulated | ||||||||||||||||||
Additional | Other | Total | |||||||||||||||||
Paid-in | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||
| Shares |
| Amount |
| Capital |
| Deficit |
| income |
| Treasury Stock |
| Equity | ||||||
Balance at December 31, 2021 |
| | $ | | $ | | $ | ( | $ | — |
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Stock-based compensation |
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Issuance of Common Stock for VCN Acquisition |
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Translation gains (losses) |
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Treasury Stock |
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Net loss |
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Balance at December 31, 2022 |
| | $ | | $ | | $ | ( | $ | ( |
| ( | $ | | |||||
See accompanying notes to consolidated financial statements
74
Theriva Biologics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
For the year ended | ||||||
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| 2022 |
| 2021 | ||
Cash Flows From Operating Activities: |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation |
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Income tax benefit |
| ( |
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Change in fair value of contingent consideration | | | ||||
Right of use asset | | | ||||
Depreciation |
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Changes in operating assets and liabilities: |
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Prepaid expenses and other current assets |
| ( |
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Accounts payable |
| ( |
| ( | ||
Accrued expenses |
| ( |
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Accrued employee benefits |
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Lease liability | ( | ( | ||||
Net Cash Used In Operating Activities |
| ( |
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Cash Flows From Investing Activities: |
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Purchases of property and equipment |
| ( |
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Cash paid for business combination; net of cash acquired |
| ( |
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Pre-acquisition loan to VCN |
| ( |
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Net Cash Used In Investing Activities | ( | ( | ||||
Cash Flows From Financing Activities: |
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Payment of debt | $ | ( |
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Proceeds from sale of Series C Preferred Stock, net of issuance cost | |
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Proceeds from sale of Series D Preferred Stock, net of issuance cost |
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Payment of contingent consideration | ( | |||||
Purchase of treasury stock | ( | |||||
Proceeds from “at-the-market” stock issuance | | | ||||
Proceeds from issuance of common stock for warrant exercises | | |||||
Net Cash (used in) Provided By Financing Activities | ( | | ||||
Effects of FX on cash | ( | |||||
Net (decrease) increase in cash and cash equivalents and restricted cash | ( | | ||||
Cash and cash equivalents and restricted at the beginning of this period | | | ||||
Cash and cash equivalents and restricted cash at the end of this period | $ | | $ | | ||
Reconciliation of cash, cash equivalents, and restricted cash reported in the statement of financial position | ||||||
Cash and cash equivalents | | | ||||
Restricted cash included in other long-term assets | | | ||||
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | $ | | $ | | ||
Supplemental non-cash investing and financing activities: | ||||||
Fair value of contingent consideration issued in a business combination | $ | $ | ||||
Fair value of equity issued as consideration in a business combination | $ | $ | | |||
Effective settlement of pre-closing VCN financing | $ | $ | | |||
Goodwill measurement period adjustment | $ | ( | $ | | ||
In-process R&D measurement period adjustment | $ | $ | | |||
Deferred tax liability measurement period adjustment | $ | $ | | |||
Effect of Warrant exercise price adjustment | $ | $ | | |||
Conversion of Series A Preferred Stock | $ | $ | ||||
Effect of Series A Preferred Stock price adjustment | $ | | $ | |||
Return of SYN Biomics Stock | $ | | $ | |||
Conversion of Series B Preferred Stock | $ | | $ | |||
Deemed dividends for accretion of Series B Preferred Stock discount | $ | | $ | |||
Right of use assets from operating lease | $ | | $ | |||
In-kind dividends in preferred stock | $ | | $ | |||
See accompanying notes to consolidated financial statements
75
1. Organization and Nature of Operations and Basis of Presentation
Description of Business
Theriva Biologics, Inc. (the “Company” or “Theriva Biologics”) is a diversified clinical-stage company developing therapeutics in areas of high unmet need. As a result of the acquisition of VCN (the “Acquisition”), described in more detail below, the Company began transitioning its strategic focus to oncology through the development of VCN’s new oncolytic adenovirus platform designed for intravenous and intravitreal delivery to trigger tumor cell death, improve access of co-administered cancer therapies to the tumor, and promote a robust and sustained anti-tumor response by the patient’s immune system. Prior to the Acquisition, the Company’s focus was on developing therapeutics designed to treat gastrointestinal (GI) diseases in areas which included our lead clinical development candidates: (1) SYN-004 (ribaxamase) which is designed to degrade certain commonly used intravenous (IV) beta-lactam antibiotics within the GI tract to prevent microbiome damage, Clostridioides difficile infection (CDI), overgrowth of pathogenic organisms, the emergence of antimicrobial resistance (AMR), and acute graft-versus-host-disease (aGVHD) in allogeneic hematopoietic cell transplant (HCT) recipients, and (2) SYN-020, a recombinant oral formulation of the enzyme intestinal alkaline phosphatase (IAP) produced under cGMP conditions and intended to treat both local GI and systemic diseases. On October 12, 2022, the company changed its name to Theriva Biologics, Inc. In connection with the name change, its Common Stock began trading on the NYSE American LLC under the new ticker symbol “TOVX” effective as of the opening of trading hours on October 13, 2022. Effective November 15, 2022, our acquired subsidiary VCN Biosciences S.L. rebranded to Theriva Biologis S.L. without other changes to its corporate structure.
Corporate Structure and Basis of Presentation
On July 11, 2022, the Board of Directors of the Company approved a reverse stock split of the Company’s authorized, issued and outstanding shares of common stock, par value $
As a result of the Reverse Stock Split, each ten (10) pre-split shares of common stock outstanding automatically combined into
All share amounts and exercise/conversion prices in the condensed consolidated financial statements and footnotes below have been adjusted retrospectively for the Reverse Stock Split.
As of December 31, 2022, the Company had eight subsidiaries, Pipex Therapeutics, Inc. (“Pipex Therapeutics”), Effective Pharmaceuticals, Inc. (“EPI”), Solovax, Inc. (“Solovax”), CD4 Biosciences, Inc. (“CD4”), Epitope Pharmaceuticals, Inc. (“Epitope”), Healthmine, Inc. (“Healthmine”), Putney Drug Corp. (“Putney”) and Synthetic Biomics, Inc. (“SYN Biomics”). Pipex Therapeutics, EPI, Healthmine, Putney and SYN Biomics are wholly owned, and Solovax, CD4, and Epitope are majority-owned.
For financial reporting purposes, the outstanding common stock of the Company is that of Theriva Biologics, Inc. All statements of operations, (deficit) equity and cash flows for each of the entities are presented as consolidated. All subsidiaries were formed under the laws of the State of Delaware on January 8, 2001, except for EPI, which was incorporated in Delaware on December 12, 2000, Epitope which was incorporated in Delaware in January 2002, Putney which was incorporated in Delaware in November 2006, Healthmine which was incorporated in Delaware in December 2007 and SYN Biomics which was incorporated in Nevada in December 2013.
76
1. Organization and Nature of Operations and Basis of Presentation – (continued)
Liquidity
As of December 31, 2022, the Company has a significant accumulated deficit, and with the exception of the three months ended June 30, 2010 and the three months ended December 31, 2017, the Company has experienced significant losses and incurred negative cash flows since inception. The Company expects to continue incurring losses for the foreseeable future, with the recognition of revenue being contingent on successful phase 3 clinical trials and requisite approvals by the FDA or foreign equivalents. Historically, the Company has financed its operations primarily through public and private sales of its common stock and a private placement of its preferred stock, and it expects to continue to seek to obtain required capital in a similar manner. The Company has spent, and expects to continue to spend, a substantial amount of funds in connection with implementing its business strategy, including planned product development efforts, clinical trials and research and discovery efforts.
Cash and cash equivalents totaled approximately $
2. Summary of Significant Accounting Policies
Principles of Consolidation
All intercompany transactions and accounts have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Such estimates and assumptions impact, among others, the following: the estimated useful lives for property and equipment, research and development costs, business combinations, contingent consideration, fair value of long-lived assets, warrants, preferred stock and stock options granted for services or compensation, respectively, and the valuation allowance for deferred tax assets due to continuing and expected future operating losses.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of consolidated financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, actual results could differ from those estimates.
77
2. Summary of Significant Accounting Policies – (continued)
Non-controlling Interest
The Company’s non-controlling interest represents the minority stockholder’s ownership interest related to the Company’s subsidiary, SYN Biomics. 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. On September 5, 2018, the Company entered into an agreement with the minority stockholder for an investigator-sponsored Phase 2 clinical study of SYN-010. Prior to this agreement and IRB approval in December 2018, the Company’s equity interest in SYN Biomics was
Risks and Uncertainties
The Company’s operations could be subject to significant risks and uncertainties including financial, operational and regulatory risks and the potential risk of business failure. These conditions may not only limit the Company’s access to capital, but also make it difficult for its customers, its vendors and its ability to accurately forecast and plan future business activities.
Cash and Cash Equivalents
Cash and cash equivalents include cash and highly liquid short-term investments with original maturities of three months or less. All interest bearing and non-interest bearing accounts are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $250 thousand. The majority of our cash balances are in excess of FDIC coverage. We consider this to be a normal business risk.
Property and Equipment
Property and equipment is recorded at cost and depreciated or amortized using the straight-line method over the estimated useful life of the asset or the underlying lease term for leasehold improvements, whichever is shorter. The estimated useful life by asset description is noted in the following table.
Asset Description |
| Estimated Useful Life |
Office equipment and furniture |
| |
Leasehold improvements and fixtures |
| Lesser of estimated useful life or lease term |
Depreciation and amortization expense was approximately $
The Company reviews property and equipment for impairment to determine if assets are impaired due to obsolescence. As a result of this review, there was
78
2. Summary of Significant Accounting Policies – (continued)
Business Combination
The Company accounts for acquisitions using the acquisition method of accounting, which requires that all identifiable assets acquired, and liabilities assumed be recorded at their estimated fair values. The excess of the fair value of purchase consideration over the fair values of identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from acquired patented technology. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
As a result of the acquisition of VCN (see Note 3), the Company recorded two intangible assets, in-process research and development (“IPR&D”) and goodwill. The IPR&D and goodwill are deemed to have indefinite lives and therefore not amortized.
IPR&D
IPR&D assets represent the fair value assigned to technologies that the Company acquired, which at the time of acquisition have not reached technological feasibility and have no alternative future use. IPR&D assets are considered to have indefinite-lives until the completion or abandonment of the associated research and development projects. If and when development is complete, which generally occurs upon regulatory approval and the ability to commercialize products associated with the IPR&D assets, these assets are then deemed to have definite lives and are amortized based on their estimated useful lives at that point in time. If development is terminated or abandoned, the Company may have a full or partial impairment charge related to the IPR&D assets, calculated as the excess of carrying value of the IPR&D assets over fair value.
During the period that the assets are considered indefinite-lived, they are tested for impairment on an annual basis on October 1, or more frequently if the Company becomes aware of any events occurring or changes in circumstances that could indicate an impairment. The impairment test consists of a comparison of the estimated fair value of the IPR&D with its carrying amount. If the carrying amount exceeds the fair value, an impairment charge is recognized in an amount equal to that excess.
Goodwill
The Company tests the carrying amounts of goodwill for recoverability on an annual basis on October 1 or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company performs a one-step test in its evaluation of the carrying value of goodwill if qualitative factors determine it is necessary to complete a goodwill impairment test. In the evaluation, the fair value of the relevant reporting unit is determined and compared to its carrying value. If the fair value is greater than the carrying value, then the carrying value is deemed to be recoverable, and no further action is required. If the fair value estimate is less than the carrying value, goodwill is considered impaired for the amount by which the carrying amount exceeds the reporting unit’s fair value, and a charge is reported in impairment of goodwill in the Company’s consolidated statements of operations. As of December 31, 2022, the Company has determined that it has one reporting unit.
79
2. Summary of Significant Accounting Policies – (continued)
Contingent Consideration
Consideration paid in a business combination may include potential future payments that are contingent upon the acquired business achieving certain milestones in the future (“contingent consideration”). Contingent consideration liabilities are measured at their estimated fair value as of the date of acquisition, with subsequent changes in fair value recorded in the consolidated statements of operations. The Company estimates the fair value of the contingent consideration as of the acquisition date using the estimated future cash outflows based on the probability of meeting future milestones. The milestone payments will be made upon the achievement of clinical and commercialization milestones as well as single low digit royalty payments and payments upon receipt of sublicensing income. Subsequent to the date of acquisition, the Company reassesses the actual consideration earned and the probability-weighted future earn-out payments at each balance sheet date. Any adjustment to the contingent consideration liability will be recorded in the consolidated statements of operations. Contingent consideration liabilities expected to be settled within 12 months after the balance sheet date are presented in current liabilities, with the non-current portion recorded under long term liabilities in the consolidated balance sheets.
Long-Lived Assets
Long-lived assets include property, equipment and right-of-use assets. Management reviews the Company’s long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be fully recoverable. The Company determines the extent to which an asset may be impaired based upon its expectation of the asset’s future usability as well as whether there is reasonable assurance that the future cash flows associated with the asset will be in excess of its carrying amount. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and the carrying value of the asset. No impairment charges were recorded during the year ended December 31, 2022 and 2021.
Loss per Share
Basic net loss per share is computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding. Diluted net 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. Diluted net loss per share assumes the issuance of potential dilutive common shares outstanding for the period and adjusts for any changes in income and the repurchase of common shares that would have occurred from the assumed issuance, unless such effect is anti-dilutive. Net loss attributable to common stockholders for the year ended December 31, 2022 includes the effect of the Series C and D preferred stock price adjustment of $
80
2. Summary of Significant Accounting Policies – (continued)
Research and Development Costs
The Company expenses research and development costs associated with developmental products not yet approved by the FDA to research and development expense as incurred. Research and development costs consist primarily of license fees (including upfront payments), milestone payments, manufacturing costs, salaries, stock-based compensation and related employee costs, fees paid to consultants and outside service providers for laboratory development, legal expenses resulting from intellectual property prosecution and other expenses relating to the design, development, testing and enhancement of our product candidates. Research and development expenses include external contract research organization (“CRO”) services. The Company makes payments to the CROs based on agreed upon terms and may include payments in advance of study services. The Company reviews and accrues CRO expenses based on services performed and relies on estimates of those costs applicable to the stage of completion of a study as provided by the CRO. Accrued CRO costs are subject to revisions as such studies progress to completion. At December 31, 2022 and 2021, we have accrued CRO expenses of $
Fair Value of Financial Instruments
Accounting Standards Codification (“ASC”) 820, Fair Value Measurement, defines 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 classified 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, 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. |
In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy described above. The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy.
The carrying amounts of the Company’s short-term financial instruments, including cash and cash equivalents, accounts payable and accrued liabilities, approximate fair value due to the relatively short period to maturity for these instruments.
In connection with the Acquisition of VCN, the Company will be required pay up to $
81
2. Summary of Significant Accounting Policies – (continued)
The fair value of financial instruments measured on a recurring basis is as follows (in thousands):
As of March 10, 2022 | ||||||||||
Description | Total | Level 1 | Level 2 | Level 3 | ||||||
Liabilities: |
|
|
|
|
|
|
|
| ||
Contingent consideration | $ | |
| — |
| — | $ | | ||
As of December 31, 2022 | ||||||||||
Description |
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||
Liabilities: |
|
|
|
|
|
|
|
| ||
Contingent consideration | $ | |
| — |
| — | $ | | ||
The following table summarizes the change in fair value, as determined by Level 3 inputs, for all assets and liabilities using unobservable Level 3 inputs for the year ended December 31, 2022 (in thousands):
| Contingent | ||
Consideration | |||
Balance at March 10, 2022 | $ | | |
Payment of contingent consideration |
| ( | |
Change in fair value |
| | |
Balance at December 31, 2022 | $ | | |
The recurring Level 3 fair value measurements of contingent consideration for which a liability is recorded include the following significant unobservable inputs:
As of March 10, 2022 |
| ||||||
Valuation | Significant | Weighted Average |
| ||||
| Methodology |
| Unobservable Input |
| (range, if applicable) |
| |
Contingent Consideration |
| Discounted Cash Flows |
| Timing of Milestone Achievment |
| 2022-2027 | |
| |||||||
|
|
| Discount rate |
| % | ||
|
|
| Weighted Average Discount rate |
| % | ||
|
|
| Probability of Occurrence (periodic for each Milestone) |
| % | ||
|
|
| Probability of occurrence (cumulative through each Milestone) |
| % | ||
As of December 31, 2022 |
| ||||||
Valuation | Significant | Weighted Average |
| ||||
| Methodology |
| Unobservable Input |
| (range, if applicable) |
| |
Contingent Consideration |
| Discounted Cash Flows |
| Timing of Milestone Achievment |
| 2023-2028 | |
| |||||||
|
|
| Discount rate |
| % | ||
|
|
| Weighted Average Discount rate |
| % | ||
|
|
| Probability of Occurrence (periodic for each Milestone) |
| % | ||
|
|
| Probability of occurrence (cumulative through each Milestone) |
| % | ||
82
2. Summary of Significant Accounting Policies – (continued)
Stock-Based Payment Arrangements
Generally, all forms of stock-based payments, including stock option grants, warrants, restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date typically using the Black-Scholes option pricing model, based on the estimated number of awards that are ultimately expected to vest. Stock-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the stock-based payment, whichever is more readily determinable. The expense resulting from stock-based payments is recorded in research and development expense or general and administrative expense in the Consolidated Statements of Operations, depending on the nature of the services provided.
Segment information
The Company operates in one operating segment engaged in the research, development and commercialization of therapeutic drugs in which revenues are derived from product, license, and contract revenues. Operating segments are defined as components of an enterprise where separate financial information is evaluated regularly by the chief operating decision maker (CODM), the chief executive officer, in deciding how to allocate resources and assessing performance. The Company’s CODM allocates resources and assesses performance based upon discrete financial information at the consolidated level.
Foreign Currencies
The functional currency of the Company’s VCN subsidiary is the Euro. VCN’s Assets and liabilities are translated to U.S. dollars based on exchange rates at the end of each reporting period. Income and expense items are translated at weighted average exchange rates prevailing during the reporting period. Translation adjustments are accumulated in a separate component of stockholders’ equity in the accompanying consolidated balance sheets. Transaction gains and losses are classified as other income (expense) net in the accompanying consolidated statements of operations.
Income Taxes
The Company accounts for income taxes under the liability method; under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain.
The Company utilizes a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.
Recent Accounting Pronouncements and Developments
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity's own equity and improves and amends the related earnings per share guidance for both Subtopics. The ASU will be effective for annual reporting periods after December 15, 2023 and interim periods within those annual periods and early adoption is permitted in annual reporting periods ending after December 15, 2020. The Company has adopted ASU 2020-06 on January 1, 2022. The ASU impacted the analysis of the accounting treatment for the issuance of Convertible Preferred Series C & D stock during the third quarter, specifically the cash conversion and beneficial conversion features.
83
2. Summary of Significant Accounting Policies – (continued)
In October 2021, the FASB issued Accounting Standards Update 2021-08 that address the accounting for Contract Assets and Liabilities from Contracts with Customers in a business combination (“ASU 2021-08”), with an effective date for SYN of January 1, 2024 (earlier adoption permitted). ASU 2021-08 provides that existing contract assets and liabilities (including deferred costs to obtain and deferred revenue) are measured in a business combination under the measurement and recognition requirements of ASC 606. ASU 2021-08 should generally “result in an acquirer recognizing and measuring the acquired contract assets and liabilities consistent with how they were recognized and measured in the acquiree’s financial statements.” The Company is currently assessing the impact of ASU 2021-08 on its consolidated financial statements.
Restatement of Previously Issued Unaudited Interim Consolidated Financial Statements
In connection with the preparation of its consolidated financial statements for the twelve months ended December 31, 2022, the Company determined that its previously issued unaudited interim consolidated financial statements for the periods ended June 30, and September 30, 2022 contained errors in the application of U.S. generally accepted accounting principles as summarized below.
Application of FASB ASC 740 Income taxes
During the preparation of its annual tax provision for the year ended December 31, 2022, the Company determined that a deferred tax asset related to VCN’s indefinite-lived net operating loss generated during the second and third quarters of 2022 should have been established. Further, because of an existing deferred tax liability associated with an indefinite-lived intangible asset is considered a source of income for the deferred tax asset, the deferred tax asset was determined to be more likely than not recoverable. Since the deferred tax asset was determined to be more likely than not recoverable it would have resulted in an income tax benefit during the interim periods thereby reducing the Company’s consolidated net loss and loss per share for the three- and six-months periods ended June 30, 2022 and the three- and nine-month periods ended September 30, 2022.
Restatement
In accordance with Staff Accounting Bulletin ("SAB") No. 99, Materiality, the Company evaluated these misstatements and, based on an analysis of quantitative and qualitative factors, determined that the impact of these misstatements was material to its reporting periods ended June 30, 2022 and September 30, 2022. Accordingly, the Company has restated its unaudited interim consolidated financial statements for the interim reporting periods as of June 30, 2022 and for the three- and six-months then ended and as of September 30, 2022 and for the three- and nine-months then ended, and has included those restated financial statements within this annual report.
Immaterial Adjustments
Because we are restating prior periods, we are also reflecting other immaterial adjustments related to the valuation of the contingent consideration liabilities and the in process research and development asset, which has a corresponding effect on the associated deferred tax liability and recorded goodwill. It was determined that incorrect clinical trial success rates were used in the determination of the fair value of the contingent consideration liabilities and the in process research and development asset for the interim reporting periods as of June 30, 2022 and for the three and six-months then ended and as of September 30, 2022 and for the three and nine-months then ended.
See Note 14 - Restatement of Previously Reported Unaudited Interim Consolidated Financial Statements (Unaudited) for restatement of the Company's previously reported unaudited interim consolidated financial statements that were impacted by these misstatements.
84
3. BUSINESS COMBINATION
Summary
On March 10, 2022, the Company completed the acquisition of all the outstanding shares of VCN (the “VCN Shares”) from the shareholders of VCN. VCN (which changed its name to Theriva Biologics, S.L.) is a clinical-stage biopharmaceutical company developing new oncolytic adenoviruses for the treatment of cancer. Theriva’s lead product candidate, VCN-01, is being studied in clinical trials for pancreatic cancer and retinoblastoma with additional investigator sponsored trials in indications including head and neck squamous cell carcinoma (HNSCC) and brain tumors. VCN-01 is designed to be administered systemically, intratumorally or intravitreally, either as a monotherapy or in combination with standard of care, to treat a wide variety of cancer indications. VCN-01 is designed to replicate selectively and aggressively within tumor cells, and to degrade the tumor stroma barrier that serves as a significant physical and immunosuppressive barrier to cancer treatment. Degrading the tumor stroma has been shown to improve access to the tumor by the virus and additional therapies such as chemo- and immuno-therapies. Importantly, degrading the stroma exposes tumor antigens, turning “cold” tumors “hot” and enabling a sustained anti-tumor immune response. VCN has the exclusive rights to four patent families for proprietary technologies, as well as technologies developed in collaboration with the Virotherapy Group of the Catalan Institute of Oncology (ICO-IDIBELL) and with Hospital Sant Joan de Deu (HSJD), with a number of additional patents pending. As consideration for the purchase of the VCN Shares, the Company paid $
In anticipation of the Acquisition, prior to the Closing, the Company loaned VCN $
Total purchase consideration including cash, common shares and contingent consideration was valued at approximately $
|
| ||
Cash paid at Closing | $ | | |
Receivable from VCN “effectively settled“ | | ||
Fair value of common shares issued | | ||
Fair value of contingent consideration | | ||
$ | |
As of March 31, 2022, the fair value of the contingent consideration was approximately $
The Company acquired VCN due to its track record of being a research and development engine capable of fueling sustainable growth, to expand the Company’s research and development pipeline, and to diversify the Company’s potential future revenue opportunities.
85
3. BUSINESS COMBINATION – (continued)
The allocation of the fair value of the VCN acquisition updated for measurement period and other adjustments is shown in the table below.
Estimated fair value | |||
($in thousands) | |||
Cash and cash equivalents |
| $ | |
Receivables |
| | |
Property and equipment |
| | |
In-process research and development intangible asset |
| | |
Goodwill |
| | |
Deferred tax assets (liabilities), net |
| ( | |
Accounts payable |
| ( | |
Accrued expenses |
| ( | |
Accrued employee benefits |
| ( | |
Loan Payable-current |
| ( | |
Other long-term liabilities |
| ( | |
Total purchase consideration | $ | | |
The net assets were recorded at their estimated fair value. In valuing acquired assets and liabilities, fair value estimates were based primarily on future expected cash flows, market rate assumptions for contractual obligations, and appropriate discount rates. In connection with the acquisition, we recognized $
Goodwill is considered an indefinite-lived asset and relates primarily to intangible assets that do not qualify for separate recognition, such as the assembled workforce and synergies between the entities. Goodwill of $
Theriva Biologics S.L. operations recorded a net loss of $
During the year ended December 31, 2022 the Company recognized the following measurement period adjustments:
| ● | estimate of acquired liabilities resulting in a $ |
| ● | estimate in the receivable from the prior owner resulting in a $ |
| ● | estimated fair value of its in-process R&D resulting in a $ |
The cumulative impact of the re-measurements as of the year ended December 31, 2022 was a reduction in accrued liabilities of $
Because we are restating prior periods, we are also reflecting other immaterial adjustments related to the valuation of the contingent consideration liabilities and the in process research and development asset. See Note 14 - Restatement of Previously Reported Unaudited Interim Consolidated Financial Statements (Unaudited) for restatement of the Company’s previously reported unaudited interim consolidated financial statements that were impacted by these misstatements.
Pro Forma Consolidated Financial Information (unaudited)
The following unaudited pro forma consolidated financial information summarizes the results of operations for the periods indicated as if the VCN acquisition had been completed as of January 1, 2021 (in thousands):
86
3. BUSINESS COMBINATION – (continued)
Year Ended December 31 | |||||
(in thousands) |
| 2022 |
| 2021 | |
Net revenues |
| — |
| $ | — |
Net loss |
| ( | $ | ( | |
Transaction Costs
In conjunction with the Acquisition, the Company incurred approximately $
4. Goodwill and Intangibles
The following table provides the Company’s Goodwill as of December 31, 2022.
| Goodwill (in thousands) | ||
Balance at December 31, 2021 | $ | — | |
Goodwill from Acquisition of VCN |
| | |
Goodwill impairment loss |
| — | |
Measurement Period Adjustments |
| ( | |
Effects of exchange rates |
| ( | |
Balance at December 31, 2022 | $ | | |
The following table provides the Company’s in-process R&D as of December 31, 2022.
In-process | |||
| R&D (in thousands) | ||
Balance at December 31, 2021 | $ | — | |
Acquired IPR&D |
| | |
Measurement Period Adjustments |
| | |
Effects of exchange rates |
| ( | |
Balance at December 31, 2022 | $ | | |
During the quarter ending September 30, 2022 and the quarter ended December 31, 2022, the Company experienced a sustained decline in the quoted market price of the Company’s common stock and the Company deemed this to be a trigger event for impairment. The Company performed an impairment analysis and concluded that the Goodwill and IPR&D was not impaired as of September 30, 2022 and December 31,2022.
87
5. Selected Balance Sheet Information
PREPAID EXPENSES AND OTHER CURRENT ASSETS (in thousands):
|
| December 31, |
| December 31, | ||
2022 | 2021 | |||||
Prepaid clinical research organizations | $ | | $ | | ||
Prepaid manufacturing expenses | | — | ||||
Prepaid insurance | | | ||||
Receivable from prior owner | | — | ||||
Prepaid consulting, subscriptions and other expenses |
| |
| | ||
VAT receivable |
| |
| — | ||
Total | $ | | $ | | ||
Prepaid CRO expense is classified as a current asset. The Company makes payments to the CROs based on agreed upon terms that include payments in advance of study services.
PROPERTY AND EQUIPMENT (in thousands)
|
| December 31, |
| December 31, | ||
2022 | 2021 | |||||
Computers and office equipment | $ | | $ | | ||
Other Property, Plant and Equipment | | — | ||||
Leasehold improvements |
| |
| | ||
Software |
| |
| | ||
| |
| | |||
Less: accumulated depreciation and amortization |
| ( |
| ( | ||
|
|
|
| |||
Total | $ | | $ | | ||
During the years ended December 31, 2022 and 2021 the Company recognized depreciation exprense of $
ACCRUED EXPENSES (in thousands)
|
| December 31, |
| December 31, | ||
2022 | 2021 | |||||
Accrued clinical consulting services | $ | | $ | | ||
Accrued vendor payments | | | ||||
Accrued manufacturing costs | | | ||||
|
|
|
| |||
Total | $ | | $ | | ||
ACCRUED EMPLOYEE BENEFITS (in thousands)
|
| December 31, |
| December 31, | ||
2022 | 2021 | |||||
Accrued bonus expense | $ | | $ | | ||
Accrued vacation expense |
| |
| | ||
Accrued compensation expense | | — | ||||
|
|
| ||||
Total | $ | | $ | | ||
88
6. Stock-Based Compensation and Warrants
Stock Incentive 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
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
On September 17, 2020, the stockholders approved and adopted the 2020 Stock Incentive Plan ("2020 Stock Plan") for the issuance of up to
In the event of an employee’s termination, the Company will cease to recognize compensation expense for that employee. Stock forfeitures are recognized as incurred. The fair value of the stock-based payment is recognized over the stated vesting period.
The Company has applied fair value accounting for all stock-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 assumptions used for the years ended December 31, 2022 and 2021 are as follows:
Year ended December 31, |
| ||||||
|
| 2022 |
| 2021 |
| ||
Exercise price | $ | $ | | ||||
Expected dividends |
| | % | | % | ||
Expected volatility |
| | % | | % | ||
Risk free interest rate |
| % | | % | |||
Expected life of option (years) |
| ||||||
Expected dividends —The Company has never declared or paid dividends on its common stock and has no plans to do so in the foreseeable future.
Expected volatility—Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The expected volatility assumption is derived from the historical volatility of the Company’s common stock over a period approximately equal to the expected term.
89
6. Stock-Based Compensation and Warrants – (continued)
Risk-free interest rate—The assumed risk-free rate used is a zero coupon U.S. Treasury security with a maturity that approximates the expected term of the option.
Expected life of the option—The period of time that the options granted are expected to remain unexercised. Options granted during the year have a maximum term of seven years. The Company estimates the expected life of the option term based on the weighted average life between the dates that options become fully vested and the maximum life of options granted.
The Company records stock-based compensation based upon the stated vesting provisions in the related agreements. The vesting provisions for these agreements have various terms as follows:
| ● | immediate vesting, |
| ● | in full on one-year anniversary date of grant date, |
| ● | half vesting immediately and remaining 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 and remaining over nine months, |
| ● | one-quarter immediate vesting and remaining over three years, |
| ● | one-quarter immediate vesting and remaining over 33 months, |
| ● | monthly over one year, and |
| ● | monthly over three years. |
During the years ended December 31, 2022 and 2021, the Company granted
Stock-based compensation expense included in general and administrative expenses and research and development expenses relating to stock options issued to employees for the years ended December 31, 2022 and 2021 was $
90
6. Stock-Based Compensation and Warrants (continued)
A summary of stock option activity for the years ended December 31, 2022 and 2021 is as follows:
|
|
| Weighted |
| Weighted Average |
| Aggregate | |||
Average Exercise | Remaining | Intrinsic | ||||||||
Options | Price | Contractual Life | Value | |||||||
Balance - December 31, 2020 |
| | $ | |
| $ | — | |||
|
|
|
|
|
|
|
| |||
Granted |
| | |
|
|
|
| |||
Exercised |
| — | — |
|
| |||||
Expired |
| ( | |
|
|
|
| |||
Forfeited |
| — | — |
|
|
|
| |||
Balance - December 31, 2021 |
| | |
| | |||||
|
|
|
|
|
|
|
| |||
Granted |
| | |
|
|
|
| |||
Exercised |
| — | — |
|
| |||||
Expired |
| ( | |
|
|
|
| |||
Forfeited |
| ( | |
|
|
|
| |||
|
|
|
|
|
|
|
| |||
Balance -December 31, 2022 - outstanding |
| | $ | |
| $ | | |||
|
|
|
|
|
|
| ||||
Balance - December 31, 2022 - exercisable |
| | $ | |
| $ | | |||
|
|
|
|
|
|
|
| |||
Grant date fair value of options granted - December 31, 2022 |
|
| $ | |
|
|
|
| ||
|
|
|
|
|
|
|
| |||
Weighted average grant date fair value - December 31, 2022 |
|
| $ | |
|
|
|
| ||
|
|
|
|
|
|
| ||||
Grant date fair value of options granted - December 31, 2021 |
|
| $ | |
|
|
|
| ||
|
|
|
|
|
|
|
| |||
Weighted average grant date fair value - December 31, 2021 |
|
| $ | |
|
|
|
| ||
The options outstanding and exercisable at December 31, 2022 are as follows:
Options Outstanding | Options Exercisable | ||||||||||||||
|
|
| Weighted |
|
|
| Weighted | ||||||||
Weighted | Average | Weighted | Average | ||||||||||||
Average | Remaining | Average | Remaining | ||||||||||||
Range of | Exercise | Contractual | Exercise | Contractual | |||||||||||
Exercise Price | Options | Price | Life | Options | Price | Life | |||||||||
$ |
| | $ | |
|
| | $ | |
| |||||
| |
| |
|
| |
| |
| ||||||
| | |
|
| | |
| ||||||||
As of December 31, 2022, total unrecognized stock-based compensation expense related to stock options was $
The FASB’s guidance for stock-based payments requires cash flows from excess tax benefits to be classified as a part of cash flows from operating activities. Excess tax benefits are realized tax benefits from tax deductions for exercised options in excess of the deferred tax asset attributable to stock compensation costs for such options. The Company did not record any excess tax benefits in 2022 or 2021. Cash received from option exercises under the Company’s stock-based compensation plans for the years ended December 31, 2022 and 2021 was
91
7. Stock Warrants
On October 15, 2018, the Company closed its underwritten public offering pursuant to which it received gross proceeds of approximately $
On November 16, 2020, the exercise price of the Warrants was reduced from $
If, at the time of exercise, there is no effective registration statement registering, or no current prospectus available for, the issuance of the shares of Common Stock to the holder, then the Warrants may only be exercised through a cashless exercise.
On August 3, 2022, the Company announced the exercise price of warrants issued by the Company in October 2018 was reduced from $
92
7. Stock Warrants – (continued)
A summary of all warrant activity for the Company for the years ended December 31, 2022 and 2021 is as follows:
|
| Number of |
| Weighted Average | |
Warrants | Exercise Price | ||||
Balance at December 31,2020 |
| | $ | | |
Granted |
| — |
| — | |
Exercised |
| ( |
| | |
Forfeited |
| — |
| — | |
Balance at December 31,2021 |
| |
| | |
Granted |
| — |
| — | |
Exercised |
| — |
| — | |
Forfeited |
| ( |
| | |
Balance at December 31,2022 |
| | $ | | |
A summary of all outstanding and exercisable warrants as of December 31, 2022 is as follows:
|
|
| Weighted Average | ||||
Warrants | Warrants | Remaining | |||||
Exercise Price | Outstanding | Exercisable | Contractual Life | ||||
$ | |
| |
| |
| |
8. Stockholders’ Equity
Series C and D Preferred Stock
On July 29, 2022, the Company closed a private placement offering pursuant to the terms of a Securities Purchase Agreement dated as of July 28, 2022 entered into with MSD Credit Opportunity Master Fund, L.P., pursuant to which the Company agreed to issue and sell
The Company included certain proposals at its 2022 annual meeting of stockholders, including to consider (i) an amendment to the Company's Articles of Incorporation, as amended (the "Charter"), to change the name of the Company to "Theriva Biologics, Inc." (the "Name Change"), (ii) an amendment to the Charter to increase the number of authorized shares of Common Stock from
93
8. Stockholders’ Equity (continued)
Pursuant to the Purchase Agreement, the Company has filed certificates of designation (the "Certificates of Designation") with the Secretary of the State of Nevada designating the rights, preferences and limitations of the shares of Series C Preferred Stock and Series D Preferred Stock. The Certificate of Designation for the Series C Preferred Stock provides, in particular, that the Series C Preferred Stock will have no voting rights other than the right to vote as a class on the Stockholder Items and the right to cast votes on an as converted to Common Stock basis on the Stockholder Items. The Certificate of Designation for the Series D Preferred Stock provides, in particular, that the Series D Preferred Stock will have no voting rights other than the right to vote as a class on the Stockholder Items and the right to cast
The holders of Preferred Stock will be entitled to dividends, on an as-if converted basis, equal to dividends actually paid, if any, on shares of Common Stock. The Conversion Price may be adjusted pursuant to the Certificates of Designation for stock dividends and stock splits, subsequent rights offering, pro rata distributions of dividends or the occurrence of a fundamental transaction (as defined in the applicable Certificate of Designation).
The Series C Preferred Stock and Series D Preferred Stock is classified as temporary equity as a result of the deemed liquidation provision. Transaction expenses paid to third parties will be charged to temporary equity and will not be accreted as deemed dividends until redemption becomes probable.
In order to comply with Section 122 of the NYSE American Company Guide, on August 9, 2022 the Company and the holder of the Company's Series C preferred stock and Series D preferred stock amended the Securities Purchase Agreement entered into between them on July 28, 2022 to provide that the holder may only submit
Series B Preferred Stock
On October 15, 2018, the Company closed its underwritten public offering pursuant to which it received gross proceeds of approximately $
In addition, pursuant to the Underwriting Agreement that the Company entered into with the Underwriters on October 10, 2018, the Company granted the Underwriters a day option (the “Over-allotment Option”) to purchase up to an additional
The conversion price of the Series B Preferred Stock and exercise price of the October 2018 Warrants is subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations, or similar events affecting the Common Stock. The exercise price of the Warrants is subject to adjustment in the event of certain dilutive issuances.
94
8. Stockholders’ Equity (continued)
On November 16, 2020, the exercise price of the Warrants was reduced from $
On August 3, 2022 the Company announced the exercise price of warrants issued by the Company in October 2018 was reduced from $
Since the effective conversion price of the Series B Preferred Stock is less than the fair value of the underlying Common Stock at the date of issuance, there is a beneficial conversion feature (“BCF”) at the issuance date. Because the Series B Preferred Stock has
Stock Repurchase
On December 22, 2022, The Company repurchased an aggregate of
Series A Preferred Stock
On September 11, 2017, the Company entered into a share purchase agreement (the “Purchase Agreement”) with an investor (the “Investor”), pursuant to which the Company offered and sold in a private placement
The Series A Preferred Stock ranks senior to the shares of the Company’s common stock, and any other class or series of stock issued by the Company with respect to dividend rights, redemption rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. Holders of Series A Preferred Stock are entitled to a cumulative dividend at the rate of
Any conversion of Series A Preferred Stock may be settled by the Company in shares of common stock only.
95
8. Stockholders’ Equity – (continued)
The holder’s ability to convert the Series A Preferred Stock into common stock is subject to
In the event of any liquidation, dissolution or winding-up of the Company, holders of the Series A Preferred Stock are entitled to a preference on liquidation equal to the greater of (i) an amount per share equal to the stated value plus any accrued and unpaid dividends on such share of Series A Preferred Stock (the “Accreted Value”), and (ii) the amount such holders would receive in such liquidation if they converted their shares of Series A Preferred Stock (based on the Accreted Value and without regard to any conversion limitation) into shares of the common stock immediately prior to any such liquidation, dissolution or winding-up (the greater of (i) and (ii), is referred to as the “Liquidation Value”).
In the event of any liquidation, dissolution or winding-up of the Company, holders of the Series A Preferred Stock are entitled to a preference on liquidation equal to the greater of (i) an amount per share equal to the stated value plus any accrued and unpaid dividends on such share of Series A Preferred Stock (the "Accreted Value"), and (ii) the amount such holders would receive in such liquidation if they converted their shares of Series A Preferred Stock (based on the Accreted Value and without regard to any conversion limitation) into shares of the common stock immediately prior to any such liquidation, dissolution or winding-up (the greater of (i) and (ii), is referred to as the "Liquidation Value"). Except as otherwise required by law, the holders of Series A Preferred Stock have no voting rights, other than customary protections against adverse amendments and issuance of pari passu or senior preferred stock. Upon certain change of control events involving the Company, prior to the filing of the amendment to the Certificate of Designation for the Series A Preferred Stock described below, the Company will be required to repurchase all of the Series A Preferred Stock at a redemption price equal to the greater of (i) the Accreted Value and (ii) the amount that would be payable upon a change of control (as defined in the Certificate of Designation) in respect of common stock issuable upon conversion of such share of Series A Preferred Stock if all outstanding shares of Series A Preferred Stock were converted into common stock immediately prior to the change of control. On or at any time after
The Series A Preferred Stock was classified as temporary equity due to the shares being redeemable based on contingent events outside of the Company’s control. Since the effective conversion price of the Series A Preferred Stock is less than the fair value of the underlying common stock at the date of issuance, there is BCF at the issuance date. Because the Series A Preferred Stock has no stated maturity or redemption date and is immediately convertible at the option of the holder, the discount created by the BCF is immediately charged to accumulated deficit as a “deemed dividend” and impacts earnings per share. During the year ended December 31, 2017, the Company recorded a discount of $
96
8. Stockholders’ Equity – (continued)
On January 27, 2021, the Company filed an amendment to the Certificate of Designation for the Series A Preferred Stock to (i) lower the stated Conversion Price through September 30, 2021 and (ii) remove their change in control put, as an inducement for the holder to fully convert its Series A Preferred Stock. The Amendment to the Certificate of Designation for its Series A Convertible Preferred Stock (the “Certificate of Amendment”) with the Secretary of State of the State of Nevada adjusted the conversion price from $
B. Riley Securities Sales Agreement
On August 5, 2016, the Company entered into the B. Riley FBR Sales Agreement with FBR Capital Markets & Co. (now known as B. Riley Securities), which enables the Company to offer and sell shares of the common stock from time to time through B. Riley Securities, Inc. as the Company’s sales agent. Sales of common stock under the B. Riley Securities Sales Agreement are made in sales deemed to be “at-the-market” equity offerings as defined in Rule 415 promulgated under the Securities Act. B. Riley Securities, Inc. is entitled to receive a commission rate of up to
On February 9, 2021, the Company entered into an amended and restated sales agreement with B. Riley Securities, Inc. (“B. Riley”) and A.G.P./Alliance Global Partners (“AGP”) in order to include AGP as an additional sales agent for the Company’s “at the market offering” program (the “Amended and Restated Sales Agreement”).
During the year ended December 31, 2021, the Company sold through the At Market Issuance Sales Agreement and the Amended and Restated Sales Agreement approximately
97
9. Indebtedness
As a result of the acquisition of VCN the Company acquired interest-free or below-market interest rates loans (
December 31, 2022 | December 31, 2022 | |||||
Current | Non-current | |||||
NEBT Loan |
| $ | |
| $ | |
RETOS 2015 Loan |
| |
| | ||
$ | | $ | | |||
A maturity analysis of the debt as of December 31, 2022 is as follows (amounts in thousands of dollars):
2023 |
| $ | |
2024 |
| | |
2025 |
| | |
2026 |
| | |
2027 |
| | |
2028 |
| | |
Total | $ | |
10. Non-controlling Interest and Related Party
On September 5, 2018, the Company entered into an agreement (the ‘Stock Purchase 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 paid $
The Stock Purchase 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 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.
98
10. Non-controlling Interest and Related Party (continued)
On September 30, 2020, CSMC Medically Associated Science and Technology Program (MAST) formally agreed to discontinue the ongoing Phase 2b investigator-sponsored clinical study of SYN-010 following the results of a planned interim futility analysis. Although it was concluded that SYN-010 was well tolerated, SYN-010 was unlikely to meet its primary endpoint by the time enrollment is completed.
On November 9, 2020, the Company and its subsidiary, Synthetic Biomics, Inc. and CSMC mutually agreed to terminate the exclusive license agreement dated December 5, 2013 and all amendments thereto and the clinical trial agreement relating to SYN-010. The determination to terminate the SYN-010 license agreement was agreed to following the completion of a planned interim futility analysis of the Phase 2b investigator-sponsored clinical trial of SYN-010. On September 30, 2020, CSMC (the Company’s SYN-010 clinical development partner) informed the Company that it discontinued the ongoing Phase 2b investigator-sponsored clinical study of SYN-010 IBS-C patients. During 2021, CSMC returned its shares of SYN Biomics to the Company. The Company’s interest in SYN Biomics is now
The Company’s non-controlling interest is accounted for under ASC 810, Consolidation and represents the minority stockholder’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 in the face of the Consolidated Statements of Operations.
During 2021, the minority shareholders returned all remaining shares of SYN Biomics to the Company for no consideration.
11. License, Collaborative and Employment Agreements and Commitments
License and Collaborative Agreements
As described below, the Company has entered into several license and collaborative agreements for the right to use research, technology and patents. Some of these license and collaborative agreements may contain milestones. The specific timing of such milestones cannot be predicted and is dependent on future developments as well as regulatory actions which cannot be predicted with certainty (including actions which may never occur). Further, under the terms of certain licensing agreements, the Company may have the obligation to pay certain milestones contingent upon the achievement of specific levels of sales. Due to the long-range nature of such commercial milestone amounts, they are neither probable at this time nor predictable and consequently are not included in this disclosure.
Washington University School of Medicine in St. Louis Clinical Trial Agreement
In August 7, 2019, the Company entered into a clinical trial agreement (“CTA”) with Washington University School of Medicine in St. Louis (“Washington University”) to conduct a Phase 1b/2a single-center, randomized, double-blinded, placebo-controlled clinical trial designed to evaluate the safety, tolerability and pharmacokinetics of oral SYN-004 (ribaxamase) in up to 36 adult allogeneic hematopoietic cell transplant (HCT) recipients (the “Study”). Under the terms of the CTA, the Company will serve as the sponsor of the Study and supply SYN-004 (ribaxamase), as well as compensate Washington University for all research services to be provided in connection with the Study which is estimated to cost approximately $
99
11. License, Collaborative and Employment Agreements and Commitments (continued)
The CTA continues in effect until completion of all obligations under the CTA. Either party may terminate the CTA prior to completion of its obligations (i) if authorization of the study is withdrawn by the FDA; (ii) if the emergence of any adverse reaction or side effect with SYN-004 (ribaxamase) administered in the Study is of such magnitude or incidence in the opinion of either party to support termination; or (iii) upon a breach of the terms of the CTA if the breaching party fails to cure the breach within 30 days after receipt of notice. The Company has the right to terminate the CTA (i) effective immediately if Washington University fails to perform the study in accordance with the terms of the protocol, the CTA or applicable laws or regulations or if Washington University or the principal investigator become debarred or (ii) upon 14 days written notice and Washington University has the right to terminate the CTA upon 14 days notice if the principal investigator becomes unable to perform or complete the Study and the parties have not, prior to the expiration of such fourteen (14) day period, agreed to an alternative principal investigator.
University of Texas Austin Agreement
On December 19, 2012, the Company entered into a License Agreement with University of Texas Austin (“UT”) for the exclusive license of the right to use, develop, manufacture, market and commercialize certain research and patents related to pertussis antibodies. The License Agreement provides that UT Austin is entitled to payment of past patent expenses, an annual payment of $
In connection with the License Agreement, the Company and UT Austin also entered into a Sponsored Research Agreement pursuant to which UT Austin will perform certain research work related to pertussis. The Sponsored Research Agreement may be renewed annually, in the sole discretion of the Company, after the first year for two additional one year terms with a fixed fee for the first year of $
Prev ABR LLC (“Prev”) Agreement
On November 28, 2012, the Company entered into an agreement (“Prev Agreement”) to acquire the C. diff program assets of Prev, including the pre-Investigational New Drug (IND) package, Phase 1 and Phase 2 clinical data, manufacturing process data and all issued and pending U.S. and international patents. Upon execution and closing of the Prev Agreement, the Company paid Prev cash payments of $
100
11. License, Collaborative and Employment Agreements and Commitments (continued)
Employment Agreements
On December 6, 2018, the Company entered into a three-year employment agreement with Steven A. Shallcross, (the “Employment Agreement”), to serve as the Chief Executive Officer and to continue to serve as the Chief Financial Officer of the Company.
The Employment Agreement has a stated term of three years but may be terminated earlier pursuant to its terms. If Mr. Shallcross’ employment is terminated for any reason, he or his estate as the case may be, will be entitled to receive the accrued base salary, vacation pay, expense reimbursement and any other entitlements accrued by him to the extent not previously paid (the “Accrued Obligations”); provided, however, that if his employment is terminated (i) by the Company without Cause or by Mr. Shallcross for Good Reason (as each is defined in the Employment Agreement) then in addition to paying the Accrued Obligations, (a) the Company will continue to pay his then current base salary and continue to provide benefits at least equal to those that were provided at the time of termination for a period of twelve (12) months and (b) he shall have the right to exercise any vested equity awards until the earlier of six (6) months after termination or the remaining term of the awards; or (ii) by reason of his death or Disability (as defined in the Employment Agreement), then in addition to paying the Accrued Obligations, Mr. Shallcross would have the right to exercise any vested options until the earlier of six (6) months after termination or the remaining term of the awards. In such event, if Mr. Shallcross commenced employment with another employer and becomes eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits to be provided by the Company as described herein would terminate.
On December 23, 2020, the Board of Directors of the Company awarded Steven A. Shallcross (i) a cash bonus equal to
On December 23, 2021, the Board of Directors of the Company awarded Steven A. Shallcross (i) a cash bonus equal to approximately
On December 15, 2022, the Board of Directors of the Company awarded Steven A. Shallcross: (i) a cash bonus equal to $
On March 22, 2022, Synthetic Biologics, Inc. (the "Company") entered into an employment agreement with Frank Tufaro (the "Employment Agreement") to serve as the Chief Operating Officer of the Company. Pursuant to the Employment Agreement, Dr. Tufaro will receive an annual base salary of $
101
11. License, Collaborative and Employment Agreements and Commitments (continued)
The Employment Agreement has a stated term of three (3) years but may be terminated earlier pursuant to its terms. If Dr. Tufaro's employment is terminated for any reason, he or his estate as the case may be, will be entitled to receive the accrued base salary, any unpaid annual bonus earned with respect to any calendar year ending on or preceding the date of termination, vacation pay, expense reimbursement and any other entitlements accrued by him to the extent not previously paid (the "Accrued Obligations"); provided, however, that if his employment is terminated (i) by the Company without Cause or by Dr. Tufaro for Good Reason (as each is defined in the Employment Agreement) then in addition to paying the Accrued Obligations, (a) the Company will continue to pay his then current base salary and continue to provide benefits at least equal to those that were provided at the time of termination for a period of six (6) months and (b) all unvested stock options and other equity awards will immediately vest and he will be entitled to exercise any vested equity awards until the earlier of six (6) months after termination or the remaining term of the awards; or (ii) by reason of his death or Disability (as defined in the Employment Agreement), then in addition to paying the Accrued Obligations, Dr. Tufaro, or his estate as the case may be, would have the right to exercise any vested options until the earlier of six (6) months after termination or the remaining term of the awards. If Dr. Tufaro commenced employment with another employer and becomes eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits to be provided by the Company as described herein would terminate.
On December 15, 2022, the Board awarded Frank Tufaro, the Company's Chief Operating Officer: (i) a cash bonus equal to approximately
Operating Lease
The Company’s existing lease as of December 31, 2022 for its U.S. location is classified as an operating lease. As of December 31, 2022, the Company has two operating leases for facilities. During the quarter ended June 30, 2021, the Company renewed its Rockville MD facility lease by entering into a Second Lease Amendment which extends the lease term for 63 months beginning on September 1, 2022 and ending on December 31, 2027 at stated rental rates and including a 3-month rent abatement. The Second Amendment also has options for a Tenant Improvement Allowance and a Second Extension Term. The Second Amendment also gives the Company the right to expand their space by giving notice to the landlord before December 31, 2021. The Company did not give notice to expand the space during 2021. The Second Extension Term is offered at market rates and there is no economic incentive for the lessee, therefore the Company has determined that it is not part of the original lease term. There is an option in this Second Amendment to Lease for the Company to borrow funds for tenant improvements subject to an
The Company also leases research and office facilities in Barcelona Spain. The current lease is short term agreement with a 90-day termination notice provision that can be exercised by either party. On the closing date of the VCN Acquisition, a sublease was executed for the Company to lease research and office facilities at a new location in Parets del Vallès (Barcelona) from the former majority owner of VCN. This lease was executed for an initial term estimated to begin in January 2023 until October 2026, with an option to renew for an additional five years.
Operating lease costs are presented as part of general and administrative expenses in the condensed consolidated statements of operations, and for the year ended December 31, 2022 and 2021 approximated $
102
11. License, Collaborative and Employment Agreements and Commitments (continued)
A maturity analysis of our operating leases as of December 31, 2022 is as follows (amounts in thousands of dollars):
Future undiscounted cash flow for the years ending December 31, |
|
| |
2023 |
| | |
2024 | | ||
2025 | | ||
2026 | | ||
2027 |
| | |
Total | | ||
Discount factor | ( | ||
| |||
Lease liability - current | ( | ||
Lease liability - long term | $ | |
Consulting Fees
In November 2017, the Company engaged a regulatory consultant to assist in the Company’s efforts to prepare, file and obtain FDA approval for ribaxamase. The term of the engagement is on a monthly basis, provided that either party may terminate the agreement at any time by providing the other party a six-month notice period. The Company was obligated to pay the consultant a monthly retainer in addition to success fee payments of up to an aggregate of $
Risks and Uncertainties
The uncertain financial markets, disruptions in supply chains, mobility restraints, and changing priorities as well as volatile asset values could impact our business in the future. The outbreak and government measures taken in response to the pandemic have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, have spiked, while demand for other goods and services, such as travel, have fallen. The future progression of the pandemic and its effects on the Company’s business and operations are uncertain. The Company may face difficulties recruiting or retaining patients in its ongoing and planned clinical trials if patients are affected by the virus or are fearful of traveling to our clinical trial sites because of the outbreak. We and our third-party contract manufacturers, contract research organizations, and clinical sites may also face disruptions in procuring items that are essential to our research and development activities, including, for example, medical and laboratory supplies used in its clinical trials or preclinical studies, in each case, that are sourced from abroad or for which there are shortages because of ongoing efforts to address the outbreak. Further, although the Company have not experienced any material adverse effects on its business due to increasing inflation, it has raised operating costs for many businesses and, in the future, could impact demand or pricing manufacturing of its drug candidates or services providers, foreign exchange rates or employee wages. The Company is actively monitoring the effects these disruptions and increasing inflation could have on its operations.
Through the VCN Acquisition, the Company has operations in Spain and may conduct research and development, manufacturing, and clinical trials in Western European countries. The invasion of Ukraine by Russia and the retaliatory measures that have been taken, or could be taken in the future, by the United States, NATO, and other countries have created global security concerns that could result in a regional conflict and otherwise have a lasting impact on regional and global economies, any or all of which could disrupt our supply chain, and despite the fact that we currently do not plan any clinical trials in Eastern Europe, may adversely impact the cost and conduct of R&D, manufacturing, and international clinical trials of our product candidates.
103
12. Income Taxes
There was an income tax benefit for the year ended December 31, 2022 of $
| 2022 |
| 2021 | |||
Computed “expected” tax-benefit - Federal |
| $ | ( |
| $ | ( |
Computed “expected” tax-benefit - State |
| ( |
| ( | ||
Non-deductible stock-based compensation |
| |
| | ||
State Tax Rate Adjustment |
| ( |
| | ||
Foreign Tax Rate Adjustment |
| ( |
| — | ||
Forfeited NQSO Trueup | | — | ||||
Transaction Costs |
| |
| |||
Fair Market Value Adjustment - Contingent Consideration |
| |
| |||
Other Permanent Differences |
| |
| |||
Change in valuation allowance | | | ||||
| ( | $ | — | |||
104
12. Income Taxes (continued)
Deferred Tax Assets and Liabilities
Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets for federal and state income taxes are as follows (in thousands):
Year Ended December 31, | ||||||
| 2022 |
| 2021 | |||
Deferred Tax Assets: |
|
|
|
| ||
Federal & State NOL Carryforward | $ | | $ | | ||
Accrued Compensation |
| |
| | ||
Stock Issued For Services |
| |
| | ||
Stock Issued for Acquisition of Program |
| |
| | ||
Stock Issued for License Agreement | | | ||||
Stock Issued For Milestone Payment | | | ||||
Amortizable License Fee | | | ||||
Capitalized Research & Development costs | | | ||||
Total Gross DTA |
| |
| | ||
Less: Val. Allowance |
| ( |
| ( | ||
Total Deferred Tax Assets |
| |
| | ||
Deferred Tax Liabilities: | ||||||
IPR&D | ( | |||||
|
| |||||
Total Gross DTL |
| ( |
| | ||
Net Deferred Tax Assets | $ | ( | $ | | ||
On March 10, 2022, the Company acquired VCN, a Spanish Company in a tax-free stock acquisition. Due to this acquisition, VCN is a wholly owned subsidiary of the company. As a result of the acquisition, a deferred tax liability was established with purchase accounting related to acquired In Process Research and Development. A deferred tax asset was also established with purchase accounting related to VCN’s unlimited life net operating loss carryover.
At December 31, 2022, the Company has a gross Federal net operating loss carry-forward of approximately $
In 2020, the Company completed an Internal Revenue Code Section 382 analysis of its historical net operating loss carry-forward amount. As a result, the prior year net operating loss carry-forward was limited by $
The Company’s pre-2018 net operating losses expire on various dates through
105
12. Income Taxes (continued)
At December 31, 2022, the Company has a gross Foreign net operating loss carryforward of approximately $
The Company’s valuation allowance at December 31, 2022 was approximately $
Undistributed earnings of our foreign subsidiary, VCN, are considered to be permanently reinvested and, accordingly, no deferred U.S. income taxes have been provided thereon. Upon distribution of any earnings in the form of dividends or otherwise, those earnings would be subject to U.S. income tax. At the present time, VCN does not have any earnings and thus it is not necessary to estimate the amount of U.S. income taxes that might be payable if these earnings were repatriated.
We have incurred net operating losses since inception, and we do not have any significant unrecognized tax benefits.
13. Subsequent Events
On the closing date of the VCN Acquisition, a sublease was executed for the Company to lease research and office facilities at a new location in Parets del Vallès (Barcelona) from the former majority owner of VCN. This lease was executed for an initial term estimated to begin in January 2023 until October 2026, with an option to renew for an additional five years. On January 15, 2023, the company moved into the facilities and the lease commenced.
106
14. Restatement Of Previously Reported Unaudited Interim Consolidated Financial Statements (Unaudited)
Subsequent to filing the Company’s unaudited interim consolidated financial statements for the periods ended June 30, 2022, and September 30, 2022, as reported in the Company’s Quarterly Reports on Form 10-Q filed on August 8, 2022, and November 10, 2022, respectively, the Company determined that certain of the amounts in the Company's previously reported unaudited interim consolidated financial statements and accompanying footnote disclosures contained misstatements. See Note 2 – Restatement of Previously Issued Unaudited Interim Consolidated Financial Statements for additional information.
In accordance with SAB No. 99, Materiality, the Company evaluated these misstatements, and based upon an analysis of quantitative and qualitative factors, determined that the impact of these misstatements was material to its unaudited interim consolidated financial statements as of and for the three and six-months ended June 30, 2022 and as of and for the three and nine-months ended September 30, 2022, and a restatement of the previously reported unaudited interim consolidated financial statements was required. The Company has not filed, and does not intend to file, an amendment to the Company’s previously filed Quarterly Reports on Form 10-Q for the quarters ended June 30, 2022 and September 30, 2022, but instead is restating its unaudited interim financial statements in this Annual Report on Form 10-K
The effects of the restatement and immaterial out of period adjustments of the previously reported Consolidated Balance Sheets are presented below:
As of June 30, 2022 | ||||||||||||
| As Previously |
| Restatement |
| Other Immaterial | |||||||
(amounts in thousands, except per share data) |
| Reported |
| Adjustments |
| Adjustments | As Restated | |||||
Assets |
|
|
|
|
|
|
| |||||
Current Assets |
|
|
|
|
|
|
| |||||
Cash and cash equivalents | $ | | $ | — | $ | — | $ | | ||||
Prepaid expenses and other current assets |
| |
| — |
| — |
| | ||||
Total Current Assets |
| |
| — |
| — |
| | ||||
Non-Current Assets |
|
|
|
|
|
|
|
| ||||
Property and equipment, net |
| |
| — |
| — |
| | ||||
Restricted cash |
| |
| — |
| — |
| | ||||
Right of use asset |
| |
| — |
| — |
| | ||||
In-process research and development |
| |
| — |
| ( |
| | ||||
Goodwill |
| |
| — |
| |
| | ||||
Deposits and other assets |
| |
| — |
| — |
| | ||||
Total Assets | $ | | $ | — | $ | ( | $ | | ||||
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
| ||||
Current Liabilities: |
|
|
|
|
|
|
|
| ||||
Accounts payable | $ | | $ | — | $ | — | $ | | ||||
Accrued expenses |
| |
| — |
| — |
| | ||||
Accrued employee benefits |
| |
| — |
| — |
| | ||||
Contingent consideration, current portion |
| |
| — |
| ( |
| | ||||
Loans Payable-current |
| |
| — |
| — |
| | ||||
Operating lease liability |
| |
| — |
| — |
| | ||||
Total Current Liabilities |
| |
| — |
| ( |
| | ||||
Non-current Liabilities |
|
|
|
|
|
|
|
| ||||
Non-current contingent consideration |
| |
| — |
| ( |
| | ||||
Loan Payable - Long term |
| |
| — |
| — |
| | ||||
Deferred tax liabilities, net |
| |
| ( |
| ( |
| | ||||
Lease liability - Long term |
| |
| — |
| — |
| | ||||
Total Liabilities |
| |
| ( |
| ( |
| | ||||
Commitments and Contingencies |
|
|
|
|
|
|
|
| ||||
Stockholders’ Equity (Deficit): |
|
|
|
|
|
|
|
| ||||
Common stock, $ |
| |
| — |
| — |
| | ||||
Additional paid-in capital |
| |
| — |
| — |
| | ||||
Accumulated other comprehensive loss |
| ( |
| — |
| |
| ( | ||||
Accumulated deficit |
| ( |
| |
| ( |
| ( | ||||
Total Stockholders’ Equity |
| |
| |
| |
| | ||||
Total Liabilities and Stockholders’ Equity | $ | | $ | — | $ | ( | $ | | ||||
107
As of September 30, 2022 | ||||||||||||
| As Previously |
| Restatement |
| Other Immaterial |
| ||||||
(amounts in thousands, except per share data) | Reported | Adjustments | Adjustments | As Restated | ||||||||
Assets |
|
|
|
|
|
|
|
| ||||
Current Assets |
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents | $ | | $ | — | $ | — | $ | | ||||
Prepaid expenses and other current assets |
| |
| — |
| — |
| | ||||
Total Current Assets |
| |
| — |
| — |
| | ||||
Non-Current Assets |
|
|
|
|
|
|
|
| ||||
Property and equipment, net |
| |
| — |
| — |
| | ||||
Restricted cash |
| |
| — |
| — |
| | ||||
Right of use asset |
| |
| — |
| — |
| | ||||
In-process research and development |
| |
| — |
| ( |
| | ||||
Goodwill |
| |
| — |
| |
| | ||||
Deposits and other assets |
| |
| — |
| — |
| | ||||
Total Assets | $ | | $ | — | $ | ( | $ | | ||||
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
| ||||
Current Liabilities: |
|
|
|
|
|
|
|
| ||||
Accounts payable | $ | | $ | — | $ | — | $ | | ||||
Accrued expenses |
| |
| — |
| — |
| | ||||
Accrued employee benefits |
| |
| — |
| — |
| | ||||
Contingent consideration, current portion |
| |
| — |
| ( |
| | ||||
Loans Payable-current |
| |
| — |
| — |
| | ||||
Operating lease liability |
| |
| — |
| — |
| | ||||
Total Current Liabilities |
| |
| — |
| ( |
| | ||||
Non-current Liabilities |
|
|
|
|
|
|
|
| ||||
Non-current contingent consideration |
| |
| — |
| ( |
| | ||||
Loan Payable - Long term |
| |
| — |
| — |
| | ||||
Deferred tax liabilities, net |
| |
| ( |
| ( |
| | ||||
Lease liability - Long term |
| |
| — |
| — |
| | ||||
Total Liabilities |
| |
| ( |
| ( |
| | ||||
Commitments and Contingencies |
|
|
|
|
|
|
|
| ||||
Series C convertible preferred stock, $ |
| |
| — |
| — |
| | ||||
Series D convertible preferred stock, $ |
| |
| — |
| — |
| | ||||
Stockholders’ Equity (Deficit): |
|
|
|
|
|
|
|
| ||||
Common stock, $ |
| |
| — |
| — |
| | ||||
Additional paid-in capital |
| |
| — |
| — |
| | ||||
Accumulated other comprehensive loss |
| ( |
| — |
| |
| ( | ||||
Accumulated deficit |
| ( |
| |
| ( |
| ( | ||||
Total Stockholders’ Equity |
| |
| |
| |
| | ||||
Total Liabilities and Stockholders’ Equity | $ | | $ | — | $ | ( | $ | | ||||
108
The effect of the restatement and immaterial out of period adjustments of the previously reported Consolidated Statements of Income (Loss) is presented below:
Three-months ended June 30, 2022 | ||||||||||||
| As Previously |
| Restatement |
| Other Immaterial |
| ||||||
(amounts in thousands, except per share data) | Reported | Adjustments | Adjustments | As Restated | ||||||||
Operating Costs and Expenses: |
|
|
|
|
|
|
|
| ||||
General and administrative | $ | | $ | — | $ | | $ | | ||||
Research and development |
| |
| — |
| — |
| | ||||
Total Operating Costs and Expenses |
| |
| — |
| |
| | ||||
Loss from Operations |
| ( |
| — |
| ( |
| ( | ||||
Other Expense: |
|
|
|
|
|
|
|
| ||||
Exchange loss |
| ( |
| — |
| — |
| ( | ||||
Interest income |
| |
| — |
| — |
| | ||||
Total Other Income(Expense) |
| |
| — |
| — |
| | ||||
Net Loss before income taxes |
| ( |
|
|
| ( |
| ( | ||||
Income tax benefit |
| — |
| |
| — |
| | ||||
Net Loss |
| ( |
| |
| ( |
| ( | ||||
Net Loss Attributable to Non-controlling Interest |
| — |
| — |
| — |
| — | ||||
Net Loss Attributable to Synthetic Biologics, Inc. and Subsidiaries | $ | ( | $ | | $ | ( | $ | ( | ||||
Series A Preferred Stock Dividends |
| — |
| — |
| — |
| — | ||||
Effect of Series A Preferred Stock price adjustment |
| — |
| — |
| — |
| — | ||||
Series B Preferred Stock Dividends |
| — |
| — |
| — |
| — | ||||
Net Loss Attributable to Common Stockholders | $ | ( | $ | | ( | $ | ( | |||||
Net Loss Per Share - Basic and Dilutive | ( | | — | ( | ||||||||
Weighted average number of shares outstanding during the period - Basic and Dilutive |
| |
| — |
| — |
| | ||||
Net Loss |
| ( |
| |
| ( |
| ( | ||||
Loss on foreign currency translation |
| ( |
| — |
| — |
| ( | ||||
Total comprehensive loss |
| ( |
| |
| ( |
| ( | ||||
Comprehensive loss attributable to non-controlling interest |
| — |
| — |
| — |
| — | ||||
Comprehensive loss attributable to Synthetic Biologics, Inc. and Subsidiaries |
| ( |
| |
| ( |
| ( | ||||
109
Six-months ended June 30, 2022 | ||||||||||||
| As Previously |
| Restatement |
| Other Immaterial |
| ||||||
(amounts in thousands, except per share data) | Reported | Adjustments | Adjustments | As Restated | ||||||||
Operating Costs and Expenses: |
|
|
|
|
|
|
|
| ||||
General and administrative | $ | | $ | — | $ | | $ | | ||||
Research and development |
| |
| — |
| — |
| | ||||
Total Operating Costs and Expenses |
| |
| — |
| |
| | ||||
Loss from Operations |
| ( |
| — |
| ( |
| ( | ||||
Other Expense: |
|
|
|
|
|
|
|
| ||||
Exchange loss |
| ( |
| — |
| — |
| ( | ||||
Interest income |
| |
| — |
| — |
| | ||||
Total Other Income(Expense) |
| ( |
| — |
| — |
| ( | ||||
Net Loss before income taxes |
| ( |
|
|
| ( |
| ( | ||||
Income tax benefit |
|
|
| |
| — |
| | ||||
Net Loss |
| ( |
| |
| ( |
| ( | ||||
Net Loss Attributable to Non-controlling Interest |
| — |
| — |
| — |
| — | ||||
Net Loss Attributable to Synthetic Biologics, Inc. and Subsidiaries | $ | ( | $ | | $ | ( | $ | ( | ||||
Series A Preferred Stock Dividends |
| — |
| — |
| — |
| — | ||||
Effect of Series A Preferred Stock price adjustment |
| — |
| — |
|
| — | |||||
Series B Preferred Stock Dividends |
| — |
| — |
| — |
| — | ||||
Net Loss Attributable to Common Stockholders | $ | ( | $ | | $ | ( | $ | ( | ||||
Net Loss Per Share - Basic and Dilutive | ( | | — | ( | ||||||||
Weighted average number of shares outstanding during the period - Basic and Dilutive |
| |
| — |
| — |
| | ||||
Net Loss |
| ( |
| |
| ( |
| ( | ||||
Loss on foreign currency translation |
| ( |
| — |
| — |
| ( | ||||
Total comprehensive loss |
| ( |
| |
| ( |
| ( | ||||
Comprehensive loss attributable to non-controlling interest |
| — |
| — |
| — |
| — | ||||
Comprehensive loss attributable to Synthetic Biologics, Inc. and Subsidiaries |
| ( |
| |
| ( |
| ( | ||||
110
Three-months ended September 30, 2022 | ||||||||||||
|
| Restatement |
| Other Immaterial |
| |||||||
(amounts in thousands, except per share data) | As Previously Reported | Adjustments | Adjustments | As Restated | ||||||||
Operating Costs and Expenses: |
|
|
|
|
|
|
|
| ||||
General and administrative | $ | | $ | — | $ | ( | $ | | ||||
Research and development |
| |
| — |
| — |
| | ||||
Total Operating Costs and Expenses |
| |
| — |
| ( |
| | ||||
Loss from Operations |
| ( |
| — |
| |
| ( | ||||
Other Expense: |
|
|
|
|
|
|
|
| ||||
Exchange loss |
| ( |
| — |
| — |
| ( | ||||
Interest income |
| |
| — |
| — |
| | ||||
Total Other Income(Expense) |
| |
| — |
| — |
| | ||||
Net Loss before income taxes |
| ( |
| — |
| |
| ( | ||||
Income tax benefit |
|
|
| |
| — |
| | ||||
Net Loss |
| ( |
| |
| |
| ( | ||||
Net Loss Attributable to Non-controlling Interest |
| — |
| — |
| — |
| — | ||||
Net Loss Attributable to Synthetic Biologics, Inc. and Subsidiaries | $ | ( | $ | | $ | | $ | ( | ||||
Effect of Warrant exercise price adjustment |
| ( |
| — |
| — |
| ( | ||||
Effect of Series A Preferred Stock price adjustment |
| — |
| — |
| — |
| — | ||||
Series B Preferred Stock Dividends |
| — |
| — |
| — |
| — | ||||
Net Loss Attributable to Common Stockholders | $ | ( | $ | | $ | | $ | ( | ||||
Net Loss Per Share - Basic and Dilutive | ( | $ | | $ | — | $ | ( | |||||
Weighted average number of shares outstanding during the period - Basic and Dilutive |
| |
| — |
| — |
| | ||||
Net Loss |
| ( |
| |
| |
| ( | ||||
Loss on foreign currency translation |
| ( |
| — |
| — |
| ( | ||||
Total comprehensive loss |
| ( |
| |
| |
| ( | ||||
Comprehensive loss attributable to non-controlling interest |
| — |
| — |
| — |
| — | ||||
Comprehensive loss attributable to Synthetic Biologics, Inc. and Subsidiaries |
| ( |
| |
| |
| ( | ||||
111
Nine-months ended September 30, 2022 | ||||||||||||
| As Previously |
| Restatement |
| Other Immaterial |
| ||||||
(amounts in thousands, except per share data) | Reported | Adjustments | Adjustments | As Restated | ||||||||
Operating Costs and Expenses: |
|
|
|
| ||||||||
General and administrative | $ | | $ | — | $ | | $ | | ||||
Research and development |
| |
| — |
| — |
| | ||||
Total Operating Costs and Expenses |
| |
| — |
| |
| | ||||
Loss from Operations |
| ( |
| — |
| ( |
| ( | ||||
Other Expense: |
|
|
|
|
|
|
|
| ||||
Exchange loss |
| ( |
| — |
| — |
| ( | ||||
Interest income |
| |
| — |
| — |
| | ||||
Total Other Income(Expense) |
| |
| — |
| — |
| | ||||
Net Loss before income taxes |
| ( |
|
|
| ( |
| ( | ||||
Income tax benefit |
| — |
| |
| — |
| | ||||
Net Loss |
| ( |
| |
| ( |
| ( | ||||
Net Loss Attributable to Non-controlling Interest |
| — |
| — |
| — |
| — | ||||
Net Loss Attributable to Synthetic Biologics, Inc. and Subsidiaries | $ | ( | $ | | $ | ( | $ | ( | ||||
Effect of Warrant exercise price adjustment |
| ( |
| — |
| — |
| ( | ||||
Effect of Series A Preferred Stock price adjustment |
| — |
| — |
| — |
| — | ||||
Series B Preferred Stock Dividends |
| — |
| — |
| — |
| — | ||||
Net Loss Attributable to Common Stockholders | $ | ( | $ | | $ | ( | $ | ( | ||||
Net Loss Per Share - Basic and Dilutive | ( | | $ | — | ( | |||||||
. | ||||||||||||
Weighted average number of shares outstanding during the period - Basic and Dilutive |
| |
| — |
| — |
| | ||||
Net Loss |
| ( |
| |
| ( |
| ( | ||||
Loss on foreign currency translation |
| ( |
| — |
| — |
| ( | ||||
Total comprehensive loss |
| ( |
| |
| ( |
| ( | ||||
Comprehensive loss attributable to non-controlling interest |
| — |
| — |
| — |
| — | ||||
Comprehensive loss attributable to Synthetic Biologics, Inc. and Subsidiaries |
| ( |
| |
| ( |
| ( | ||||
112
The effect of the restatement and immaterial out of period adjustments of the previously reported Consolidated Statements of Changes in Shareholders’ Equity is presented in the tables below:
As Previously Reported | ||||||||||||||||||||||
Common Stock $0.001 Par Value | Series B Preferred | Accumulated | ||||||||||||||||||||
|
|
|
|
|
|
| Other |
| Total | |||||||||||||
Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||
(amounts in thousands, except per share data) | Shares | Amount | Shares | Amount | APIC | Deficit | income | Equity | ||||||||||||||
Balance at December 31, 2021 |
| | $ | |
| | $ | | $ | | $ | ( | $ | | $ | | ||||||
Stock-based compensation |
| — |
| — |
| — |
| — |
| |
| — |
| — |
| | ||||||
Issuance of Common Stock for VCN Acquisition |
| |
| |
| — |
| — |
| |
| — |
| — |
| | ||||||
Translation gains (losses) |
| — |
| — |
| — |
| — |
| — |
| — |
| |
| | ||||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Balance at March 31, 2022 |
| | $ | |
| | $ | | $ | | $ | ( | $ | | $ | | ||||||
Stock-based compensation |
| — |
| — |
| — |
| — |
| |
| — |
| — |
| | ||||||
Translation gains (losses) |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Balance at June 30, 2022 |
| | $ | |
| — | $ | — | $ | | $ | ( | $ | ( | $ | | ||||||
Stock-based compensation |
| — |
| — |
| — |
| — |
| |
| — |
| — |
| | ||||||
Translation gains (losses) |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Balance at September 30, 2022 |
| | $ | |
| — | $ | — | $ | | $ | ( | $ | ( | $ | | ||||||
113
Restatement Adjustments | ||||||||||||||||||||||
Common Stock $0.001 Par Value | Series B Preferred | Accumulated | ||||||||||||||||||||
|
|
|
|
|
|
| Other |
| Total | |||||||||||||
Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||
(amounts in thousands, except per share data) | Shares | Amount | Shares | Amount | APIC | Deficit | income | Equity | ||||||||||||||
Balance at December 31, 2021 |
| — | $ | — |
| — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||
Stock-based compensation |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | ||||||
Issuance of Common Stock for VCN Acquisition |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | ||||||
Translation gains (losses) |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | ||||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | ||||||
Balance at March 31, 2022 |
| — | $ | — |
| — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||
Stock-based compensation |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | ||||||
Translation gains (losses) |
| — |
| — |
| — |
| — |
| — |
| — |
| |
| | ||||||
Net loss-other immaterial adjustments | — | — | — | — | — | ( | — | ( | ||||||||||||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| |
| — |
| | ||||||
Balance at June 30, 2022 |
| — | $ | — |
| — | $ | — | $ | — | $ | | $ | | $ | | ||||||
Stock-based compensation |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | ||||||
Translation gains (losses) |
| — |
| — |
| — |
| — |
| — |
| — |
| |
| | ||||||
Net loss-other immaterial adjustments | — | — | — | — | — | | — | | ||||||||||||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| |
| — |
| | ||||||
Balance at September 30, 2022 |
| — | $ | — |
| — | $ | — | $ | — | $ | | $ | | $ | | ||||||
As Restated | ||||||||||||||||||||||
Common Stock $0.001 Par Value | Series B Preferred | Accumulated | ||||||||||||||||||||
|
|
|
|
|
|
| Other |
| Total | |||||||||||||
Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||
(amounts in thousands, except per share data) | Shares | Amount | Shares | Amount | APIC | Deficit | income | Equity | ||||||||||||||
Balance at December 31, 2021 |
| | $ | |
| — | $ | — | $ | | $ | ( | $ | — | $ | | ||||||
Stock-based compensation |
| — |
| — |
| — |
| — |
| |
| — |
| — |
| | ||||||
Issuance of Common Stock for VCN Acquisition |
| |
| |
| — |
| — |
| |
| — |
| — |
| | ||||||
Translation gains (losses) |
| — |
| — |
| — |
| — |
| — |
| — |
| |
| | ||||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Balance at March 31, 2022 |
| | $ | |
| — | $ | — | $ | | $ | ( | $ | | $ | | ||||||
Stock-based compensation |
| — |
| — |
| — |
| — |
| |
| — |
| — |
| | ||||||
Translation gains (losses) |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Balance at June 30, 2022 |
| | $ | |
| — | $ | — | $ | | $ | ( | $ | ( | $ | | ||||||
Stock-based compensation |
| — |
| — |
| — |
| — |
| |
| — |
| — |
| | ||||||
Translation gains (losses) |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Balance at September 30, 2022 |
| | $ | |
| — | $ | — | $ | | $ | ( | $ | ( | $ | | ||||||
114
The effect of the restatement of the previously reported Consolidated Statements of Cash Flows is presented below:
Six-months ended June 30, 2022 | ||||||||||||
|
| Restatement | Other Immaterial |
| ||||||||
(amounts in thousands, except per share data) | As Previously Reported | Adjustments | Adjustments | As Restated | ||||||||
Cash Flows From Operating Activities: | ||||||||||||
Net loss | $ | ( | $ | | $ | ( | $ | ( | ||||
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
| ||||
Stock-based compensation |
| |
| — |
| — |
| | ||||
Income tax benefit |
| — |
| ( |
| — |
| ( | ||||
Change in fair value of contingent consideration |
| ( |
| — |
| |
| ( | ||||
Depreciation |
| |
| — |
| — |
| | ||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
| ||||
Prepaid expenses and other current assets |
| |
| — |
| — |
| | ||||
Right of use asset |
| |
| — |
| — |
| | ||||
Accounts payable |
| ( |
| — |
| — |
| ( | ||||
Accrued expenses |
| |
| — |
| — |
| | ||||
Accrued employee benefits |
| ( |
| — |
| — |
| ( | ||||
Lease liability |
| ( |
| — |
| — |
| ( | ||||
Net Cash Used In Operating Activities |
| ( |
| — |
| — |
| ( | ||||
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
| ||||
Purchase of property and equipment |
| ( |
| — |
| — |
| ( | ||||
Cash paid for business combination, net of cash acquired |
| ( |
| — |
| — |
| ( | ||||
Pre-acquisition loan to VCN |
| ( |
| — |
| — |
| ( | ||||
Net Cash Used in Investing Activities |
| ( |
| — |
| — |
| ( | ||||
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
| ||||
Payment of VCN's CDTI loan |
| ( |
| — |
| — |
| ( | ||||
Proceeds from "at the market" stock issuance |
| — |
| — |
| — |
| — | ||||
Proceeds from issuance of common stock for warrant exercises |
| — |
| — |
| — |
| — | ||||
Net Cash Provided (used in) by Financing Activities |
| ( |
| — |
| — |
| ( | ||||
Effects of FX on cash |
| ( |
| — |
| — |
| ( | ||||
Net increase (decrease) in cash and cash equivalents and restricted cash |
| ( |
| — |
| — |
| ( | ||||
Cash and cash equivalents and restricted at the beginning of this period |
| |
| — |
| — |
| | ||||
Cash and cash equivalents and restricted cash at the end of this period | $ | | $ | — | $ | — | $ | | ||||
Reconciliation of cash, cash equivalents, and restricted cash reported in the statement of financial position |
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents | $ | | $ | — | $ | — | $ | | ||||
Restricted cash included in other long-term assets |
| |
| — |
| — |
| | ||||
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | $ | | $ | — | $ | — | $ | | ||||
Supplemental non-cash investing and financing activities: |
|
|
|
|
|
|
|
| ||||
Fair value of contingent consideration issued in a business combination | $ | | $ | — | $ | — | $ | | ||||
Fair value of equity issued as consideration in a business combination | $ | | $ | — | $ | — | $ | | ||||
Effective settlement of pre-closing VCN financing | $ | | $ | — | $ | — | $ | | ||||
Goodwill measurement period adjustment | $ | | $ | — | $ | — | $ | | ||||
115
Nine-months ended September 30, 2022 | ||||||||||||
Restatement | Other Immaterial | |||||||||||
(amounts in thousands, except per share data) |
| As Previously Reported | Adjustments |
| Adjustments |
| As Restated | |||||
Cash Flows From Operating Activities: | ||||||||||||
Net loss | $ | ( | $ | | $ | ( | $ | ( | ||||
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
| ||||
Stock-based compensation |
| |
| — |
| — |
| | ||||
Income tax benefit |
| — |
| ( |
| — |
| ( | ||||
Change in fair value of contingent consideration |
| ( |
| — |
| |
| ( | ||||
Depreciation |
| |
| — |
| — |
| | ||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
| ||||
Prepaid expenses and other current assets |
| |
| — |
| — |
| | ||||
Right of use asset |
| |
| — |
| — |
| | ||||
Accounts payable |
| ( |
| — |
| — |
| ( | ||||
Accrued expenses |
| ( |
| — |
| — |
| ( | ||||
Accrued employee benefits |
| |
| — |
| — |
| | ||||
Lease liability |
| ( |
| — |
| — |
| ( | ||||
Net Cash Used In Operating Activities |
| ( |
| — |
| — |
| ( | ||||
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
| ||||
Purchase of property and equipment |
| ( |
| — |
| — |
| ( | ||||
Cash paid for business combination, net of cash acquired |
| ( |
| — |
| — |
| ( | ||||
Pre-acquisition loan to VCN |
| ( |
| — |
| — |
| ( | ||||
Net Cash Used in Investing Activities |
| ( |
| — |
| — |
| ( | ||||
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
| ||||
Payment of VCN's CDTI loan |
| ( |
| — |
| — |
| ( | ||||
Proceeds from sale of Series C Preferred Stock, net of issuance cost |
| |
|
|
|
|
| | ||||
Proceeds from sale of Series D Preferred Stock, net of issuance cost |
| |
|
|
|
|
| | ||||
Proceeds from "at the market" stock issuance |
| — |
| — |
| — |
| — | ||||
Proceeds from issuance of common stock for warrant exercises |
| — |
| — |
| — |
| — | ||||
Net Cash Provided (used in) by Financing Activities |
| |
| — |
| — |
| | ||||
Effects of FX on cash |
| ( |
| — |
| — |
| ( | ||||
Net increase (decrease) in cash and cash equivalents and restricted cash |
| ( |
| — |
| — |
| ( | ||||
Cash and cash equivalents and restricted at the beginning of this period |
| |
| — |
| — |
| | ||||
Cash and cash equivalents and restricted cash at the end of this period | $ | | $ | — | $ | — | $ | | ||||
Reconciliation of cash, cash equivalents, and restricted cash reported in the statement of financial position |
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents | $ | | $ | — | $ | — | $ | | ||||
Restricted cash included in other long-term assets |
| |
| — |
| — |
| | ||||
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | $ | | $ | — | $ | — | $ | | ||||
Supplemental non-cash investing and financing activities: |
|
|
|
|
|
|
| |||||
Fair value of contingent consideration issued in a business combination | $ | | $ | — | $ | — | $ | | ||||
Fair value of equity issued as consideration in a business combination | $ | | $ | — | $ | — | $ | | ||||
Effective settlement of pre-closing VCN financing | $ | | $ | — | $ | — | $ | | ||||
Goodwill measurement period adjustment | $ | ( | $ | — | $ | — | $ | ( | ||||
In-process R&D measurement period adjustment | $ | | $ | — | $ | — | $ | | ||||
Deferred tax liability measurement period adjustment | $ | | $ | — | $ | — | $ | | ||||
Effect of Warrant exercise price adjustment | $ | | $ | — | $ | — | $ | | ||||
116
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company has adopted and maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Annual Report on Form 10-K, is collected, recorded, processed, summarized and reported within the time periods specified under the rules of the SEC. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. As required under Exchange Act Rule 13a-15, the Company’s management, including the Chief Executive Officer who also serves as its Chief Financial Officer, evaluated the effectiveness of disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report on Form 10-K. Due to the material weaknesses in internal control over financial reporting as described below, our Chief Executive Officer who also serves as its Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective.
Management’s Annual Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15. Internal control over financial reporting is defined in Rule 13a-15(f) and 15(d)-15(f) under the Exchange Act as a process designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements. Management conducted an assessment of the Company’s internal control over financial reporting as of December 31, 2022 based on the framework and criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on the assessment, due to the material weaknesses in internal control over financial reporting as described below management concluded that, as of December 31, 2022, the Company’s internal control over financial reporting was not effective.
The Company’s management, including its Chief Executive Officer who is also its Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures and its internal control processes will prevent all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of error or fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
On March 10, 2022 we completed the acquisition of VCN Biosciences, S.L. (“VCN”). In conjunction with the acquisition of VCN, we are currently in the process of integrating VCN’s policies, processes, people, technology, and operations into the consolidated company, and integrating VCN’s operations into our system of internal control over financial reporting. As permitted by the Securities and Exchange Commission, we have elected to exclude the internal controls of this acquisition that has not been integrated into our existing processes and controls from our assessment of the effectiveness of internal control over financial reporting as of December 31, 2022. The excluded aggregate financial position of VCN represented less than 40% of our total assets as of December 31, 2022, and less than 31% of our total operating costs for the year then ended. We will include the internal controls of VCN in our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2023.
117
Material Weakness over Non-Routine Transactions
During the course of the preparation of our interim consolidated financial statements for 2022, we identified a material weakness in our controls relating to accounting and disclosure controls for non-routine transactions. Specifically, the controls related to the review of internally and externally prepared reports and analysis used in the financial reporting process and the related income tax implication of non-routine transactions.
Additionally, during the preparation of our annual consolidated financial statements, we determined that our reported interim income tax provision for the interim periods ended June 30, 2022 and September 30, 2022 contained errors, which resulted in the restatement of our consolidated financial statements for the periods then ended. Specifically, our controls over the review of the interim tax provisions did not properly identify the need to record a deferred tax asset and resulting deferred tax benefit for our VCN subsidiary’s indefinite-lived net operating loss carryforward created during those interim periods. In addition, our controls related to the review of the business combination transaction in 2022 failed to identify the incorrect application of certain assumptions in calculating the valuation of certain intangibles, contingent consideration, and the related tax implications.
Remediation Plan
In order to remediate these material weaknesses, we plan to implement the following steps to improve the overall processes of identifying and reviewing non-routine transactions and preparing interim financial statements:
| ● | Perform additional internal review processes to ensure the appropriate accounting and disclosure of non-routine transactions. |
| ● | Engage a third-party tax specialist to assist us in the preparation and review of interim tax provisions. |
Should additional changes to the remediation plan be warranted, management will modify the planned measures accordingly.
Material Weakness over Information Technology General Controls
During the preparation of our annual consolidated financial statements for 2022, we identified a material weakness in our controls relating to general information technology controls over logical access and program change management for certain of our key information systems used to support the financial reporting process. Specifically, management did not maintain effective controls to ensure proper segregation of duties related to implementing program changes in certain information systems. Further, management did not have adequate controls over user administration and did not perform effective periodic user access reviews in a timely manner to ensure proper permissions were granted, resulting in segregation of duties conflicts within certain business processes.
Remediation Plan
Management will ensure proper segregation of duties over all IT functions ensuring IT personnel are properly trained as to the importance of and specifics over the internal controls for which they are responsible, including consistent, repeatable performance of such controls. Management will also evaluate the responsibilities of its control owners to ensure that proper segregation of duties exists within the process level controls that are dependent upon information produced by IT systems affected by segregation of duties conflicts. Further, management will ensure IT personnel do not have conflicting responsibilities with respect to program changes, administration and user access controls, or that additional controls are implemented to perform an effective review of program changes, administration and user access.
Material Weakness over Evidence of Control Performance
During the preparation of our annual consolidated financial statements for 2022, we identified a material weakness relating to the ineffective design and execution of management’s review of controls, particularly with regard to the precision of the review, evidence of review procedures performed, and the evaluation of the completeness and accuracy of information utilized in the performance of the control.
118
Remediation Plan
Management will ensure all personnel are properly trained as to the importance of properly documenting and evidencing the performance of controls.
When fully implemented, the Company believes that the measures described above will appropriately remediate the identified material weaknesses, although management may determine that taking additional measures to remediate the material weaknesses may be necessary.
Changes in Internal Control Over Financial Reporting
Except for the material weaknesses described above, there has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not Applicable
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Below is certain information regarding our directors and executive officers.
Name |
| Age |
| Position |
Steven A. Shallcross |
| 61 |
| Chief Executive Officer, Chief Financial Officer and Director |
Frank Tufaro | 67 | Chief Operating Officer | ||
Jeffrey J. Kraws |
| 57 |
| Chairman |
John Monahan | 75 | Director | ||
Jeffrey Wolf, J.D. |
| 58 |
| Director |
Steven A. Shallcross. Mr. Shallcross has been a member of our Board of Directors since December 6, 2018 and currently serves as our Chief Executive Officer, a position he was appointed to on December 6, 2018, and our Chief Financial Officer. Mr. Shallcross was appointed as our Interim Chief Executive Officer on December 5, 2017 and has served as our Chief Financial Officer since joining us in June 2015. Mr. Shallcross brings to our company operational, financial and international biotech industry experience, as well as an established track record at leading the financial development and strategy for several publicly traded biotech companies. From May 2013 through May 2015, Mr. Shallcross served as Executive Vice President and Chief Financial Officer of Nuo Therapeutics, Inc. (formerly Cytomedix, Inc.). In January 2016, Nuo Therapeutics, Inc. filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware and on April 25, 2016, the Bankruptcy Court entered an order granting approval of Nuo’s plan of reorganization. From July 2012 to May 2013, Mr. Shallcross held the offices of Executive Vice President, Chief Financial Officer and Treasurer of Empire Petroleum Partners, LLC, a motor fuel distribution company. From July 2011 to March 2012, Mr. Shallcross was Acting Chief Financial Officer of Senseonics, a privately-held medical device company located in Germantown, MD. From January 2009 to March 2011, he served as Executive Vice President and Chief Financial Officer of Innocoll AG (formerly privately held Innocoll Holdings, Inc.), a global, commercial-stage biopharmaceutical company specializing in the development and commercialization of collagen-based products. He also served for four years as the Chief Financial Officer and Treasurer of Vanda Pharmaceuticals, Inc., leading the company through its successful IPO and follow-on offering and previously served as the Senior Vice President and Chief Financial Officer of Middlebrook Pharmaceuticals, Inc. (formerly Advancis Pharmaceutical Corporation). In addition, Mr. Shallcross also served as the Chief Financial Officer of Bering Truck Corporation. Since June 2019, Mr. Shallcross has served on the board of directors of Elys Game Technology, Corp. a Nasdaq listed international, vertically
119
integrated commercial-stage company engaged in various aspects of the leisure gaming industry and from April 2021 until June 2022, he served on the board of directors of TwinVee Powercats, Co. (Nasdaq: VEEE), a designer, manufacturer and marketer of recreational and commercial power catamaran boats. He holds an MBA from the University of Chicago’s Booth School of Business, a Bachelor of Science degree in Accounting from the University of Illinois, Chicago, and is a Certified Public Accountant in the State of Illinois.
Mr. Shallcross brings to the Board of Directors significant strategic, business and financial experience related to the business and financial issues facing biotechnology companies. Mr. Shallcross has a broad understanding of the financial markets, financial statements as well as generally accepted accounting principles. Through his services as our Chief Executive Officer and Chief Financial Officer, he has developed extensive knowledge of our business.
Frank Tufaro. Dr. Tufaro served as President of Opa Therapeutics Inc. from May 2020 until March 2022. Opa Therapeutics is a privately held biologics company. From January 2010 through December 2019, Dr. Tufaro served as Chief Executive Officer of DNAtrix.DNAtrix is a privately held biotech company developing virus-driven immunotherapies to treat cancer. Dr. Tufaro received a Ph.D. in Molecular Biology and a Bachelor of Science in Biology from McGill University.
Jeffrey J. Kraws. Mr. Kraws has been a member of the Company’s Board of Directors since January of 2006, and was appointed independent, non-executive Chairman of the Board in May 2012. Since 2003, Mr. Kraws has served as Chief Executive Officer and co-founder of Crystal Research Associates and CRA Advisors, and since February 2012, he has served as partner and co-founder of TopHat Capital, LLC. Since November 9, 2021, Mr. Kraws has served as the Chief Executive Officer of GridIron Bionutrients, Inc. From August 2016 through January 2021, Mr. Kraws served as the Co-President of Ra Medical Systems Inc. (NYSE: RMED), a medical device company. Mr. Kraws is a partner at Grannus Securities Pty Ltd. (an Australian based private equity fund) since November 2015. Mr. Kraws is a partner of PDK Healthcare Innovations LLC. He also consults and assists in management of private companies through his private practice. Mr. Kraws has received some of the most prestigious awards in the industry. Among other awards, he was given a “5-Star Rating” in 2001 by Zacks and was ranked the number one analyst among all pharmaceutical analysts for stock performance in 2001 by Starmine.com. Prior to founding Crystal Research Associates, Mr. Kraws served as co-president of The Investor Relations Group (IRG), a firm representing primarily under-followed, small-capitalization companies. Previously, Mr. Kraws served as a managing director of healthcare research for Ryan Beck & Co. and as director of research/senior pharmaceutical analyst and managing director at Gruntal & Co., LLC (prior to its merger with Ryan Beck & Company). Mr. Kraws served as managing director of the healthcare research group and senior pharmaceutical analyst at First Union Securities (formerly EVEREN Securities); as senior U.S. pharmaceutical analyst for the Swedish-Swiss conglomerate Asea Brown Boveri; and as managing director and president of the Brokerage/Investment Banking operation of ABB Aros Securities, Inc. He also served as senior pharmaceutical analyst at Nationsbanc Montgomery Securities, BT Alex Brown & Sons, and Buckingham Research. Mr. Kraws also has industry experience, having been responsible for competitive analysis within the treasury group at Bristol-Myers-Squibb Company. During 2006 through February of 2007, Mr. Kraws served as our Vice President of Business Development, on a part-time basis. Since December 2013, Mr. Kraws serves on the board of directors of Avivagen Inc. (TSX:VIV) and from 2013 until 2020 served on the board of directors of Saleen Automotive, Inc. (OTC Pink: SLNN). He holds an M.B.A. from Cornell University and a B.S. degree from State University of New York — Buffalo. Mr. Kraws brings a strong business background to us, having worked as a pharmaceutical analyst for over 22 years.
Mr. Kraws brings to the Board of Directors significant strategic, business and financial experience related to the business and financial issues facing pharmaceutical companies. Mr. Kraws has a broad understanding of the operational, financial and strategic issues facing pharmaceutical companies. His healthcare experience, executive and leadership experience further qualify him as a member of the Board.
John Monahan. Dr. Monahan has been a member of the Company's Board of Directors since November 11, 2020. Dr. Monahan has served on the board of directors of NightHawk Biosciences, Inc. (formerly known as Heat Biologics, Inc.), a biopharmaceutical company primarily engaged in the development of immune therapies and vaccines, since November 2009, and from August 2016 until May 2021 also served on the board of directors of the biotech company Anixa Biosciences, Inc. (formerly known as ITUS Corporation), a biotechnology company focused on using the body's immune system to diagnose, treat and prevent cancer. He is also a board member of Cellix Ltd. (Ireland) and has served on a number of other public and private boards over the years. Dr. Monahan co-founded Avigen Inc. in 1992, a company which has become a leader in its sector for the development of novel pharmaceutical products for the treatment of serious human diseases. Over a 12-year period as Chief Executive Officer of Avigen he raised over $235 million in several private and public financings including its initial public offering. From 1989-1992, he was Vice President of Research & Development at Somatix Therapy Corp., Alameda, CA and from 1985-1989 he was Director of Molecular & Cell Biology at Triton Biosciences Inc., Alameda, CA. Prior to that from 1982-1985, he was Research Group Chief, Department of Molecular Genetics, Hoffmann-LaRoche,
120
Inc. Nutley, NJ, and from 1975 to 1977 he was an Instructor at Baylor College of Medicine, Houston TX. Dr. Monahan served as a scientific advisory consultant to the Company from 2015 to November 10, 2020 and from 2010 through 2015 he was the Company's Senior Executive Vice President of Research & Development. Dr. Monahan was also a Scientific Advisory Board member of Agilis Biotherapeutics (recently merged into PTC Therapeutics), from 2014 to 2019. Dr. Monahan received his Ph.D. in Biochemistry from McMaster University, Canada and his B.Sc. from University College Dublin, Ireland.
Dr. Monahan brings to our Board of Directors significant knowledge of and experience in the pharmaceutical and medical industries. He has extensive business, managerial, executive and leadership experience that further qualify him to serve as a member of the Board and a valuable understanding of biochemistry and our product candidates.
Jeffrey Wolf, J.D. Mr. Wolf, who has been a member of the Company’s Board of Directors since 2006, has substantial experience in creating, financing, nurturing and biomedical ventures based upon breakthrough research and technology. In August 2008, Mr. Wolf founded NightHawk Biosciences, Inc. (NASDAQ: NHWK), a publicly traded company engaged in research and development of drugs focused on modulating the immune system. Since April 2010, Mr. Wolf has served as the Chief Executive Officer and Chairman of the Board of NightHawk Biosciences, Inc. Prior to founding NightHawk, from June 1997 to March 2011, Mr. Wolf has served as managing director at Seed-One Ventures, LLC a venture firm focused on launching and growing exceptional healthcare companies from the ground up. Mr. Wolf has also founded and run several biomedical companies. Mr. Wolf’s start-ups include Avigen, a San Francisco-based gene therapy company where he was a co-founder and director; TyRx Pharma, a company focused on the development of bio-compatible polymers where he was a co-founder and Chairman; and Elusys Therapeutics, a company focused on the development of ANTHIM, an FDA approved antitoxin against anthrax, which is currently a subsidiary of NightHawk. Mr. Wolf received his MBA. from Stanford Business School, his J.D. from New York University School of Law and his B.A. from the University of Chicago, where he graduated with honors in Economics.
Mr. Wolf has extensive knowledge of the industry and in particular research and development. His legal and business background provide him with a broad understanding of the legal, operational, financial and strategic issues facing our company. Having served as a board member on other public company boards, Mr. Wolf has an extensive understanding of the operational, financial and strategic issues facing public companies.
Directors’ Term of Office
Directors will hold office until the next annual meeting of stockholders and the election and qualification of their successors. Officers are elected annually by our Board of Directors and serve at the discretion of the Board of Directors.
Audit Committee
The Audit Committee is comprised of Mr. Wolf (Chairman), Mr. Kraws and Dr. Monahan. The Audit Committee is responsible for recommending our independent public accounting firm and reviewing management’s actions in matters relating to audit functions. The Committee reviews with our independent public accountants the scope and results of the audit engagement and the system of internal controls and procedures. The Committee also reviews the effectiveness of procedures intended to prevent violations of laws. The Committee also reviews, prior to publication, our reports on Form 10-K and Form 10-Q. Our Board has determined that all audit committee members are independent under applicable SEC regulations and NYSE American rules. Our Board of Directors has determined that each of Mr. Wolf and Mr. Kraws qualify as “audit committee financial experts” as that term is used in Section 407 of Regulation S-K. Our Audit Committee charter is located on our website www.therivabio.com.
Compensation Committee
Our Compensation Committee consists of Mr. Kraws (Chairman), Dr. Monahan and Mr. Wolf. This committee performs several functions, including reviewing all forms of compensation provided to our executive officers, directors, consultants and employees, including stock compensation. Our Board has determined that all compensation committee members are independent under applicable SEC regulations and NYSE American rules. Our Compensation Committee charter is located on our website www.therivabio.com.
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Nominations Committee
Our Nominations Committee consists of Dr. Monahan (Chairman), Mr. Kraws and Mr. Wolf. This committee performs several functions, including identifying qualified individuals to become members of the Board and recommending appointments to the Board and appointment of executive officers. The committee seeks individuals who have an inquisitive and objective perspective, practical wisdom and mature judgment, and the talent and expertise to understand and provide sound and prudent guidance with respect to our activities, operations and interests. Candidates must also be individuals who have the highest personal and professional integrity, who have demonstrated exceptional ability and judgment, and who are likely to be the most effective, in conjunction with the other members of the Board, in collectively serving the long-term interests of stockholders. Our Board has determined that all nominations committee members are independent under applicable SEC regulations and NYSE American rules. Our Nominations Committee charter is located on our website www.therivabio.com.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our executive officers, directors and persons who beneficially own more than 10 percent of a registered class of the Theriva Biologics’ equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock. Such officers, directors and persons are required by SEC regulation to furnish us with copies of all Section 16(a) forms that they file with the SEC.
Based solely on a review of the copies of such forms that were received by us, or written representations from certain reporting persons that no Forms 5 were required for those persons, we are not aware of any failures to file reports or report transactions in a timely manner during the year ended December 31, 2022.
Code of Ethics
We have long maintained a Code of Conduct which is applicable to all of our directors, officers and employees. In addition, we have adopted a Code of Ethics for Financial Management which applies to our Chief Executive Officer, Chief Financial Officer, Treasurer and Controller. Each of these codes is posted on our website at www.therivabio.com.
Item 11. Executive Compensation.
We are a “smaller reporting company” and the following compensation disclosure is intended to comply with the requirements applicable to smaller reporting companies. Although the rules allow us to provide less detail about our executive compensation program, the Compensation Committee is committed to providing the information necessary to help stockholders understand its executive compensation-related decisions. Accordingly, this section includes supplemental narratives that describe the 2022 executive compensation program for our Named Executive Officer.
The following table summarizes all compensation awarded to, earned by or paid to our Named Executive Officers, Steven A. Shallcross and Frank Tufaro, during the fiscal years presented below.
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Name and Principal | Options | Compensation | |||||||||||||||
Position | Year | Salary ($)(1) | Bonus ($)(2) | Awards ($)(3) | ($)(4) | Total ($) | |||||||||||
Steven Shallcross |
| 2022 | $ | 585,000 | $ | 385,000 | $ | 192,989 | $ | 27,674 | $ | 1,190,663(5) | |||||
Chief Executive Officer |
| 2021 | $ | 585,000 | $ | 365,625 | $ | 144,216 | $ | 26,508 | $ | 1,121,124 | |||||
and Chief Financial Officer | |||||||||||||||||
Frank Tufaro | 2022 | $ | 291,667 | $ | 85,000 | $ | 40,629 | $ | 23,963 | $ | 441,259 | ||||||
Chief Operating Officer(6) |
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| (1) | Mr. Shallcross was appointed as our Chief Executive Officer on December 6, 2018. Mr. Shallcross' annual salary was $550,000 commencing December 6, 2018, increased to $565,000 on December 5, 2019, and increased to $585,00 on December 30, 2020. Dr. Tufaro was appointed our Chief Operating Officer on March 22, 2022. Dr. Tufaro annual salary was $375,000 commencing March 22. 2022. |
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| (2) | Amounts represent annual cash bonuses earned for the applicable fiscal year. The annual cash bonuses are paid in the first quarter of the calendar year following the year to which the cash bonus relates. |
| (3) | Amount reflects the grant date fair value of the Named Executive Officer’s stock options, calculated in accordance with FASB ASC Topic 718. For a discussion of the assumptions used in calculating these values, see Note 5 to our consolidated financial statements. In December 2021 and December 2022, Mr. Shallcross was issued an option to purchase 65,000 (as adjusted to reflect the stock split effected in 2022) and 475,000 shares of common stock, respectively; the awards vest monthly over 36 months. |
| (4) | The all other compensation column is comprised of vacation accrual paid, and the portion of medical, dental and vision premiums paid by us on behalf of our Named Executive Officers. These benefits are offered to all Theriva Biologics’ employees who work at least 17.5 hours per week. |
| (5) | Amount excludes compensation paid to the wife of Mr. Shallcross disclosed under the "Related Party Transactions" |
| (6) | Mr. Tufaro was appointed as our Chief Operating officer on March 22, 2022. |
Narrative Disclosure to Summary Compensation Table
Overview of Our Compensation Program
A. Philosophy and Objectives
The Compensation Committee seeks to attract and retain superior executive talent by offering competitive base salaries, bonuses and long-term incentives. The Compensation Committee’s philosophy is to deliver higher rewards for superior performance and consequences for underperformance. It is also the Compensation Committee’s practice to provide a balanced mix of cash and equity-based compensation that aligns both the short and long-term interests of our executives with that of our stockholders. Our executive compensation program is based on the following philosophies and objectives:
| ● | Compensation Should Align with Stockholders’ Interests — The Compensation Committee believes that executives’ interests should be aligned with those of the stockholders. Executives are granted stock options so that their total compensation is tied directly to value realized by our stockholders. Executive bonuses are tied directly to the achievement of performance goals that the Compensation Committee believes will ultimately drive stockholder value creation. |
| ● | Compensation is Competitive — The Compensation Committee seeks to provide a total compensation package that attracts, motivates and retains the executive talent that we need in order to maximize our return to stockholders. To accomplish this objective, executive compensation is reviewed annually to ensure that compensation levels are competitive and reasonable relative to our level of performance and to the compensation opportunities provided by comparable companies with which we compete for talent. |
| ● | Compensation Motivates and Rewards the Achievement of Goals — Our executive compensation program is designed to appropriately reward both individual and collective performance that meets and exceeds our annual, long-term and strategic goals. To accomplish this objective, a substantial percentage of total compensation is variable and “at risk”, both through annual incentive compensation in the form of cash bonuses and the granting of long-term incentive awards. |
B. Oversight of Executive Compensation
Role of the Compensation Committee
Pursuant to the terms of its charter, the Compensation Committee is responsible for the review of all aspects of our executive compensation program and makes decisions regarding the compensation of the Named Executive Officers. Our Named Executive Officers for the year ended December 31, 2022 were Steven Shallcross, our Chief Executive Officer who also serves as our Chief Financial Officer and Frank Tufaro, who serves as our Chief Operating Officer.
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The Compensation Committee’s responsibilities include but are not limited to the following:
| ● | Establishing on an annual basis the performance goals and objectives for purposes of determining the compensation of our Chief Executive Officer and other senior executive officers. |
| ● | Evaluating the Chief Executive Officer’s and other senior executive officers’ performance at least annually in light of those goals and objectives, and based upon these evaluations setting the compensation level for those officers. |
| ● | Reviewing the competitive position of, and making recommendations to, the Board of Directors with respect to the cash-based and equity-based compensation plans and our programs relating to compensation and benefits. |
| ● | Overseeing administration of our stock option plan and incentive compensation plans, making recommendations to the Board of Directors regarding the granting of options and incentives and otherwise assisting the Board of Directors in administering awards under these plans. |
| ● | Reviewing the financial performance and operations of our major benefit plans. |
Additional information regarding the Compensation Committee’s responsibilities is set forth in its charter, which is posted on our website at www.therivabio.com.
Role of the Chief Executive Officer
Our Chief Executive Officer makes recommendations to the Compensation Committee regarding the compensation of our other Named Executive Officers. The Chief Executive Officer does not participate in any discussions or processes concerning his own compensation and participates in a non-voting capacity in discussions or processes concerning the compensation of our other members of management. In addition to our Chief Executive Officer, other members of our management and consultants also attend Compensation Committee meetings from time to time and may take part in discussions of executive compensation.
C. Program Design
The Compensation Committee uses a simple and straightforward approach in compensating our Named Executive Officers in which base salary, annual incentives and stock options are the principal components. In addition, executive officers generally participate in the same benefit programs as other full-time employees.
Our executive compensation program is designed to provide executives with a reasonable level of fixed compensation through base salary and benefits, and an opportunity to earn incentive compensation through the annual and long-term incentive programs based on a mix of individual and corporate performance, individual performance and the value of our stock. We do not currently have formal policies for allocating compensation among base salary, performance-based bonus and equity awards. Instead our Compensation Committee uses its judgment to establish a total direct compensation opportunity for each Named Executive Officer that is a mix of current, short-term and long-term incentive compensation and cash and non-cash compensation that it believes appropriate to achieve the goals of our executive compensation program and corporate objectives. Our target pay mix places a significant emphasis on performance based variable compensation. The incentive plans are designed to pay well when performance meets or exceeds expectations and pay little or no incentive if performance is below expectations.
In designing and implementing our executive compensation program, our Compensation Committee considers our company’s operating and financial objectives, including our risk profile, and the effect that its executive compensation decisions will have on encouraging our executive officers to take an appropriate level of business risk consistent with our overall goal of enhancing long-term stockholder value. In particular, the Compensation Committee considers those business risks identified in our risk factors and the known trends and uncertainties identified in our management discussion and analysis and considers how our executive compensation program serves to achieve our operating and financial objectives while at the same time mitigating any incentives for our executive officers to engage in excessive risk-taking to achieve short-term results that may not be sustainable in the long-term.
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Target compensation comprises base salary and performance based variable compensation, including targeted cash bonus amounts and equity-based compensation. As an executive’s level of responsibility increases, the Compensation Committee generally targets a greater portion of the executive’s compensation to be contingent upon performance in the form of variable compensation. For example, historically our Named Executive Officers have a higher percentage of compensation at risk (and thus greater upside and downside potential) relative to our other employees. The Compensation Committee believes this is appropriate because our Named Executive Officers have the greatest influence on our performance.
During 2022, the salary for our Chief Executive Officer who also serves as our Chief Financial Officer was 55% of his target compensation package and performance based variable compensation comprised 45% of his target compensation. Of the performance based variable compensation 60% was equity-based compensation and 40% was his target cash bonus. During 2022, the salary for our Chief Operating Officer was 66% of his annualized target compensation package and performance based variable compensation comprised 34% of his target compensation. Of the performance based variable compensation 21% was equity-based compensation and 79% was his target cash bonus.
D. Compensation Review Process
The Compensation Committee annually reviews compensation for our Named Executive Officers. The Compensation Committee considers the executive’s role and responsibilities, corporate and individual performance, and industry-wide compensation practices and trends for other companies of similar size. This approach is used to set base salaries, bonuses, stock option award levels and the mix of compensation elements.
We strive to attract and retain the most highly qualified executive officers in an extremely competitive market. Our Compensation Committee believes that it is important when making its compensation decisions to be informed as to the competitive market for executive talent, including the current practices of comparable public companies with which we compete for such talent. Consequently, our Compensation Committee reviewed an executive compensation benchmarking report prepared by Meridian Compensation Partners, LLC (“Meridian”) at the Compensation Committee’s request. With respect to its analysis of the compensation of the Chief Executive Officer, the Compensation Committee took into account that our Chief Executive Officer also serves as our Chief Financial Officer, which is not typical for most companies.
While the Compensation Committee does take into consideration the data it reviewed, the Committee does not attempt to benchmark our executive compensation against any specific level, range, or percentile of compensation paid at any other companies, does not apply any specific measures of internal or external pay equity in reaching its conclusions, and does not employ tally sheets, wealth accumulation, or similar tools in its analysis. Rather, the Compensation Committee reviews compensation data from the survey and report mentioned above, as reference points in making executive compensation decisions especially in light of the fact that our Chief Executive Officer is also performing the role of Chief Financial Officer. The Compensation Committee’s general aim is for our compensation to remain competitive with the market, falling above or below the median of the market data as appropriate based on corporate and individual executive performance, and other factors deemed to be appropriate. Competitive market positioning is only one of several factors, as described below, that the Compensation Committee considers in making compensation decisions, and therefore individual Named Executive Officer compensation may fall at varying levels as compared to the market data.
Our Compensation Committee values the opinion of our stockholders. At our 2022 Annual Meeting of Stockholders approximately 97% of the shares voted (excluding broker non-votes) were cast in support of our fiscal 2021 executive compensation and related disclosures. At that time, our Compensation Committee viewed those voting results as broad stockholder support for our executive compensation program and consequently made no material changes to the program or to our compensation policies. Our Compensation Committee will continue to consider input from stockholders, including through advisory votes on executive compensation, in making compensation decisions and reviewing executive compensation programs and policies.
We currently hold our advisory vote to approve the compensation of our named executive officers (“Say-on-Pay vote”) every three years. Stockholders have an opportunity to cast an advisory vote on the frequency of the Say-on-Pay vote at least every six years, and the next advisory vote on the frequency of the Say-on-Pay vote will be at our 2025 Annual Meeting of Stockholders.
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E. Components of Compensation
We provide four compensation components to Named Executive Officers:
| ● | base salary; |
| ● | bonuses based on the achievement of specified goals and objectives; |
| ● | long-term incentives; and |
| ● | benefits |
1. Base Salaries
We provide our Named Executive Officers a base salary commensurate with their position, responsibilities and experience. In setting the base salary, the Compensation Committee considers the scope and accountability associated with each Named Executive Officer’s position and such factors as performance and experience of each Named Executive Officer. We design base pay to provide the essential reward for an employee’s work that is required to be competitive in attracting talent. Once base pay levels are initially determined, increases in base pay may be provided to recognize an employee’s specific performance achievements or expansion of responsibilities. The base salaries are targeted to be competitive with other similar biotechnology companies. Base salaries for the Named Executive Officers are set by their respective employment contracts and are reviewed annually by the Compensation Committee. Based on the analysis of the executive compensation benchmarking report provided by Meridian peer group and other comparative research performed by the Committee, the Committee was able to compare the base salary for the Chief Executive Officer who also serves as our Chief Financial Officer, including base salary, long-term incentives and bonuses. Upon the appointment of Mr. Shallcross to serve as our Chief Executive Officer in December 2018 and in light of the fact that he also serves as our Chief Financial Officer, it was determined that his overall compensation levels were not competitive with the peer group and therefore his annual base salary was increased to $550,000, which was the same annual base salary as that of our prior Chief Executive Officer. Mr. Shallcross’ employment agreement, dated December 6, 2018, was amended on December 5, 2019 to reflect a 3% merit adjustment to Mr. Shallcross’ base salary, increasing his annual base salary to $565,000 and further amended on December 31, 2020 to reflect a 3.5% merit adjustment to Mr. Shallcross’ base salary, increasing his annual base salary to $585,000 and further amended on December 15, 2022 to increase his base salary to $614,250. On December 15, 2022, the Company entered into an Amendment to Dr. Tufaro’s Employment Agreement to increase his base salary to $393,750.
The table below shows the 2022 base salary level for each of our Named Executive Officers, including a comparison with our 2021 for our Chief Executive Officer who also serves as our Chief Financial Officer. Our Chief Operating Officer was hired in 2022.
| 2021 |
| 2022 | |||
Named Executive Officer | Base Salary | Base Salary | ||||
Steven A. Shallcross, Chief Executive Officer and Chief Financial Officer | $ | 585,000 | $ | 585,000 | ||
Frank Tufaro, Chief Operating Officer | — | 375,000 | ||||
2. Bonuses
The Compensation Committee believes that the granting of a bonus is appropriate to motivate the Named Executive Officers. The bonuses are to be rewarded in the discretion of the Compensation Committee and the Board of Directors, based on a review of achievements for the year. The Compensation Committee focuses on individual performance, which enables the Compensation Committee to differentiate among executives and emphasize the link between personal performance and compensation. The Compensation Committee also used information from the Meridian executive compensation benchmarking report in determining bonus amounts. Although the Compensation Committee does not use any fixed formula in determining bonuses, it does link bonuses to
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objectives the Compensation Committee deems important such as for 2022, effective M&A strategy and implementation, financings, and achievement of clinical milestones.
| ● | Mr. Shallcross’ employment agreement provided that he was eligible for a target bonus of up to fifty percent (50%) of his base salary in cash. After considering Mr. Shallcross’ achievement relative to performance goals in 2022, the Compensation Committee approved a $385,000 cash bonus, or 132% of target. |
| ● | Dr. Tufaro’s employment agreement provided that he was eligible for a target bonus of up to forty percent (40%) of his base salary in cash. After considering Dr. Tufaro’s achievement relative to performance goals in 2022, the Compensation Committee approved a $85,000 cash bonus, or 72% of his target, pro-rated for the number of days he provided service to us in 2022. |
| ● | The Comepnsation Committee also approved and an option grant to purchase 475,000 shares of our common stock for Mr. Shallcross and $85,000 cash bonus and an option grant to purchase 100,000 shares of our common stock for Dr. Tufaro |
3. Long-Term Incentives
The Compensation Committee believes that a substantial portion of the Named Executive Officer’s compensation should be awarded in equity-based compensation since equity-based compensation is directly linked to the interests of stockholders. The Compensation Committee has elected to grant stock options to the Named Executive Officers and other key employees as the primary long-term incentive vehicle. In making this determination, the Compensation Committee considered a number of factors including: the accounting impact, potential value of stock option grants versus other equity instruments and cash incentives, and the alignment of equity participants with stockholders. The Compensation Committee determined to grant stock options to:
| ● | enhance the link between the creation of stockholder value and executive compensation; |
| ● | provide an opportunity for equity ownership; |
| ● | act as a retention tool; and |
| ● | provide competitive levels of total compensation. |
In 2022, the Compensation Committee approved grants of options exercisable for 475,000 and 100,000 shares to Mr. Shallcross and Dr. Tufaro in 2022, respectively.
The Compensation Committee reviews the performance, potential burn rates and dilution levels to create an option pool that may be awarded to employee participants. Grants to the Named Executive Officers are determined by the Compensation Committee after reviewing market data, including the reports and analysis discussed above and after considering each executive’s performance, role and responsibilities.
The Compensation Committee does not seek to time equity grants to take advantage of information, either positive or negative, about our company that has not been publicly disclosed. Option grants are effective on the date the award determination is made by the Compensation Committee and the exercise price of options is the closing market price of our common stock on the business day of the grant or, if the grant is made on a weekend or holiday, on the prior business day.
4. Benefits
Named Executive Officers are eligible to participate in our standard medical, dental, vision, disability insurance, life insurance plans and other health and welfare plans provided to other full-time employees.
Each of our Named Executive Officers are entitled to participate in our 401(k) contributory defined contribution plan.
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Pension Benefits
We do not currently provide pension arrangements or post-retirement health coverage for our employees, although we may consider such benefits in the future.
Retirement Benefits
Each of our Named Executive Officers are eligible to participate in our 401(k) contributory defined contribution plan. Pursuant to our 401(k) plan, all eligible employees, including our Named Executive Officers, are provided with a means of saving for their retirement. We currently match all participating employee contributions up to maximum of 4 percent of compensation which vest immediately.
Nonqualified Deferred Compensation
We do not provide any nonqualified deferred compensation plans to our employees, although we may consider such benefits in the future.
Conclusion
Attracting and retaining talented and motivated management and key employees is essential to creating long-term stockholder value. Offering a competitive, performance-based compensation program with a substantial equity component helps to achieve this objective by aligning the interests of the executive officers and other key employees with those of stockholders. We believe that our compensation program met these objectives and that our 2022 compensation program was appropriate in light of the challenges we and our employees face.
Risk Analysis of Our Compensation Program
Our Compensation Committee has reviewed our compensation policies as generally applicable to our employees and believes that our policies do not encourage excessive or inappropriate risk taking and that the level of risk that they do encourage is not reasonably likely to have a material adverse effect on us. As part of its assessment, the Compensation Committee considered, among other factors, the allocation of compensation among base salary and short- and long-term compensation, and our approach to establishing company-wide and individual financial, operational and other performance goals.
Outstanding Equity Awards at Fiscal Year End
The table below reflects all outstanding equity awards made to each of the Named Executive Officers that are outstanding at December 31, 2022. We currently grant stock-based awards pursuant to our 2020 Stock Incentive Plan (the “2020 Stock Plan”) and have outstanding awards under our 2001 Stock Incentive Plan (the “2001 Stock Plan”), 2007 Stock Incentive Plan (the “2007 Stock Plan”) and 2010 Stock Incentive Plan (the “2010 Stock Plan”).
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Securities | Securities | ||||||||||
Underlying | Underlying | ||||||||||
Unexercised | Unexercised | Option | |||||||||
Options | Options | Exercise | Option | ||||||||
Name | Grant Date(1) | Exercisable | Unexercisable | Price ($) | Expiration Date | ||||||
Steven Shallcross |
| 12/15/22 |
| — |
| 475,000 | $ | 0.58 |
| 12/15/29 | |
| 12/23/21 |
| 21,667 |
| 43,334 | $ | 3.31 |
| 12/23/28 | ||
| 12/30/20 |
| 30,000 |
| 15,000 | $ | 4.17 |
| 12/30/27 | ||
| 12/06/19 |
| 45,000 |
| — | $ | 4.18 |
| 12/04/26 | ||
| 12/20/18 |
| 20,000 |
| — | $ | 6.89 |
| 12/06/25 | ||
12/20/17 | 1,572 | — | $ | 182.00 | 12/20/24 | ||||||
11/30/16 | 1429 | — | $ | 280.00 | 11/30/23 | ||||||
| 06/01/15 |
| 2,573 |
| — | 756.00 |
| 06/01/25 | |||
Frank Tufaro |
| 12/15/22 |
| — |
| 100,000 | 0.58 |
| 12/15/29 | ||
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| (1) | Options will vest pro rata, on a monthly basis, over 36 months. |
Employment Agreements
Steven A. Shallcross, Chief Executive Officer, Chief Financial Officer
On January 3, 2022, we entered into a three-year employment agreement with Mr. Shallcross (the “2022 Shallcross Employment Agreement”), to serve as the Chief Executive Officer and to continue to serve as our Chief Financial Officer. Mr. Shallcross has served as our Chief Financial Officer since June 1, 2015, initially pursuant to the terms of a two year employment agreement that we entered with him on April 28, 2015 (the “Initial Shallcross Employment Agreement”) and then pursuant an employment agreement we entered into with him on December 6, 2018, which replaced the Initial Shallcross Agreement (the “Amended Shallcross Employment Agreement”) Mr. Shallcross was appointed as a director of the Company. Mr. Shallcross does not receive additional compensation for service as our director. The material terms of the 2022 Shallcross Employment Agreement and Amended Shallcross Agreement are set forth below.
Pursuant to the Amended Shallcross Employment Agreement, as amended, Mr. Shallcross is entitled to an annual base salary of $614,250 and an annual performance bonus targeted at fifty percent (50%) of his annual base salary. The annual bonus will be based upon the assessment of the Board of Mr. Shallcross’s performance. The Amended Shallcross Employment Agreement also includes confidentiality obligations and inventions assignments by Mr. Shallcross and non-solicitation and non-competition provisions.
The Amended Shallcross Employment Agreement has a stated term of three years but may be terminated earlier pursuant to its terms. If Mr. Shallcross’s employment is terminated for any reason, he or his estate as the case may be, will be entitled to receive the accrued base salary, vacation pay, expense reimbursement and any other entitlements accrued by him to the extent not previously paid (the “Accrued Obligations”); provided, however, that if his employment is terminated (i) by us without Cause or by Mr. Shallcross for Good Reason (as each is defined in the Shallcross Employment Agreement) then in addition to paying the Accrued Obligations, (a) we will continue to pay his then current base salary and continue to provide benefits at least equal to those that were provided at the time of termination for a period of twelve (12) months and (b) he shall have the right to exercise any vested equity awards until the earlier of six (6) months after termination or the remaining term of the awards; or (ii) by reason of his death or Disability (as defined in the Shallcross Employment Agreement), then in addition to paying the Accrued Obligations, Mr. Shallcross would have the right to exercise any vested options until the earlier of six (6) months after termination or the remaining term of the awards. In such event, if Mr. Shallcross commenced employment with another employer and becomes eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits to be provided by us as described herein would terminate.
The Amended Shallcross Employment Agreement provides that upon the closing of a “Change in Control” (as defined in the Shallcross Employment Agreement), all unvested options shall immediately vest and the time period that Mr. Shallcross will have to exercise all vested stock options and other awards that Mr. Shallcross may have will be equal to the shorter of: (i) six (6) months after termination, or (ii) the remaining term of the award(s). If within one (1) year after the occurrence of a Change in Control, Mr. Shallcross terminates his employment for “Good Reason” or we terminate Mr. Shallcross’s employment for any reason other than death, disability or Cause, Mr. Shallcross will be entitled to receive: (i) the portion of his base salary for periods prior to the effective date of termination accrued but unpaid (if any); (ii) all unreimbursed expenses (if any); (iii) an aggregate amount (the “Change in Control Severance Amount”) equal to two (2) times the sum of his base salary plus an amount equal to the bonus that would be payable if the “target” level performance were achieved under the Company’s annual bonus plan (if any) in respect of the fiscal year during which the termination occurs (or the prior fiscal year if bonus levels have not yet been established for the year of termination); and (iv) the payment or provision of any other benefits. If within two (2) years after the occurrence of a Change in Control, Mr. Shallcross terminates his employment for “Good Reason” or we terminate Mr. Shallcross’s employment for any reason other than death, disability or Cause, Mr. Shallcross will be entitled to also receive for the period of two (2) consecutive years commencing on the date of such termination of his employment, medical, dental, life and disability insurance coverage for him and the members of his family that are not less favorable to him than the group medical, dental, life and disability insurance coverage carried by us for him.
The Change in Control Severance Amount is to be paid in a lump sum if the Change in Control event constitutes a “change in the ownership” or a “change in the effective control” of the Company or a “change in the ownership of a substantial portion of a corporation’s assets” (each within the meaning of Section 409A of the Internal Revenue Code (“Rule 409A”)), or in 48 substantially equal payments, if the Change in Control event does not so comply with Section 409A.
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On January 3, 2022, we entered into a three-year employment agreement with Steven A. Shallcross (the “2022 Employment Agreement”), The 2022 Employment Agreement replaced the prior employment agreement with the us that Mr. Shallcross entered into on December 6, 2018, as amended December 5, 2019 (the “Amended Employment Agreement’). The material terms of the Employment Agreement are set forth below.
Pursuant to the 2022 Employment Agreement, Mr. Shallcross is entitled to an annual base salary of $585,000 and an annual cash performance bonus targeted at fifty percent (50%) of his annual base salary as well as discretionary annual equity awards pursuant to the Company’s incentive plans. The annual bonus will be based upon the assessment of the Board of Mr. Shallcross’s performance. The 2022 Employment Agreement also includes confidentiality obligations and inventions assignments by Mr. Shallcross and non-solicitation and non-competition provisions.
The 2022 Employment Agreement has a stated term of three years but may be terminated earlier pursuant to its terms. If Mr. Shallcross’s employment is terminated for any reason, he or his estate as the case may be, will be entitled to receive the unpaid base salary through the date of termination and accrued vacation, any unpaid annual bonus earned with respect to any calendar year ending on or preceding the date of termination, expense reimbursement and any other entitlements accrued by him to the extent not previously paid (the “Accrued Obligations”); provided, however, that if his employment is terminated (i) by the us without Cause or by Mr. Shallcross for Good Reason (as each is defined in the Employment Agreement) then, subject to him executing a general release in form acceptable to the us that becomes effective, in addition to paying the Accrued Obligations, (a) we will continue to pay his then current base salary and if the Executive timely elects continued coverage under COBRA, the Company will continue to provide benefits at least equal to those that were provided at the time of termination for a period of twelve (12) months and (b) all unvested equity awards will vest and he shall have the right to exercise any such vested equity awards until the earlier of eighteen (18) months after termination or the remaining term of the awards; or (ii) by reason of his death or Disability (as defined in the Employment Agreement), then in addition to paying the Accrued Obligations, Mr. Shallcross or his estate would have the right to exercise any vested options until the earlier of six (6) months after termination or the remaining term of the awards. In such event, if Mr. Shallcross commenced employment with another employer and becomes eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits to be provided by the Company as described herein would terminate.
The 2022 Employment Agreement provides that upon the closing of a “Change in Control” (as defined in the 2022 Employment Agreement), all unvested options shall immediately vest and the time period that Mr. Shallcross will have to exercise all vested stock options and other awards that Mr. Shallcross may have will be equal to the shorter of: (i) eighteen (18) months after termination, or (ii) the remaining term of the award(s). If within one (1) year after the occurrence of a Change in Control, Mr. Shallcross terminates his employment for “Good Reason” or the Company terminates Mr. Shallcross’s employment for any reason other than death, disability or Cause, Mr. Shallcross will be entitled to receive: (i) the portion of his base salary for periods prior to the effective date of termination accrued but unpaid (if any); (ii) all unreimbursed expenses (if any); (iii) an aggregate amount (the “Change in Control Severance Amount”) equal to two (2) times the sum of his base salary plus an amount equal to the bonus that would be payable if the “target” level performance were achieved under the Company’s annual bonus plan (if any) in respect of the fiscal year during which the termination occurs (or the prior fiscal year if bonus levels have not yet been established for the year of termination) subject to him executing a general release in form acceptable to the Company that becomes effective. If within two (2) years after the occurrence of a Change in Control, Mr. Shallcross terminates his employment for “Good Reason” or the Company terminates Mr. Shallcross’s employment for any reason other than death, disability or Cause, Mr. Shallcross will be entitled to also receive for the period of two (2) consecutive years commencing on the date of such termination of his employment, medical, dental, life and disability insurance coverage for him and the members of his family that are not less favorable to him than the group medical, dental, life and disability insurance coverage carried by the Company for him subject to him executing a general release in form acceptable to the Company that becomes effective. The Change in Control Severance Amount is to be paid in a lump sum if the Change in Control event constitutes a “change in the ownership” or a “change in the effective control” of the Company or a “change in the ownership of a substantial portion of a corporation’s assets” (each within the meaning of Section 409A of the Internal Revenue Code (“Rule 409A”)), or in 48 substantially equal payments, if the Change in Control event does not so comply with Section 409A.
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Frank Tufaro, Chief Operating Officer,
On March 22, 2022, we entered into an employment agreement with Frank Tufaro, as amended on December 15, 2022 (the “Employment Agreement”) to serve as the Chief Operating Officer of the Company. The material terms of the Employment Agreement are set forth below.
Pursuant to the Employment Agreement, as amended Dr. Tufaro will receive an annual base salary of $393,750 and is eligible to earn an annual performance bonus targeted at forty percent (40%) of his annual base salary. The annual bonus will be based upon the assessment of the Company’s Board of Dr. Tufaro’s performance and the Company’s attainment of targeted goals set by the Board. In addition, Dr. Tufaro will also be eligible to receive annual equity awards pursuant to the Company’s incentive equity plans, such awards (including the number and type of awards), if any, will be in the sole discretion of the Board. The Employment Agreement also includes confidentiality obligations and inventions assignments by Dr. Tufaro and non-solicitation and non-competition provisions.
The Employment Agreement has a stated term of three (3) years but may be terminated earlier pursuant to its terms. If Dr. Tufaro’s employment is terminated for any reason, he or his estate as the case may be, will be entitled to receive the accrued base salary, any unpaid annual bonus earned with respect to any calendar year ending on or preceding the date of termination, vacation pay, expense reimbursement and any other entitlements accrued by him to the extent not previously paid (the “Accrued Obligations”); provided, however, that if his employment is terminated (i) by the Company without Cause or by Dr. Tufaro for Good Reason (as each is defined in the Employment Agreement) then in addition to paying the Accrued Obligations, (a) the Company will continue to pay his then current base salary and continue to provide benefits at least equal to those that were provided at the time of termination for a period of six (6) months and (b) all unvested stock options and other equity awards will immediately vest and he will be entitled to exercise any vested equity awards until the earlier of six (6) months after termination or the remaining term of the awards; or (ii) by reason of his death or Disability (as defined in the Employment Agreement), then in addition to paying the Accrued Obligations, Dr. Tufaro, or his estate as the case may be, would have the right to exercise any vested options until the earlier of six (6) months after termination or the remaining term of the awards. If Dr. Tufaro commenced employment with another employer and becomes eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits to be provided by the Company as described herein would terminate.
The Employment Agreement provides that upon the closing of a “Change in Control” (as defined in the Employment Agreement), all unvested stock options and other equity awards will immediately vest and the time period that Dr. Tufaro will have to exercise all vested stock options and other awards that Dr. Tufaro may have will be equal to the shorter of: (i) eighteen (18) months after termination, or (ii) the remaining term of the award(s). If within one (1) year after the occurrence of a Change in Control, Dr. Tufaro terminates his employment for “Good Reason” or the Company terminates Dr. Tufaro’s employment for any reason other than death, Disability or Cause, Dr. Tufaro will be entitled to receive: (a) the portion of his base salary for periods prior to the effective date of termination accrued but unpaid (if any); (b) all unreimbursed expenses (if any); and (c) an aggregate amount (the “Change in Control Severance Amount”) equal to two (2) times the sum of his base salary plus an amount equal to the bonus that would be payable if the “target” level performance were achieved under the Company’s annual bonus plan (if any) in respect of the fiscal year during which the termination occurs (or the prior fiscal year if bonus levels have not yet been established for the year of termination). If within two (2) years after the occurrence of a Change in Control, Dr. Tufaro terminates his employment for “Good Reason” or the Company terminates Dr. Tufaro’s employment for any reason other than death, Disability or Cause, Dr. Tufaro will be entitled to also receive for the period of two (2) consecutive years commencing on the date of such termination of his employment, medical, dental, life and disability insurance coverage for him and the members of his family that are not less favorable to him than the group medical, dental, life and disability insurance coverage carried by the Company for him. The Change in Control Severance Amount is to be paid in a lump sum if the Change in Control event constitutes a “change in the ownership” or a “change in the effective control” of the Company or a “change in the ownership of a substantial portion of a corporation’s assets” (each within the meaning of Section 409A of the Internal Revenue Code (“Rule 409A”)), or in 48 substantially equal payments, if the Change in Control event does not so comply with Section 409A.
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Compensation of Directors
The following table sets forth information for the fiscal year ended December 31, 2022 regarding the compensation of our directors who at December 31, 2022 were not also our Named Executive Officers.
| Fees Earned |
|
|
| ||||||||
or | Option | Other | ||||||||||
Name | Paid in Cash | Awards(1)(2) | Compensation | Total | ||||||||
Jeffrey J. Kraws(3) | $ | 176,250 | $ | 40,629 | $ | — | $ | 216,879 | ||||
John Monahan (5) | $ | 66,750 | $ | 40,629 | $ | — | $ | 107,379 | ||||
Jeffrey Wolf | $ | 73,750 | $ | 40,629 | $ | — | $ | 114,379 | ||||
| (1) | The amounts in the “Option Awards” column reflect the dollar amounts of the grant date fair value for the financial statement reporting purposes for stock options for the fiscal year ended December 31, 2022 in accordance with ASC 718. The fair value of the options was determined using the Black-Scholes model. For a discussion of the assumptions used in computing this valuation, see “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” and Note 5 of the Notes to Consolidated Financial Statements in our Annual Report for the fiscal year ended December 31, 2022. |
| (2) | As of December 31, 2022, the following are the outstanding aggregate number of option awards held by each of our directors who were not also Named Executive Officers: |
| Option | |
Awards | ||
Name | (#) | |
Jeffrey J. Kraws |
| 163,377 |
John Monahan | 137,508 | |
Jeffrey Wolf |
| 169,377 |
During 2022, our independent, non-executive Chairman of the Board of Directors received an annual cash retainer of $150,000, each other non-employee member of the Board of Directors received an annual cash retainer of $43,000, all non-employee directors receive an annual cash fee of $7,500, $5,000 and $3,750 for service as a member of the Audit, Compensation and Nominations Committees, respectively, or an additional annual cash fee of $15,000, $10,000 and $7,500 for service as Chairman of the Audit, Compensation and Nominations Committees, respectively. In addition, each non-employee member of the Board of Directors was issued an option exercisable for 100,000 shares of our common stock, for a term of seven years, vesting monthly over one year of the date of grant. In setting 2022 and 2021 compensation for directors, the Compensation Committee relied on a report from Meridian Compensation Partners, LLC. Based on an analysis of director compensation set forth in the report, our financial performance, general market conditions and the interests of stockholders, it was determined that the annual cash retainer for serving on the board and the committee retainers would remain for 2023 the same as they were in 2022 and 2021.
| (3) | Mr. Kraws was appointed as our independent, non-executive Chairman of the Board of Directors in May 2012. Pursuant to his agreement Mr. Kraws receives an annual retainer of $150,000 for serving as our Chairman. |
Compensation Committee Interlocks
During the last fiscal year ended December 31, 2022, none of our executive officers served on the Board of Directors or Compensation Committee of any other entity whose officers served either on our Board of Directors or Compensation Committee.
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth information, as of March 30, 2023, or as otherwise set forth below, with respect to the beneficial ownership of our common stock (i) all persons known to us to be the beneficial owners of more than 5% of the outstanding shares of our common stock; (ii) each of our directors and our named executive officers named in the Summary Compensation Table; and (iii) all of our directors and our executive officer as a group.
Shares Owned (1) |
| ||||
| Number of |
|
| ||
Shares | Percentages | ||||
Name and Address of Beneficial Ownership (2) | Owned | of Shares (3) |
| ||
Jeffrey J. Kraws (4) |
| 111,697 |
| * | |
Steven Shallcross (5) |
| 420,272 |
| 2.7 | |
Jeffrey Wolf (6) |
| 111,043 |
| * | |
John Monahan (7) | 79,174 | * | |||
Frank Tufaro (8) | 94,533 | * | |||
All current officers and directors as a group (5 persons) |
| 816,720 |
| 5.2 | % |
* | represents less than 1% of our common stock |
| (1) | The address for each officer and directors is 9605 Medical Center, Suite 270, Rockville, Maryland 20850. |
| (2) | Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. Except as indicated in the footnotes to the table, to the knowledge of the Company, the persons named in the table have sole voting and investment power with respect to all shares of common stock, prefrred stock, options and/or warrants shown as beneficially owned by them, subject to community property laws, where applicable. Pursuant to the rules of the SEC, the number of shares of our common stock deemed outstanding includes shares issuable pursuant to options held by the respective person or group that are currently exercisable or may be exercised within 60 days of March 30, 2023. We currently have outstanding 275,000 shares of Series C Preferred Stock and 100,000 shares of Series D Preferred Stock convertible, at a conversion price (the “Conversion Price”) of $1.22 per share (subject in certain circumstances to adjustments and to a 4.99% limit on beneficial ownership), into an aggregate of 2,459,016 shares of the common stock. The shares of Series C Preferred Stock and Series D Preferred Stock had voting rights exclusively with respect to certain corporate actions (name change, increase in authorized shares and adjournment with respect to such proposals), which corporate actions were approved by our stockholders and therefore the Series C Preferred Stock and Series D Preferred Stock no longer have voting rights with respect to such corporate matters and only have voting rights with certain limited actions directly impacting the Series C Preferred Stock and Series D Preferred Stock. All of the shares of Series C Preferred Stock and Series D Preferred Stock are owned by MSD Credit Opportunity Master Fund, L.P. MSD Partners, L.P. (“MSD Partners”) is the investment manager of MSD Credit Opportunity Master Fund, L.P. MSD Partners (GP), LLC (“MSD GP”), a Delaware limited liability company, is the general partner of MSD Partners. Each of Gregg R. Lemkau, Marc R. Lisker and Brendan Rogers is a manager of, and may be deemed to beneficially own securities beneficially owned by, MSD GP. The business address of MSD Credit Opportunity Master Fund, L.P. is One Vanderbilt Avenue, 26th Floor, New York, New York 10017. |
| (3) | As of March 30, 2023, the Company had 15,124,061 shares of common stock outstanding. |
| (4) | Includes 111,043 shares issuable upon exercise of options held by Mr. Kraws that are exercisable within the 60-day period following March 30, 2023. Does not include an additional 58,334 shares issuable upon exercise of options held by Mr. Kraws that are not exercisable within the 60-day period following May 26, 2023. |
| (5) | Includes 202,244 shares issuable upon exercise of options held by Mr. Shallcross and 8,028 shares of Common Stock issuable upon exercise of options held by Mrs. Shallcross (Mr. Shallcross’s wife) that are exercisable within the 60-day period following March 30, 2023. Does not include an additional 453,334 shares issuable upon exercise of options held by Mr. Shallcross and 44,972 issuable upon exercise of options held by Mrs. Shallcross that are not exercisable within the 60-day period following March 30, 2023. |
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| (6) | Includes 111,043 shares issuable upon exercise of options held by Mr. Wolf that are exercisable within the 60-day period following March 30, 2023. Does not include an additional 58,334 shares issuable upon exercise of options held by Mr. Wolf that are not exercisable within the 60-day period following March 30, 2023. |
| (7) | Includes 79,174 shares issuable upon exercise of options held by Dr. Monahan that are exercisable within the 60-day period following March 30, 2023. Does not include an additional 58,334 shares issuable upon exercise of options held by Dr. Monahan that are not exercisable within the 60-day period following March 30, 2023. |
| (8) | Includes 13,888 shares issuable upon exercise of options held by Dr. Tufaro that are exercisable within the 60-day period following March 30, 2023. Does not include an additional 86,112 shares issuable upon exercise of options held by Dr. Tufaro that are not exercisable within the 60-day period following March 30, 2023. |
Equity Compensation Plan Information
The following table sets forth information about the securities authorized for issuance under our equity compensation plans for the fiscal year ended December 31, 2022.
|
|
| Number of | ||||
Securities | |||||||
Number of | Remaining | ||||||
Securities | Available for | ||||||
to be Issued Upon | Weighted-Average | Future Issuance | |||||
Exercise of | Exercise Price of | Under Equity | |||||
Outstanding | Outstanding | Compensation | |||||
Plan Category | Options | Options | Plans | ||||
Equity compensation plans approved by stockholders: |
|
|
|
|
|
| |
2001 Stock Incentive Plan |
| — | $ | — |
| — | |
2007 Stock Incentive Plan |
| 515 | $ | 695.10 |
| — | |
2010 Stock Incentive Plan |
| 202,381 | $ | 26.74 |
| — | |
2020 Stock Incentive Plan | 2,093,002 | 1.12 | 4,906,998 | ||||
Equity compensation plans not approved by stockholders |
| N/A |
| N/A |
| N/A | |
Total |
| 2,295,898 | $ | 3.53 |
| 4,906,998 | |
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Pursuant to our charter, our Audit Committee shall review on an on-going basis for potential conflicts of interest, and approve if appropriate, all our “Related Party Transactions” as required by Section 120 of the NYSE American Company Guide. For purposes of the Audit Committee Charter, “Related Party Transactions” shall mean those transactions required to be disclosed pursuant to SEC Regulation S-K, Item 404.
The Board of Directors undertook a review of the independence of the members of the Board of Directors and considered whether any director has a material relationship with our company that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. Based upon information requested from and provided by each director concerning their background, employment and affiliations, including family relationships, the Board of Directors has determined that Mr. Kraws, Dr. Monahan and Mr. Wolf are independent directors.
Except as disclosed under “Executive Compensation,” and below there were no related party transactions during the two years ended December 31, 2022 or the current year.
On December 15, 2022, we approved the retention of MaryAnn Shallcross, the wife of Steven Shallcross, as director of Clinical Operations, for compensation of $145,000 and the grant of an option to purchase 50,000 shares of common stock having a value of $20,000. Ms. Shallcross had been performing services for us during 2022 for total compensation of less than $120,000.
See Part III–Item 10 under the heading “Directors, Executive Officers and Corporate Governance” of this Annual Report for information related to director independence.
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Item 14. Principal Accountant Fees and Services.
Independent Registered Public Accounting Firm Fees and Services
The following table sets forth the aggregate fees including expenses billed to us for the years ended December 31, 2022 and 2021 by BDO USA, LLP.
December 31, | ||||||
| 2022 |
| 2021 | |||
Audit-Related fees | $ | 598,500 | $ | 324,500 | ||
Tax Fees | 19,500 | 19,500 | ||||
Total Fees (1) | $ | 618,000 | $ | 344,000 | ||
| (1) | Audit fees and expenses were for professional services rendered for the audit and reviews of the consolidated financial statements of the Company, professional services rendered for issuance of consents and assistance with review of documents filed with the SEC. |
Audit Committee Pre-Approval Policy
The Audit Committee has adopted procedures for pre-approving all audit and non-audit services provided by the independent registered public accounting firm, including the fees and terms of such services. These procedures include reviewing detailed back-up documentation for audit and permitted non-audit services. The documentation includes a description of, and a budgeted amount for, particular categories of non-audit services that are recurring in nature and therefore anticipated at the time that the budget is submitted. Audit Committee approval is required to exceed the pre-approved amount for a particular category of non-audit services and to engage the independent registered public accounting firm for any non-audit services not included in those pre-approved amounts. For both types of pre-approval, the Audit Committee considers whether such services are consistent with the rules on auditor independence promulgated by the SEC and the Public Company Accounting Oversight Board (PCAOB). The Audit Committee also considers whether the independent registered public accounting firm is best positioned to provide the most effective and efficient service, based on such reasons as the auditor’s familiarity with our business, people, culture, accounting systems, risk profile, and whether the services enhance our ability to manage or control risks and improve audit quality. The Audit Committee may form and delegate pre-approval authority to subcommittees consisting of one or more members of the Audit Committee, and such subcommittees must report any pre-approval decisions to the Audit Committee at its next scheduled meeting. All of the services provided by the independent registered public accounting firm were pre-approved by the Audit Committee.
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PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a)(1) | The following financial statements are included in this Annual Report on Form 10-K for the fiscal years ended December 31, 2022 and 2021. |
| 1. | Independent Registered Public Accounting Firm |
| 2. | Consolidated Balance Sheets as of December 31, 2022 and 2021 |
| 3. | Consolidated Statements of Operations for the years ended December 31, 2022 and 2021 |
| 4. | Consolidated Statements of (Deficit) Equity for the years ended December 31, 2022 and 2021 |
| 5. | Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021 |
| 6. | Notes to Consolidated Financial Statements |
(a)(2) | All financial statement schedules have been omitted as the required information is either inapplicable or included in the Consolidated Financial Statements or related notes. |
(a)(3) | Exhibits |
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EXHIBIT INDEX
The following exhibits are either filed as part of this report or are incorporated herein by reference:
1.1 | ||
1.2 | ||
2.1 | ||
2.2 | ||
3.1 | Certificate of Incorporation, as amended (Incorporated by reference to (i) Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed October 16, 2008, File No. 001-12584, (ii) Exhibit 3.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001 filed August 14, 2001, File No. 001-12584; and (iii) Exhibits 3.1, 4.1 and 4.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998 filed August 14, 1998, File No. 001-12584.) | |
3.2 | ||
| ||
3.3 | ||
| ||
3.4 | ||
| ||
3.5 | ||
3.6 | ||
| ||
3.7 | ||
| ||
3.8 | ||
| ||
3.9 | ||
| ||
3.10 | ||
|
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3.11 | ||
| ||
3.12 | ||
| ||
3.13 | ||
3.14 | ||
3.15 | ||
3.16 | ||
3.17 | ||
3.18 | ||
3.19 | ||
4.1 | ||
| ||
4.2 | ||
| ||
4.3 | ||
| ||
4.4 | ||
| ||
10.1* | ||
| ||
10.2* | ||
| ||
10.3* | ||
10.4 | ||
138
10.5+ | ||
| ||
10.6 | ||
| ||
10.7* | ||
| ||
10.8* | ||
| ||
10.9* | ||
| ||
10.10* | ||
| ||
10.11* | ||
| ||
10.12* | ||
| ||
10.13 | ||
| ||
10.14* | ||
| ||
10.15+ | ||
| ||
10.16* | ||
| ||
10.17* | ||
| ||
10.18* | ||
| ||
10.19* | ||
| ||
10.20 | ||
139
10.21* | ||
10.22+ | ||
10.23+ | ||
10.24+ | ||
10.25+ | ||
10.26 | ||
10.27 | ||
10.28 | ||
10.29 | ||
10.30 | ||
10.31 | ||
21.1 | ||
| ||
23.1 | Consent of Independent Registered Public Accounting Firm (BDO USA, LLP) (1) | |
| ||
31.1 | ||
| ||
31.2 | ||
| ||
32.1 | ||
|
140
32.2 | ||
| ||
101.INS | Inline XBRL Instance Document (1) | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document (1) | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document (1) | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document (1) | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document (1) | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document (1) | |
104 | Cover Page Interactive Data File (formatted in XBRL in Exhibit 101) |
(1)Filed herewith.
* | Management contract or compensatory plan or arrangement required to be identified pursuant to Item 15(a)(3) of this report. |
+ | The Company the submitted certain portions of these agreements in accordance with Item 601 (b)(10) of Regulation S-K. the Company agrees to furnish unredacted copies of these exhibits to the SEC upon request. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned.
THERIVA BIOLOGICS, INC. | ||
By: | /s/ Steven A. Shallcross | |
Steven A. Shallcross | ||
Chief Executive Officer, Chief Financial Officer and Director | ||
(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | ||
Date: March 30, 2023 | ||
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Steven A. Shallcross, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: March 30, 2023 | By : | /s/ Steven A. Shallcross |
Steven A. Shallcross | ||
Chief Executive Officer, Chief Financial Officer and Director | ||
(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | ||
Date: March 30, 2023 | By : | /s/ Jeffrey J. Kraws |
Jeffrey J. Kraws | ||
Chairman | ||
Date: March 30, 2023 | By: | /s/ John J. Monahan |
John J. Monahan | ||
Director | ||
Date: March 30, 2023 | By: | /s/ Jeffrey Wolf |
Jeffrey Wolf | ||
Director |
143