SEC Filing - Synlogic

View:

Download DOC

Download PDF

Download XLS

Download XBRL

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

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.

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.

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