sybx-10q_20200331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM             TO

Commission File Number 001-37566

 

SYNLOGIC, INC.

(Exact name of Registrant as specified in its Charter)

 

Delaware

State or other jurisdiction of

incorporation or organization)

 

26-1824804

(I.R.S. Employer

Identification No.)

 

 

 

301 Binney St., Suite 402

Cambridge, MA

(Address of principal executive offices)

 

02142

(Zip Code)

(617) 401-9975

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of exchange on which registered

Common Stock, par value $0.001 per share

SYBX

The Nasdaq Capital Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No   

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b–2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

 

As of May 1, 2020, there were 32,838,515 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

 

 


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained herein are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

 

 

the success of our research and development efforts;

 

the initiation, progress, timing, costs and results of clinical trials for our product candidates;

 

the time and costs involved in obtaining regulatory approvals for our product candidates;

 

the success of our collaborations with third parties;

 

the progress, timing and costs involved in developing manufacturing processes and in manufacturing products, as well as agreements with third-party manufacturers;

 

the rate of progress and cost of our commercialization activities;

 

the expenses we incur in marketing and selling our product candidates;

 

the revenue generated by sales of our product candidates;

 

the emergence of competing or complementary technological developments;

 

the terms and timing of any additional collaborative, licensing or other arrangements that we may establish;

 

the acquisition of businesses, products and technologies;

 

our need to implement additional infrastructure and internal systems;

 

our need to add personnel and financial and management information systems to support our product development and potential future commercialization efforts, and to enable us to operate as a public company;

 

the development of major public health concerns, including the novel coronavirus outbreak or other pandemics arising globally, and the current and future impact of it and COVID-19 on our clinical trials, business operations and funding requirements; and

 

other risks and uncertainties, including those listed under Part II, Item 1A. “Risk Factors”.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

 

 


SYNLOGIC, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

 

 

Page

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

Item 1. Financial Statements

 

 

 

 

 

Unaudited Consolidated Balance Sheets

 

1

 

 

 

Unaudited Consolidated Statements of Operations and Comprehensive Loss

 

2

 

 

 

Unaudited Consolidated Statements of Stockholders’ Equity

 

3

 

 

 

Unaudited Consolidated Statements of Cash Flows

 

4

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

5

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

15

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

23

 

 

 

Item 4. Controls and Procedures

 

23

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

Item 1. Legal Proceedings

 

24

 

 

 

Item 1A. Risk Factors

 

24

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

52

 

 

 

Item 3. Defaults Upon Senior Securities

 

52

 

 

 

Item 4. Mine Safety Disclosures

 

52

 

 

 

Item 5. Other Information

 

52

 

 

 

Item 6. Exhibits

 

53

 

 

 

Signatures

 

54

 

 

 

 


SYNlogic, Inc. and SUBSIDIARIES

Unaudited Consolidated Balance Sheets

(In thousands, except share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

19,453

 

 

$

26,184

 

Short-term marketable securities

 

 

94,796

 

 

 

93,387

 

Prepaid expenses and other current assets

 

 

13,166

 

 

 

13,675

 

Total current assets

 

 

127,415

 

 

 

133,246

 

Long-term marketable securities

 

 

 

 

 

7,502

 

Property and equipment, net

 

 

12,661

 

 

 

13,021

 

Right of use asset - operating lease

 

 

16,843

 

 

 

17,263

 

Restricted cash

 

 

1,097

 

 

 

1,097

 

Prepaid research and development, net of current portion

 

 

13,055

 

 

 

16,381

 

Other assets

 

 

64

 

 

 

64

 

Total assets

 

$

171,135

 

 

$

188,574

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,696

 

 

$

2,165

 

Accrued expenses

 

 

2,327

 

 

 

3,946

 

Deferred revenue

 

 

445

 

 

 

544

 

Lease liability - operating lease

 

 

2,210

 

 

 

2,000

 

Finance lease obligations

 

 

141

 

 

 

208

 

Total current liabilities

 

 

6,819

 

 

 

8,863

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Lease liability - operating lease, net of current portion

 

 

22,198

 

 

 

22,804

 

Finance lease obligations, net of current portion

 

 

1

 

 

 

2

 

Total long-term liabilities

 

 

22,199

 

 

 

22,806

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

Common stock, $0.001 par value

 

 

 

 

 

 

 

 

250,000,000 shares authorized as of March 31, 2020 and December 31, 2019.

32,459,394 and 32,266,814 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively.

 

 

33

 

 

 

33

 

Additional paid-in capital

 

 

328,995

 

 

 

327,900

 

Accumulated other comprehensive loss

 

 

55

 

 

 

110

 

Accumulated deficit

 

 

(186,966

)

 

 

(171,138

)

Total stockholders' equity

 

 

142,117

 

 

 

156,905

 

Total liabilities and stockholders' equity

 

$

171,135

 

 

$

188,574

 

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

1


 

Synlogic, INC. aND SUBSIDIARIES

Unaudited Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

 

 

 

For the Three Months Ended

 

 

 

March 31, 2020

 

 

March 31, 2019

 

Revenue

 

$

100

 

 

$

338

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

12,677

 

 

 

10,384

 

General and administrative

 

 

3,821

 

 

 

3,651

 

Total operating expenses

 

 

16,498

 

 

 

14,035

 

Loss from operations

 

 

(16,398

)

 

 

(13,697

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest and investment income

 

 

574

 

 

 

757

 

Interest expense

 

 

(3

)

 

 

(7

)

Other income (expense)

 

 

(1

)

 

 

1

 

Other income (expense), net

 

 

570

 

 

 

751

 

Net loss

 

$

(15,828

)

 

$

(12,946

)

 

 

 

 

 

 

 

 

 

Net loss per share - basic and diluted

 

$

(0.46

)

 

$

(0.51

)

Weighted-average common stock outstanding - basic and diluted

 

 

34,233,688

 

 

 

25,293,791

 

Comprehensive loss:

 

 

 

 

 

 

 

 

Net loss

 

$

(15,828

)

 

$

(12,946

)

Net unrealized gain (loss) on marketable securities

 

 

(55

)

 

 

104

 

Comprehensive loss

 

$

(15,883

)

 

$

(12,842

)

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

 

2


Synlogic, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

 

 

 

Common stock

 

 

Additional

 

 

Accumulated other

 

 

 

 

 

 

 

 

 

 

 

$0.001 par value

 

 

paid-in

 

 

comprehensive

 

 

Accumulated

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

income (loss)

 

 

deficit

 

 

equity

 

 

 

For the Three Months Ended March 31, 2020

 

Balance at December 31, 2019

 

 

32,266,814

 

 

$

33

 

 

$

327,900

 

 

$

110

 

 

$

(171,138

)

 

$

156,905

 

Issuance of restricted stock

 

 

226,335

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of restricted stock

 

 

(33,755

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

1,095

 

 

 

 

 

 

 

 

 

1,095

 

Unrealized gain (loss) on securities

 

 

 

 

 

 

 

 

 

 

 

(55

)

 

 

 

 

 

(55

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,828

)

 

 

(15,828

)

Balance at March 31, 2020

 

 

32,459,394

 

 

$

33

 

 

$

328,995

 

 

$

55

 

 

$

(186,966

)

 

$

142,117

 

 

 

For the Three Months Ended March 31, 2019

 

Balance at December 31, 2018

 

 

25,401,479

 

 

$

25

 

 

$

243,903

 

 

$

(65

)

 

$

(119,765

)

 

$

124,098

 

Cancellation of restricted stock

 

 

(12,836

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

954

 

 

 

 

 

 

 

 

 

954

 

Unrealized gain (loss) on securities

 

 

 

 

 

 

 

 

 

 

 

104

 

 

 

 

 

 

104

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,946

)

 

 

(12,946

)

Balance at March 31, 2019

 

 

25,388,643

 

 

$

25

 

 

$

244,857

 

 

$

39

 

 

$

(132,711

)

 

$

112,210

 

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

 

3


Synlogic, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Cash Flows

(In thousands)

 

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

March 31, 2020

 

 

March 31, 2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(15,828

)

 

$

(12,946

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

667

 

 

 

683

 

Equity-based compensation expense

 

 

1,095

 

 

 

954

 

Accretion/amortization of investment securities

 

 

(45

)

 

 

(446

)

Reduction in carrying amount of operating lease right-of-use asset

 

 

420

 

 

 

221

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

 

 

(2,500

)

Prepaid expenses and other current assets

 

 

509

 

 

 

152

 

Prepaid research and development, net of current portion

 

 

3,327

 

 

 

 

Accounts payable and accrued expenses

 

 

(2,129

)

 

 

(1,084

)

Deferred revenue

 

 

(100

)

 

 

2,161

 

Operating lease liabilities

 

 

(395

)

 

 

(313

)

Net cash used in operating activities

 

 

(12,479

)

 

 

(13,118

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(14,269

)

 

 

(39,346

)

Proceeds from maturity of marketable securities

 

 

18,852

 

 

 

57,282

 

Proceeds from redemption of marketable securities

 

 

1,500

 

 

 

 

 

Purchases of property and equipment

 

 

(266

)

 

 

(261

)

Net cash provided by investing activities

 

 

5,817

 

 

 

17,675

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payments on finance lease obligations

 

 

(69

)

 

 

(65

)

Net cash used in financing activities

 

 

(69

)

 

 

(65

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(6,731

)

 

 

4,492

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

27,281

 

 

 

12,349

 

Cash, cash equivalents and restricted cash at end of period

 

$

20,550

 

 

$

16,841

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Property and equipment purchases included in accounts payable and accrued expenses

 

$

41

 

 

$

(71

)

Cash paid for interest

 

$

3

 

 

$

7

 

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

 

4


 

SYNLOGIC, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

(1)

Nature of Business

Organization

Synlogic, Inc., together with its wholly owned and consolidated subsidiaries (“Synlogic” or the “Company”), is a clinical-stage biopharmaceutical company focused on advancing its drug discovery and development platform for Synthetic Biotic™ medicines. Synthetic Biotic medicines are generated from Synlogic’s proprietary drug discovery and development platform applying the principles and tools of synthetic biology to engineer beneficial microbes to perform or deliver critical therapeutic functions to treat metabolic and inflammatory diseases and cancer. As living medicines, Synthetic Biotic medicines can be designed to sense a local disease context within a patient’s body and to respond by metabolizing a toxic substance, compensating for missing or damaged metabolic pathways in patients, or by delivering combinations of therapeutic factors. Synlogic’s goal is to lead in the discovery and development of Synthetic Biotic therapies as living medicines capable of robust and precise pathway complementation and delivery of therapeutic benefit. Since incorporation, the Company has devoted substantially all of its efforts to the research and development of its product candidates.

Synlogic, Inc. (“Private Synlogic” when referred to prior to the Merger (as defined below)) was founded and began operations on March 14, 2014, as TMC Therapeutics, Inc., located in Cambridge, Massachusetts. On July 15, 2014, TMC Therapeutics, Inc. changed its name to Synlogic, Inc. On July 2, 2015, the common and preferred stockholders of Private Synlogic executed the Synlogic, LLC Contribution Agreement (the “Contribution Agreement”), pursuant to which such common and preferred stockholders contributed such stockholders’ equity interests in Private Synlogic in exchange for common and preferred units in a newly formed parent company named Synlogic, LLC. In addition, Synlogic IBDCo, Inc. (“IBDCo”) was formed as a subsidiary of Synlogic, LLC (the “2015 Reorganization”). In conjunction with the 2015 Reorganization, Private Synlogic entered into a license, option and merger agreement with AbbVie S.à.r.l. (“AbbVie”), for the development of treatments for inflammatory bowel disease (“IBD”).

In May 2017, Private Synlogic completed a reorganization (“2017 Reorganization”) pursuant to which Synlogic, LLC merged with and into Private Synlogic, with Private Synlogic continuing as the surviving corporation. Pursuant to the 2017 Reorganization, the common units and preferred units of Synlogic, LLC, together consisting of Class A preferred units, contingently redeemable Class A preferred units and Class B preferred units, were exchanged for common stock and preferred stock of Private Synlogic, respectively. Additionally, Private Synlogic issued equity awards under the Synlogic 2017 Stock Incentive Plan (“2017 Plan”) to replace the canceled incentive units pursuant to the termination of the Synlogic, LLC 2015 Equity Incentive Plan (“2015 LLC Plan”).

On August 28, 2017, Synlogic, Inc., formerly known as Mirna Therapeutics, Inc. (NASDAQ: MIRN) (“Mirna”), completed its business combination with Private Synlogic pursuant to the Agreement and Plan of Merger and Reorganization, dated as of May 15, 2017, by and among Mirna, Meerkat Merger Sub, Inc. (“Merger Sub”), and Private Synlogic (the “Merger Agreement”), pursuant to which Merger Sub merged with and into Private Synlogic, with Private Synlogic surviving as a wholly owned subsidiary of Mirna (the “Merger”). Immediately after completion of the Merger, Mirna changed its name to “Synlogic, Inc.” (NASDAQ: SYBX).

Risks and Uncertainties

At March 31, 2020, the Company had approximately $114.2 million in cash, cash equivalents, and short-term marketable securities, $1.1 million of restricted cash and an accumulated deficit of approximately $187.0 million. Since its inception through March 31, 2020, the Company has primarily financed its operations through the issuance of preferred stock, units and warrants, the sale of its common stock, the AbbVie collaboration, and cash received in the Merger. In the absence of positive cash flows from operations, the Company is highly dependent on its ability to find additional sources of funding in the form of debt or equity financing. Management believes that the Company has sufficient cash to fund its operations through at least twelve months from the issuance of these financial statements.

5


SYNLOGIC, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

 

As an early-stage company, the Company is subject to a number of risks common to other life science companies, including, but not limited to, raising additional capital, development by its competitors of new technological innovations, risk of failure in preclinical and clinical studies, safety and efficacy of its product candidates in clinical trials, the risk of relying on external parties such as contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”), the regulatory approval process, market acceptance of the Company’s products once approved, lack of marketing and sales history, dependence on key personnel and protection of proprietary technology. The Company’s therapeutic programs are currently pre-commercial, spanning discovery through early development and will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization of any product candidates.  These efforts require significant amounts of additional capital, adequate personnel, infrastructure, and extensive compliance-reporting capabilities.  There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary regulatory approval or that any approved products will be commercially viable.  Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate revenue from product sales.  The Company may never achieve profitability, and unless and until it does, it will continue to need to raise additional capital or obtain financing from other sources, such as strategic collaborations or partnerships.

(2)

Summary of Significant Accounting Policies

The significant accounting policies described in the Company’s audited financial statements as of and for the year ended December 31, 2019, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission (“SEC”) on March 12, 2020 (the “2019 Annual Report”), have had no material changes during the three months ended March 31, 2020. The updated accounting policy and the impact of adoption are discussed in the “Recently Adopted Accounting Pronouncements” section in this note.

 

 

Basis of Presentation

The accompanying consolidated financial statements and the related disclosures as of March 31, 2020 and for the three months ended March 31, 2020 and 2019 are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and the rules and regulations of the SEC for interim financial statements.  Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.  These interim consolidated financial statements should be read in conjunction with the Company’s 2019 and 2018 audited consolidated financial statements and notes included in the Company’s 2019 Annual Report. The December 31, 2019 consolidated balance sheet included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments, consisting of normal and recurring adjustments, necessary for the fair presentation of the Company’s financial position and results of operations for the three months ended March 31, 2020 and 2019.  The results of operations for the interim periods are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or any other interim period or future year or period.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Synlogic and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

 

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13 - Measurement of Credit Losses on Financial Statements. The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. In November 2019, the FASB issued ASU 2019-10 – Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which amended the effective date for certain companies. The standard is effective for public companies eligible to be smaller reporting companies for annual and interim periods beginning after December 15, 2022. Early adoption is available. The Company is currently evaluating the potential impact ASU 2016-13, and related updates, will have on its consolidated financial statements and disclosures.

 

6


SYNLOGIC, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

 

(3)

Fair Value of Financial Instruments

The tables below present information about the Company’s assets that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value, as described under Note 2, Summary of Significant Accounting Policies, in the audited financial statements included in the Company’s 2019 Annual Report.  

The Company’s investment portfolio includes many fixed income securities that do not always trade on a daily basis.  As a result, the pricing services used by the Company applied other available information as applicable through processes such as benchmark yields, benchmarking of like securities, sector groupings and matrix pricing to prepare evaluations.  In addition, model processes were used to assess interest rate impact and develop prepayment scenarios.  These models take into consideration relevant credit information, perceived market movements, sector news and economic events.  The inputs into these models may include benchmark yields, reported trades, broker-dealer quotes, issuer spreads and other relevant data.

At March 31, 2020 and December 31, 2019, the Company has classified assets measured at fair value on a recurring basis as follows (in thousands):

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

March 31,

 

 

Quoted Prices

in Active

Markets for

Identical

Assets

 

 

Significant

Other

Observable

Inputs

 

 

Significant

Unobservable

Inputs

 

Description

 

2020

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Money market funds

 

$

8,177

 

 

$

8,177

 

 

$

 

 

$

 

Commercial paper (included in marketable securities)

 

 

16,404

 

 

 

 

 

 

16,404

 

 

 

 

Corporate debt securities (included in marketable securities)

 

 

70,878

 

 

 

 

 

 

70,878

 

 

 

 

U.S. government agency securities and treasuries

 

 

7,514

 

 

 

 

 

 

7,514

 

 

 

 

Total

 

$

102,973

 

 

$

8,177

 

 

$

94,796

 

 

$

 

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

December 31,

 

 

Quoted Prices

in Active

Markets for

Identical

Assets

 

 

Significant

Other

Observable

Inputs

 

 

Significant

Unobservable

Inputs

 

Description

 

2019

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Money market funds

 

$

3,240

 

 

$

3,240

 

 

$

 

 

$

 

Commercial paper (included in cash and cash equivalents)

 

 

4,249

 

 

 

 

 

 

4,249

 

 

 

 

Commercial paper (included in marketable securities)

 

 

20,501

 

 

 

 

 

 

20,501

 

 

 

 

Corporate debt securities (included in cash and cash equivalents)

 

 

6,005

 

 

 

 

 

 

6,005

 

 

 

 

Corporate debt securities (included in marketable securities)

 

 

71,383

 

 

 

 

 

 

71,383

 

 

 

 

U.S. government agency securities and treasuries

 

 

9,005

 

 

 

 

 

 

9,005

 

 

 

 

Total

 

$

114,383

 

 

$

3,240

 

 

$

111,143

 

 

$

 

 

Cash equivalents, prepaid expenses and other current assets, accounts payable and accrued expenses at March 31, 2020 and December 31, 2019 are carried at amounts that approximate fair value due to their short-term maturities. Finance lease obligations at March 31, 2020 and December 31, 2019 approximate fair value as they bear interest at a rate approximating a market interest rate.

7


SYNLOGIC, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

 

(4)

Available-for-Sale Investments

 

The following tables summarize the available-for-sale securities held at March 31, 2020 and December 31, 2019 (in thousands):

 

March 31, 2020

 

Amortized cost

 

 

Gross unrealized

gains

 

 

Gross unrealized

losses

 

 

Fair Value

 

Commercial paper

 

$

16,356

 

 

$

48

 

 

$

 

 

$

16,404

 

Corporate debt securities

 

 

70,882

 

 

 

45

 

 

 

(49

)

 

 

70,878

 

U.S. government agency securities

 

 

7,503

 

 

 

11

 

 

 

 

 

 

7,514

 

Total

 

$

94,741

 

 

$

104

 

 

$

(49

)

 

$

94,796

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

Amortized cost

 

 

Gross unrealized

gains

 

 

Gross unrealized

losses

 

 

Fair Value

 

Commercial paper

 

$

20,484

 

 

$

18

 

 

$

(1

)

 

$

20,501

 

Corporate debt securities

 

 

71,288

 

 

 

96

 

 

 

(1

)

 

 

71,383

 

U.S. government agency securities

 

 

9,005

 

 

 

2

 

 

 

(2

)

 

 

9,005

 

Total

 

$

100,777

 

 

$

116

 

 

$

(4

)

 

$

100,889

 

 

The contractual maturity of all securities held at March 31, 2020 was eleven months or less.  There were nine investments in an unrealized loss position at March 31, 2020 and December 31, 2019, none of which had been in an unrealized loss position for more than twelve months. The aggregate fair value of the securities in an unrealized loss position at March 31, 2020 and December 31, 2019 was $25.7 million and $24.8 million, respectively. The Company reviews its investments for other-than-temporary impairment whenever the fair value of an investment is less than amortized cost and evidence indicates that an investment’s carrying amount is not recoverable within a reasonable period of time.  To determine whether an impairment is other-than-temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary.  The Company did not hold any securities with an other-than-temporary impairment at March 31, 2020.

Gross realized gains and losses on the sales of investments have not been material to the Company’s consolidated statement of operations.

 

(5)

Property and Equipment, net

Property and equipment, net consists of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Laboratory equipment

 

$

7,772

 

 

$

7,523

 

Computer and office equipment

 

 

782

 

 

 

782

 

Furniture and fixtures

 

 

421

 

 

 

421

 

Leasehold improvements

 

 

9,514

 

 

 

9,514

 

Construction in progress

 

 

470

 

 

 

412

 

 

 

 

18,959

 

 

 

18,652

 

Less accumulated depreciation

 

 

(6,298

)

 

 

(5,631

)

 

 

$

12,661

 

 

$

13,021

 

 

8


SYNLOGIC, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

 

(6)

Accrued Expenses

Accrued expenses consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Payroll related

 

$

1,034

 

 

$

2,372

 

Professional fees

 

 

489

 

 

 

444

 

Research and development

 

 

649

 

 

 

1,005

 

Other

 

 

155

 

 

 

125

 

 

 

$

2,327

 

 

$

3,946

 

  

(7)

Stockholders’ Equity

In June 2019, the Company issued to Ginkgo Bioworks, Inc. an aggregate of 6,340,771 shares of common stock at a purchase price per share of $9.00, and pre-funded warrants (the “Pre-Funded Warrants”) to purchase an aggregate of 2,548,117 shares of common stock at an exercise price of $9.00 per share, with $8.99 of such exercise price paid at the closing of the offering. The net proceeds to the Company were approximately $79.9 million.

The Pre-Funded Warrants may be exercised at any time until all of the Pre-Funded Warrants are exercised in full to the extent that, after giving effect to such issuance after exercise, Ginkgo would not beneficially own in excess of 19.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance.

The Pre-Funded Warrants were classified as a component of permanent equity and were recorded at the issuance date using a relative fair value allocation method. The Pre-Funded Warrants are equity classified because they are freestanding financial instruments that are legally detachable and separately exercisable from the equity instruments, are immediately exercisable, do not embody an obligation for the Company to repurchase its shares, and permit the holders to receive a fixed number of common shares upon exercise. In addition, such warrants do not provide any guarantee of value or return. None of the Pre-Funded Warrants have been exercised as of March 31, 2020.

 

(8)

Equity‑based Compensation and Equity Incentive Plans

The Company is displaying all equity in its post-Merger amounts.

Equity Plans

The Company currently has three active equity plans.

The 2015 Equity Incentive Award Plan (the “2015 Plan”) was adopted by Mirna in 2015 and remains active after the Merger, now functioning as the primary equity plan for the Company. The 2015 Plan provides for the granting of a variety of stock‑based compensation awards, including stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, deferred stock awards, dividend equivalent awards, stock payment awards, performance awards and other stock‑based awards. Pursuant to the evergreen provision of the 2015 Plan, which allows for an annual increase in the number of shares of common stock available for issuance, the Company added 1,613,340 shares to the 2015 Plan on January 1, 2020.

The 2017 Stock Incentive Plan (the “2017 Plan”) was adopted by Private Synlogic in 2017 at the time of the 2017 Reorganization and assumed by the Company during the Merger.  The 2017 Plan provides for the grant of incentive stock options, non-qualified stock options, restricted and unrestricted stock awards and other stock-based awards.

9


SYNLOGIC, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

 

The 2015 Employee Stock Purchase Plan (“ESPP”) was adopted by Mirna in 2015 and allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations.  The ESPP generally provides for set offering periods, and at the end of each offering period, employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the last trading day of the offering period.  The Company suspended the ESPP in 2017. In December 2019, the Board reactivated the ESPP and approved an amendment to the ESPP to (i) reduce the permitted aggregate yearly payroll deduction and maximum number of shares of the Company’s common stock that a participant may purchase per offering period under the ESPP and (ii) establish a period for enrollment for eligible participants. The reactivation of the ESPP was effective immediately. The Company’s executive officers are eligible to participate in the ESPP. There were no options to purchase shares of common stock under the ESPP exercised as of March 31, 2020.

As of March 31, 2020, there were 1,131,108 shares available for future grant under the 2017 Plan and the 2015 Plan, and 375,519 shares available for future grant under the ESPP.

For a full description of the Company’s equity plans, refer to Note 9, Equity-based Compensation and Equity Incentive Plans in the Company’s 2019 Annual Report.

Stock Options

The following table summarizes stock option activity during the three months ended March 31, 2020 under the 2015 Plan and the 2017 Plan.

 

 

 

Stock options outstanding

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

average

 

 

Aggregate

 

 

 

 

 

 

 

average

 

 

remaining

 

 

Intrinsic

 

 

 

Number of

 

 

exercise

 

 

contractual

 

 

value (a)

 

 

 

options

 

 

price

 

 

term (in years)

 

 

(in thousands)

 

Outstanding at December 31, 2019

 

 

2,286,419

 

 

$

9.24

 

 

 

8.7

 

 

$

43

 

Granted

 

 

1,052,113

 

 

 

1.77

 

 

 

 

 

 

 

 

Forfeited

 

 

(86,073

)

 

 

9.30

 

 

 

 

 

 

 

1

 

Outstanding at March 31, 2020

 

 

3,252,459

 

 

 

6.82

 

 

 

8.9

 

 

$

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested or expected to vest at March 31, 2020

 

 

3,252,459

 

 

 

6.82

 

 

 

8.9

 

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at March 31, 2020

 

 

919,285

 

 

 

11.26

 

 

 

8.0

 

 

$

 

 

(a)

The aggregate intrinsic value is calculated as the difference between the exercise price of the options and the fair market value of the underlying common stock for the options that were in the money at March 31, 2020 and December 31, 2019.  

As of March 31, 2020, there was $6.9 million of unrecognized share-based compensation related to unvested stock option grants which is expected to be recognized over a weighted average period of 2.4 years.  The total unrecognized share-based compensation cost will be adjusted for actual forfeitures as they occur.

10


SYNLOGIC, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

 

Restricted Common Stock

The following table shows restricted stock activity during the three months ended March 31, 2020:

 

 

 

Restricted stock awards

 

 

 

 

 

 

 

Grant date

 

 

 

Number of

 

 

fair value

 

 

 

shares

 

 

(per share)

 

Unvested at December 31, 2019

 

 

586,929

 

 

$

2.97

 

Granted

 

 

226,335

 

 

 

1.70

 

Vested

 

 

(9,318

)

 

 

13.53

 

Forfeited

 

 

(33,755

)

 

 

2.45

 

Unvested at March 31, 2020

 

 

770,191

 

 

$

2.49

 

 

As of March 31, 2020, there was approximately $1.3 million of unrecognized share-based compensation related to restricted stock awards granted, which is expected to be recognized over a weighted average period of 1.9 years.  The total unrecognized share-based compensation cost will be adjusted for actual forfeitures as they occur.   

Equity Compensation

The Company has recorded total equity-based compensation expense of approximately $1.1 million during the three months ended March 31, 2020 and $1.0 million and during the three months ended March 31, 2019.

The following table summarizes equity‑based compensation expense within the Company’s consolidated statements of operations and comprehensive loss for the three months ended March 31, 2020 and 2019 (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

 

2020

 

 

2019

 

 

Research and development

 

$

441

 

 

$

284

 

 

General and administrative

 

 

654

 

 

 

670

 

 

 

 

$

1,095

 

 

$

954

 

 

 

The following table summarizes equity‑based compensation expense by type of award for the three months ended March 31, 2020 and 2019 (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

 

2020

 

 

2019

 

 

Stock options

 

$

875

 

 

$

926

 

 

Restricted stock awards

 

 

220

 

 

 

28

 

 

 

 

$

1,095

 

 

$

954

 

 

 

(9)

Collaboration Agreements

 

Ginkgo Collaboration

 

In 2017, the Company established a technology collaboration with Ginkgo Bioworks, Inc. (Ginkgo). In June 2019, in connection with the issuance to Ginkgo of an aggregate of 6,340,771 shares of common stock and Pre-Funded warrants to purchase an aggregate of 2,548,117 common stock (See Note 7), the Company expanded its collaboration and entered into an agreement with Ginkgo for the research and development of engineered microbial therapeutic products. Under the 2019 expanded agreement, the Company made a prepayment to Ginkgo of $30.0 million for its foundry services that will be provided to the Company over an initial term of five years. The prepayment of foundry services is recorded in Prepaid expenses and other current assets and Prepaid research and development, net of current portion on the March 31, 2020 consolidated balance sheet. At March 31, 2020, the Company had remaining balances of $11.3 million and $12.4 million of current and non-current pre-paid research and development costs related to this transaction, respectively. Upon the expiration of such initial term and, if applicable, an additional period, any portion of the prepayment that has not been used to purchase services from Ginkgo will be retained by Ginkgo.

 

11


SYNLOGIC, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

 

AbbVie Collaboration Agreement

In July 2015, the Company entered into the AbbVie Agreement under which the Company granted AbbVie an exclusive option to purchase IBDCo and, in exchange, agreed to collaborate in researching and developing an Investigational New Drug (“IND”) candidate for the treatment of IBD. The AbbVie Agreement sets forth the Company’s and AbbVie’s respective obligations for development and delivery of an IND candidate package using reasonable commercial efforts.

In exchange for the exclusive option to acquire IBDCo, initial research and development services for drug discovery and pre-clinical development, and participation on the joint research committee (“JRC”), AbbVie agreed to pay IBDCo an upfront, non-refundable cash payment of $2.0 million, which IBDCo received in December 2015. AbbVie also agreed to pay IBDCo up to $16.5 million in milestone payments associated with specified research and pre-clinical events, which were determined to represent customer options for accounting purposes, as well as an option exercise fee upon the execution of their option to buy IBDCo and other royalty and milestone payments. The upfront cash payment and any payments for option fees and royalties are non-refundable, non-creditable and not subject to set-off.

The research and development is performed by the Company over four phases of research defined in the research plan. The Company is eligible to receive payments from AbbVie upon the election to continue the research and development at the achievement of certain milestone events. The JRC will make a determination as to the continuation of the collaboration at the achievement of research and pre-clinical milestones, except for the final milestone, which AbbVie has the discretion to determine achievement without the approval of the JRC. If the parties make the determination to continue on with the AbbVie Agreement upon achievement of each milestone event, then AbbVie will pay the consideration associated with that milestone and the collaboration will continue through the remaining term of the option to purchase IBDCo, which was initially considered to be approximately 54 months. However, AbbVie has the right to terminate the contract at any time with 90 days’ notice.

The Company assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, AbbVie, is a customer. The Company identified the following material promises at the outset of the arrangement: (1) a non-exclusive royalty-free research and development license; (2) research and development services for pre-clinical activities under the research plan through to the first research and development phase (or an estimated 17 months); (3) three option rights for AbbVie to continue the collaboration as related to three phases of research and development; (4) participation on the JRC; and (5) the transfer of ownership of IBDCo upon exercise of the option to buy IBDCo. The Company determined that the license and research and development activities were not distinct from one another. Participation on the JRC to oversee the research and development activities was determined to be quantitatively and qualitatively immaterial and therefore is excluded from performance obligations. As such, the Company determined that the license and research and development services should be combined into a single performance obligation.

The Company evaluated the milestone payments, which represent customer options as described above, and the option to purchase IBDCo, to determine whether they provide AbbVie with any material rights. The Company concluded that the options were not issued at a significant and incremental discount, and therefore do not provide material rights. As such, they were excluded as performance obligations at the outset of the arrangement. If AbbVie elects to exercise the options, the additional consideration will be added to the transaction price and allocated to the resulting performance obligations.

Based on these assessments, the Company identified one performance obligation at the outset of the AbbVie Agreement, which consists of: (1) the non-exclusive license and (2) the research and development activities through the first research and development phase.

At the outset of the arrangement, the transaction price included only the $2.0 million up-front consideration received which was allocated to the single performance obligation. The option exercise fees ($16.5 million for the milestones and the IBDCo purchase option exercise fee) that may be received are excluded from the transaction price until each customer option is exercised. The Company reevaluates the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur, and, if necessary, adjust its estimate of the transaction price.

In May 2017, the Company completed the research and development services for the first phase of the research plan and was paid $2.0 million to commence the second phase of the research plan.  At this time, the $2.0 million was added to the transaction price and allocated to a new performance obligation consisting of the underlying license and research and development services to be performed over the second phase of the research plan.

12


SYNLOGIC, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

 

On September 27, 2018, AbbVie and the Company signed an amendment (the “Second Amendment”) to the AbbVie Agreement. The Second Amendment clarified the requirements necessary to complete the second phase which resulted in additional time and effort in the second phase of the research plan.  Additionally, the Second Amendment split the next milestone payment under the AbbVie Agreement into two payments: a milestone payment of $2.0 million earned by the Company upon execution of the Second Amendment and the remaining milestone payment of the balance due upon the successful achievement of specified research and pre-clinical events and the advancement to the third phase of the research plan.

On December 18, 2018, AbbVie and the Company signed an amendment (the “Third Amendment”) to the AbbVie Agreement. The Third Amendment provides that in the event AbbVie determines that it is necessary to enter into license agreements with certain third parties in a particular country or other jurisdiction which, but for such license, would be infringed by the manufacture, use or sale of any product governed by the AbbVie Agreement, AbbVie would be entitled to deduct certain expenses related to such license agreements from particular payments made to the Company.

The Company determined that the Amendment represented a modification to the AbbVie Agreement. The additional research and development services are not distinct from the remaining research and development services under the second phase of the research plan of the AbbVie Agreement. The Amendment was accounted for as part of the original AbbVie Agreement and the services form part of the single performance obligation that was partially satisfied as of the date of the contract modification. As a result, the transaction price for the current performance obligation associated with the second phase of the research plan increased by $2.0 million. The impact of the contract modification on the transaction price and the measure of progress toward completion of the performance obligation was recognized as an adjustment to revenue upon execution of the Amendment on a cumulative catch-up basis. The cumulative catch-up adjustment to revenue, as a result of the contract modification, was $1.8 million during 2018.

On February 28, 2019, the JRC concluded that the remaining milestone of $2.5 million under the Second Amendment was achieved upon the achievement of specified research and pre-clinical events under the second phase of the research plan and the advancement to the third phase of the research plan. Revenue associated with performance obligations under the AbbVie Agreement is recognized as the research and development services are provided using an input method, according to the full-time equivalents incurred. The transfer of control occurs over time and, in management’s judgment, is the best measure of progress towards satisfying the performance obligation. The amounts received that have not yet been recognized as revenue are recorded in deferred revenue on the Company’s consolidated balance sheet.

Revenue associated with performance obligations under the AbbVie Agreement are recognized as the research and development services are provided using an input method, according to the full-time equivalents incurred. The research and development activities are expected to be performed over a period of approximately 54 months. The transfer of control occurs over time and, in management’s judgment, is the best measure of progress towards satisfying the performance obligation. The amounts received that have not yet been recognized as revenue are recorded in deferred revenue on the Company’s consolidated balance sheet.

For the three months ended March 31, 2020 and 2019, the Company recognized revenue of $0.1 million and $0.3 million, respectively, as collaboration revenue in the Company’s consolidated statements of operations and comprehensive loss. Deferred revenue amounted to $0.4 million as of March 31, 2020, all of which is included in current liabilities.

(10)

Net Loss per Share

Basic net loss per share is computed using the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed using the sum of the weighted-average number of shares of common stock outstanding during the period and if dilutive, the weighted-average number of potential shares of common stock, including unvested restricted common stock and outstanding stock options. In June 2019, the Company sold 6,340,771 shares of common stock and Pre-Funded Warrants to purchase an aggregate of 2,548,117 shares of common stock at an exercise price of $9.00 per share, with $8.99 of such exercise price paid at the closing of the offering (see Note 10, Ginkgo Collaboration, in the audited financial statements included in the Company’s 2019 Annual Report). The shares of common stock into which the warrants may be exercised are considered outstanding for the purposes of computing net loss per share.

The Company’s potentially dilutive shares, which include outstanding stock options and unvested restricted common stock/units, are considered to be common share equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

13


SYNLOGIC, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

 

The following potential common shares, presented based on amounts outstanding at each period end, were excluded from the calculation of the diluted net loss per share attributable to common stockholders for the period indicated because including them would have had an anti-dilutive effect.

 

 

 

As of  March 31,

 

 

 

2020

 

 

2019

 

Unvested restricted common stock awards

 

 

770,191

 

 

 

87,719

 

Outstanding options to purchase common stock

 

 

3,252,459