Synthetic Biologics' (SYN) CEO Steven Shallcross on Q1 2021 Results - Earnings Call Transcript

Synthetic Biologics, Inc. (SYN) Q1 2021 Earnings Conference Call May 5, 2021 4:30 PM ET

Company Participants

Vincent Perrone – Director-Corporate Communication

Steven Shallcross – Chief Executive and Financial Officer

Michael Kaleko – Senior Vice President-Research and Development

Vince Wacher – Head-Product and Corporate Development

Conference Call Participants

Michael Okunewitch – Maxim Group

Jim Molloy – Alliance Global Partners

Operator

Good afternoon, and welcome to Synthetic Biologics 2021 First Quarter Investor Conference Call. [Operator Instructions] Please note, today’s event is being recorded. At this time, I would like to turn the call over to Vincent Perrone, Director of Corporate Communication at Synthetic Biologics. Vincent, please go ahead.

Vincent Perrone

Thank you, Rocco, and good afternoon, everyone. Welcome to Synthetic Biologics 2021 first quarter investor conference call. Today, I’m joined remotely by Steven Shallcross, Chief Executive and Financial Officer; Dr. Michael Kaleko, Senior Vice President of Research and Development; and Dr. Vince Wacher, Head of Product and Corporate Development. Synthetic Biologics issued a press release this afternoon, which provided operational highlights and reported our financial results for the quarter ending March 31, 2021. The release can be found in the Investor Relations section of our website.

During our call today, we’ll provide an operational update on our GI and microbiome-focused clinical programs and summarize our financial results. We’ll take questions after our prepared remarks. In addition to the phone line, this call is being streamed live via webcast, which will be archived on our website syntheticbiologics.com for 90 days.

During this call, we will be making forward-looking statements regarding Synthetic Biologics’ current expectations and projections about future events. Generally, the forward-looking statements can be identified by terminologies such as may, should, expects, anticipates, intends, plans, believes, estimates and other similar expressions. These statements are based upon current beliefs, expectations and assumptions and are subject to a number of risks and uncertainties, including those set forth in Synthetic Biologics’ filings with the SEC, many of which are difficult to predict. No forward-looking statements can be guaranteed, and actual results may differ materially from such statements. The information on this call is provided only as of the date of this call, and Synthetic Biologics undertakes no obligation to update any forward-looking statements that contained on this conference call on account of new information, future events or otherwise, except as required by law.

With that, I’d like to turn the call over to Steve. Steve?

Steven Shallcross

Thanks, Vincent. Good afternoon, everyone. And thank you for joining our 2021 first quarter investor conference call. I’m glad to be with you this afternoon and look forward to sharing important updates on our strategy for advancing our portfolio of GI and microbiome-focused clinical development programs during today’s call.

Let me start by saying that I’m more encouraged than ever by the outlook for the business. Not only have we made significant progress in our clinical pipeline, but we’re now in the strongest financial position in the company’s history with nearly $77 million of cash on hand at the end of the quarter. Providing us with more than sufficient capital to execute on our clinical programs through proof-of-concept and extend our operations into 2023. We’ve also converted all the outstanding shares of Series A and Series B convertible preferred stock and a common stock, which has not only helped streamline our capital structure and balance sheet, but allowed us to position the company to regain listing compliance with the New York Stock Exchange.

Moreover, we have a number of very exciting upcoming catalyst that we believe have the potential to deliver significant shareholder value. Specifically, we look forward to reporting top line data from the Phase 1a single ascending dose study of SYN-020 in the third quarter of 2021. Second, we expect to commence a second Phase 1a multiple ascending dose study of SYN-020 during the third quarter of 2021 with top line data expected during the second quarter of 2022. And finally, we look forward to reporting a top line data readout from the first antibiotic cohort of the SYN-004 Phase 1a/2b clinical trial during the fourth quarter of 2021. I’ll discuss more about each of these in a moment, but as you can see, we’re entering a very exciting period for the company.

Turning now to the quarter where we’ve been very busy. During the first quarter of 2021, we achieved a number of important milestones that have brought us closer to data readouts I mentioned earlier. First, we announced that Washington University commenced enrollment and dosed the first patients in a Phase 1b/2a clinical trial of SYN-004, which is intended to prevent the incidence of acute graft-versus-host-disease in allogeneic HCT recipients. Second, we initiated a Phase 1a single ascending dose clinical trial of SYN-020, our preparatory formulation of intestinal alkaline phosphatase, or IAP intended to treat celiac disease and other systemic and GI related diseases stemming from inflammation of the GI tract. And third, we laid the groundwork to initiate our second Phase 1a multiple ascending dose clinical trial of SYN-020. Both Phase 1 studies are designed to support the development of SYN-020 in multiple clinical indications.

We achieved each of these milestones, despite the ongoing impacts of the COVID-19 pandemic. I’d like to thank all our employees and partners for their tireless efforts during these difficult times, all of which have kept this moving forward. As I’ve stated before, we believe both SYN-004 and SYN-020 address very sizeable and underserved markets and have the potential to be foundational long-term drivers of value for our company and our shareholders.

With that backdrop, I’d like to provide a more detailed update on our clinical development activities beginning with our SYN-004 or ribaxamase program. SYN-004 is our first-in-class therapeutic intervention designed to protect the gut microbiome from antibiotic-mediated dysbiosis. We believe protection of the gut microbiome may play a pivotal role in improving health outcomes for patients administered long courses of intravenous beta-lactam antibiotics as part of their treatment plan for bone marrow and solid organ transplantations. Specifically, allogeneic HCT patients have a very high risk of dysbiosis following the long courses of IV beta-lactam antibiotics used to treat fever after conditioning therapy.

Damage to the gut microbiome caused by these antibiotics is also strongly associated with a number of potentially fatal adverse outcomes most notably acute graft-versus-host disease, VRE colonization, bacteremia and C. difficile infection. Results from our previously completed Phase 2 clinical trial of SYN-004 and patients treated for pneumonia, demonstrated protection of the gut microbiome in treated patients, which led to significant reductions in the incidence of CDI and VRE colonization. We believe data from this previously completed clinical trial gives us very high confidence in the outcome for our program going forward.

Importantly, SYN-004 has the potential to address this important and underserved patient population by significantly improving outcomes for allogeneic HCT recipients by preventing downstream complications, often associated with disruption of the gut microbiome by IV beta-lactam antibiotics. We are currently advancing this program in collaboration with our clinical development partner, the Washington University School of Medicine in St. Louis in the form of a Phase 1b/2a clinical trial. The goal of this study is to evaluate the safety, tolerability and pharmacokinetics of SYN-004 in this fragile patient population.

During the first quarter, we’re pleased to announce that enrollment in this clinical trial is convinced and that we’ve begun dosing patients in the first of three sequential antibiotic cohorts that will be administered a different IV beta-lactam antibiotics to treat fever. In total, eight participants in each cohort will receive SYN-004 and four will receive placebo. At this time, we are conservatively estimating enrollment to proceed with approximately two patients per month. This is a function of the number of anticipated allogeneic HCT transplants Washington University expects to conduct during the year, as well as the number of competing clinical trials running concurrently with ours at their facility.

If enrollment proceeds as planned, we expect to announce top line data from the first antibiotic cohort during the fourth quarter of 2021 pandemic conditions permitting. Importantly, if we observe as expected that SYN-004 is not systemically absorbed in this first cohort, we’ll consider applying for orphan drug designation and begin to prepare for our Phase 3 program, it’s remainder of this clinical trial completes.

Next, I’d like to provide an update on our SYN-020 IAP program that we’re developing initially as a treatment for celiac disease, which has a significant unmet medical need. SYN-020 is our proprietary recombinant form of bovine IAP produced and chose cells and formulated for oral delivery. IAP is an endogenous enzyme expressed in the upper small intestine that plays an important role in maintaining gut health through at least three important mechanisms.

First, it diminishes GI inflammation by detoxifying inflammatory molecules. Second, it acts directly on the intestinal wall to tighten the gut barrier to diminish leaky gut. And third, it functions to support a healthy gut microbiome. The therapeutic potential for IAP supplementation has been verified in many animal studies. However, despite its broad therapeutic potential, industry development of IAP as an oral drug has been hindered by manufacturing hurdles, which has led to currently commercially available IAP costs of up to $10,000 per grams.

We’ve overcome these hurdles and now have the ability to produce IAP cost-effectively and in an oral dosage formulation, an achievement that we believe that SYN-020 a commercially attractive compound. We view SYN-020 as a versatile multi-indication platform program that has the potential to treat a number of clinical indications stemming from inflammation of the GI tract. Equally important, we believe SYN-020 has the potential to diminish low grade systemic inflammation, which is believed to exacerbate metabolic syndrome and accelerate the progression of diseases associated with aging.

During our last call, we outlined in detail our clinical development strategy for SYN-020, which I’d like to briefly review for you today. As an initial clinical indication, we’re developing SYN-020 for the treatment of celiac disease. Celiac disease affects approximately 1% of the U.S. population and is characterized by intolerance to gluten. Clinical manifestations include both gastrointestinal and systemic symptoms. From a mechanistic perspective, we believe SYN-020 is well-suited to improve clinical outcomes when combined with the proper diet. First, by bolstering the gut barrier, SYN-020 may block the initial step of gluten entry into the intestinal wall.

Second, through its anti-inflammatory activities, SYN-020 may serve to attenuate the immune response to the gluten peptides. Finally, patients with active celiac disease have been shown to have reduced levels of endogenous IAP, presumably because the disease damages the intestinal villi that normally produce IAP. Thus SYN-020 in celiac patients would potentially supplement and correct their low endogenous IAP levels.

Last June, we filed an IND application that received a study may proceed approval from the FDA. During the first quarter of 2021, we were pleased to announce that we initiated a Phase 1a single ascending dose clinical study, which will evaluate safety, tolerability and biodistribution of SYN-020 in healthy volunteers. At this time, three out of a total of four cohorts have been dosed and all 24 healthy adult volunteers will be enrolled all of which will receive oral SYN-020. Top line data readout is anticipated during the third quarter of 2021.

This first Phase 1a single ascending dose study is expected to be followed by a second Phase 1a clinical study intended to evaluate multiple ascending doses of SYN-020 in healthy adult volunteers. We anticipate initiating this study during the third quarter of 2021, the top line data expected during Q1 of 2022. Importantly, both Phase 1a clinical programs are intended to support the advancement of SYN-020 in multiple clinical indications. Following the completion of both Phase 1a studies, we anticipate conducting a Phase 1b/2a gluten challenge study in celiac patients who are well-controlled on a gluten-free diet.

It is anticipated that the Phase 1b/2a study will be followed by 12 week Phase 2b study in patients who are poorly controlled on a gluten-free diet. Assuming successful completion of the Phase 1a studies in healthy volunteers to Phase 1b/2a study in celiac disease patients may begin as early as the second half of next year. As expected that these two studies will provide information on safety, potential efficacy and therapeutic dose to support subsequent pivotal studies.

Lastly, I’d like to restate that we’ve used SYN-020 as a multi-indication program that has the potential to treat both GI and systemic diseases. Accordingly, we are also considering potential clinical development pathways to evaluate SYN-020 for the treatment of non-alcohol fatty liver disease, as well as indications to treat and prevent metabolic and inflammatory disorders associated with aging, the ladder which are supported by our exclusive license agreement with Massachusetts General Hospital. We are excited about this versatile program and its potential to become a platform therapeutic for our company. We believe SYN-020 will play a major role in delivering long-term value to our shareholders, while targeting large underserved markets, including celiac disease.

With that backdrop, I will review our financial results for the quarter ended March 31, 2021. During the first quarter of 2021, we’re able to significantly strengthen our balance sheet via the efficient utilization of our ATM and the cash exercise of warrants associated with our 2018 public financing. As a result of these activities, our cash position as of March 31, 2021 was $76.9 million, the strongest it’s ever been. As I mentioned earlier, we now have the resources and the financial flexibility to fully fund our SYN-004 and SYN-020 clinical programs, at least through proof of concept clinical studies and continue our operations well into 2023.

Turning to the first quarter financial results. General administrative expenses increased slightly to $1.42 million for the quarter ended March 31, 2021 from $1.39 million for the quarter ended March 31, 2020. This increase is primarily due to higher insurance costs, audit fees and legal costs offset by a reduction in patent related legal fees, consulting fees and travel expense. Research and development expenses decreased to $1.1 million for the three months ended March 31, 2021 from $1.6 million for the three months ended March 31, 2020. This decrease is primarily the result of lower indirect program costs for the three months ended March 31, 2021, including salary and related expense reductions, a decrease in manufacturing costs for SYN-020 and market research.

In addition as a result of the global COVID-19 pandemic, Washington University reduced their operating capacity during 2021 to include only essential activities as part of their pandemic response, which delayed the start of our clinical trial resulting in lower clinical trial expenses for the quarter. The research and development costs incurred during the quarter were primarily related to our Phase 1a clinical trial of SYN-020 and the Phase 1b/2a clinical trial of SYN-004. We anticipate the research and development expense to increase as our ongoing clinical trials continue to enroll patients.

Before concluding, I’d like to take a moment to address our recently filed shelf registration statement. On Monday, we filed a Form S-3 to register the sale of up to $300 million worth of securities under a mixed shelf registration. We had filed the current Form S-3 to replace the previous Form S-3, which was scheduled to expire later this month. This filing will provide the company with the necessary flexibility to ensure that we can act and execute on potential future financings. The Form S-3 was also filed with the inclusion of a perspective supplement, which will allow us to continue to utilize our ATM vehicle under the newly filed shelf registration. We may consider to prudently utilize our ATM vehicle when favorable market conditions will allow. However, it’s important to reiterate that given our current cash position, we are now funded to advance our current clinical programs and remain keenly focused on minimizing dilution.

To wrap it up, 2021 is shaping up to be a very exciting year for Synthetic Biologics. And we look forward to providing further updates as developments unfold. Now I’ll turn the call back to Vincent to open the call for questions.

Vincent Perrone

Thanks, Steve. Rocco, we’d like to open up the phone line for questions. Can you please describe the procedure to ask questions for our listeners?

Question-and-Answer Session

Operator

Absolutely. [Operator Instructions] Today’s first question comes from Jason McCarthy with Maxim Group. Please go ahead.

Michael Okunewitch

Hey guys, thank you very much for taking my questions. This is Michael Okunewitch on the line for Jason. So I’d like to first just kind of gauge on the ongoing 1b/2a study in stem cell transplants. How has the ongoing pandemic impacted the number of stem cell transplants in the U.S.? I know that the oncology space has broadly been impacted by the pandemic. But has the more recent reopening, removal of lockdowns and vaccine rollout driven a recovery in those numbers.

Steven Shallcross

Mike, it’s Steve. Good to hear from you. I’m going to let Vince Wacher take this call. We have weekly discussions with the Washington University team. So Vince, why don’t you take that and give Mike the update.

Vince Wacher

So during the height of it all, when things were not very – when things all went sideways with COVID, they did reduce the number of transplants, but now the systems are in place internally and the COVID management and all of the new systems that have been put in place in the Washington University. So that the number of transplants really hasn’t dropped off dramatically from what it would have been pre-pandemic. I think if I were to estimate when we’ve asked them in the past, maybe they were down about 20%, but for the most part, I think that they’ve come back and there hasn’t been any recent discussion or any recent advice from Washington University that they would be slowing down again.

And again, I think it’s because they have these processes in place and the people need to get the transplant, they can’t get the transplant, they can’t really wait. These are very sick people. So we’ve been somewhat fortunate. And as Steve indicated, we’ve had two people actually have completed their antibiotic courses on the study. We just found out today. So that is very exciting because that’s part of our first cohort and we’ve got 25% of the – the 25% of the cohort now. So they are continuing to recruit and we’re looking forward to – at least to a month going into the study.

Michael Okunewitch

All right. Thank you very much. And then I’d also like to ask on SYN-020, because you identified celiac disease as kind of the major priority. So I’d like to get your thoughts on how SYN-020 fits into the broader celiac disease space, especially with larazotide P3 readout expected from 9 Meters next year.

Steven Shallcross

Mike, do you want to take that?

Michael Kaleko

Sure. SYN-020 would have a mechanism of action that is orthogonal or quite different from the mechanism of action of other celiac drugs that are in clinical trials. So larazotide works directly to latch up tight junctions and improve gut barrier integrity. There are also GlutenEase in clinical trial. And SYN-020 works differently from all of those. We would expect that SYN-020 could be used in combination just with diet or potentially in combination with those other two classes of drugs that I just described. And in that sense, it would be usable in patients broadly with celiac disease. The goal is probably not to say to them, you don’t need gluten-free diets anymore. But it would be to diminish problems if they should have a mistake on their gluten-free diet or we’ve even talked a little bit about gluten holidays. But the bottom line is it could be usable in a wide variety of patients in combination or separate, from the drugs that are currently in clinical trials. Does that address your question?

Michael Okunewitch

Yes. Perfect answer. The other thing I’d like to ask, one more thing more on the – I guess in the modeling side, like to see, if you could help give us a bit more color on what you’re expecting in terms of the costs for the Phase 1a and the Phase 1b/2a study?

Steven Shallcross

So what we’ve previously discussed, Mike, is that let’s start with SYN-020. The first 1a study is around $1 million. And we talked about that last quarter. The second Phase 1a study will be a little bit more, we probably – we’ll add another cohort. And we’re still talking about the timeframe for dosing. So I think factoring in somewhere, up to $1.4 million for that trial. On the ongoing ribaxamase trial we disclosed last month or last quarter that the total cost over 18 months or up to 18 months would be starting at the beginning of this year around $3 million. We’ve also previously talked about our fixed burn being in the $400,000 a month range. So in total for this year and next year, we’re talking about annual burns of $13 million to $15 million somewhere in that neighborhood.

Michael Okunewitch

All right. Thank you very much. It’s really great to see these programs moving forward. Thank you very much for taking my questions.

Operator

[Operator Instructions] Today’s next question comes from Jim Molloy with Alliance Global Partners. Please go ahead. Jim, your line is open. Mr. Malloy, is your line unmuted perhaps?

Jim Molloy

Hello? Can you hear me okay?

Steven Shallcross

Yes, we hear you now, Jim.

Jim Molloy

Yes. My apology, I put my phone off mute. I apologize. I’m outside of the house to lockup the noise. Speaking on $70 million, an excellent use of the ATM and you’re raised – you just outlined about $30 million. You might need the next couple of years. Can you speak to any potential other uses of that cash besides just sitting in the bank, acquisition opportunities something you’re looking at and can you characterize what you might be looking at?

Steven Shallcross

So again, in our last quarter call, we discussed that we were looking at opportunities either asset purchases or licensing opportunities. We are in diligence on a number of ideas and until we have anything further at this point, not to discuss that any further. And at the same time, I don’t think, we’re in the position to discuss exactly what they’re pubic areas? What mode these ideas would cover. So all I can say is stay tuned.

Jim Molloy

Understood. With the caveat that transactions never done until they’re done, would it be reasonable to expect for an outsiders’ perspective to think we could see transactions this year?

Steven Shallcross

Like you said, Jim, they are never done, so they’re done. We continue to do our diligence on a number of ideas and we get something over the line we’ll announce it.

Jim Molloy

Okay. And would you be able to comment on a $7 million, $8 million as a first quarter in a month or so here, have you’ve been utilizing the ATM still the cash balance up, down, or about the same?

Steven Shallcross

So the cash balance is approximately $77 million at the end of the first quarter. And since the beginning of the quarter, we have not utilized that at all.

Jim Molloy

All right, great. Thank you very much for taking the questions.

Operator

And ladies and gentlemen, this concludes our question-and-answer session. I’d like to turn the conference back over to Steve Shallcross for his closing remarks.

Steven Shallcross

Thanks, Rocco. In closing, I just want to make one brief comment. And that’s the fact that we’re incredibly happy with the progress that we’ve made, and I can assure you, we remain focused on executing on our strategy. As I hope, I’ve conveyed today in my remarks, we’ve really embarked on a transformative and exciting direction for our company. And more importantly, we have the financial strength to take these programs forward, which we ultimately believe will generate long-term growth and ultimately value for our shareholders.

Once again, I’m extremely proud of our progress that we’ve made, and I’m even more excited about what lies ahead. So again, I like to thank our shareholders for their ongoing support and we are always looking forward to keeping you updated on our progress and we look forward to the next call. Have a great weekend.

Operator

Thank you, sir. This concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.