Synlogic(SYBX) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements The unaudited Q1 2024 financial statements reflect a $31.6 million net loss and reduced assets, driven by significant restructuring and trial discontinuation Notes to Unaudited Consolidated Financial Statements Notes detail Q1 2024 events, including trial discontinuation, 90% workforce reduction, $28.3 million restructuring charges, and sufficient liquidity post-restructuring - In February 2024, the company discontinued its pivotal Synpheny-3 trial and implemented a corporate restructuring, reducing its workforce by 90%[26] - Despite a history of losses and an accumulated deficit of $445.9 million, management believes that following the restructuring, its cash and cash equivalents as of March 31, 2024, are sufficient to fund operations for at least the next 12 months[27] - Total restructuring and other charges for Q1 2024 amounted to $28.3 million, which included $5.6 million for severance, $1.8 million in accelerated stock compensation, $9.6 million for right-of-use asset impairment, $5.3 million for property and equipment impairment, and a $5.2 million impairment for prepaid R&D with Ginkgo[48][49][50] - The company recorded a $6.7 million gain on the remeasurement of its purchase warrant liability during the three months ended March 31, 2024, as the fair value decreased from $11.2 million to $4.4 million[37][55] - The collaboration with Ginkgo was effectively terminated due to the strategic shift, resulting in the write-off of the remaining $5.2 million in prepaid foundry services as a restructuring charge[65][73] Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $24,822 | $23,960 | | Short-term marketable securities | $7,489 | $23,786 | | Total current assets | $34,946 | $49,907 | | Total assets | $36,057 | $75,550 | | Liabilities & Equity | | | | Total current liabilities | $10,940 | $20,404 | | Total liabilities | $22,732 | $32,895 | | Total stockholders' equity | $13,325 | $42,655 | | Accumulated deficit | ($445,865) | ($414,301) | Consolidated Statement of Operations Highlights (Unaudited, Three Months Ended March 31) | Account | 2024 (in thousands) | 2023 (in thousands) | | :--- | :--- | :--- | | Revenue | $8 | $174 | | Research and development | $7,680 | $12,450 | | General and administrative | $2,884 | $3,967 | | Restructuring and other charges | $28,289 | $0 | | Loss from operations | ($38,845) | ($16,243) | | Net loss | ($31,564) | ($15,622) | | Net loss per share | ($2.60) | ($3.39) | Consolidated Statement of Cash Flows Highlights (Unaudited, Three Months Ended March 31) | Account | 2024 (in thousands) | 2023 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | ($15,436) | ($21,505) | | Net cash provided by investing activities | $16,282 | $30,270 | | Net cash provided by financing activities | $16 | $913 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A details the strategic shift from drug development, including trial discontinuation and restructuring, resulting in a $31.6 million net loss but sufficient liquidity Overview and Strategic Shift Synlogic shifted strategy from drug development to exploring strategic alternatives after discontinuing its pivotal Synpheny-3 trial due to efficacy concerns - In February 2024, the company discontinued its pivotal Phase 3 study, Synpheny-3, for its lead product candidate for PKU, labafenogene marselecobac (SYNB1934)[76] - The decision was based on an internal review indicating the trial was unlikely to meet its primary endpoint, not on safety or tolerability concerns[76] - The current corporate strategy is focused on pursuing strategic alternatives to enhance stockholder value, including a potential merger or sale of the company[76] Results of Operations Q1 2024 results show negligible revenue, reduced R&D and G&A expenses, $28.3 million in restructuring charges, and a $31.6 million net loss Comparison of Operating Results (Three Months Ended March 31) | Account | 2024 (in thousands) | 2023 (in thousands) | | :--- | :--- | :--- | | Revenue | $8 | $174 | | Research and development | $7,680 | $12,450 | | General and administrative | $2,884 | $3,967 | | Restructuring and other charges | $28,289 | $0 | | Net loss | ($31,564) | ($15,622) | - R&D expense decreased by $4.8 million YoY, primarily due to a $2.9 million reduction in internal costs from the workforce reduction and a $1.9 million net decrease in external costs following the discontinuation of clinical trials[101][102] - Restructuring and other charges totaled $28.3 million, primarily from impairment charges on leases, equipment, and prepaid R&D, as well as severance payments and accelerated stock compensation[104] - Other income increased by $6.7 million YoY, primarily due to the change in fair value of the purchase warrants classified as liabilities[105] Liquidity and Capital Resources As of March 31, 2024, Synlogic held $32.3 million in liquidity and expects sufficient cash to fund operations for at least 12 months post-restructuring - The company had $32.3 million in cash, cash equivalents, and short-term marketable securities as of March 31, 2024[106] - Management believes current cash and cash equivalents are sufficient to fund operations at current levels for at least the next 12 months from the filing date[115] - Net cash used in operating activities was $15.4 million for Q1 2024, a decrease from $21.5 million in Q1 2023, and is expected to be lower in subsequent quarters of 2024 due to reduced operations[108][109] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Synlogic is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item[121] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal controls - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[124] - There have not been any changes in internal controls over financial reporting during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[125] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings - Synlogic is not currently a party to any material legal proceedings[127] Item 1A. Risk Factors This section details substantial risks, including uncertainty of strategic alternatives, potential liquidation, history of losses, and unproven synthetic biology platform - The company's business is almost entirely dependent on the success of its process to identify and evaluate strategic alternatives following the discontinuation of its lead candidate, SYNB1934, and this process may not be successful[132][134] - If a strategic transaction is not successfully consummated, the board may pursue dissolution and liquidation, which could result in stockholders losing all or a significant portion of their investment[132][135][137] - The company has a history of losses, expects to continue incurring losses, and may never achieve profitability[132][138] - The company's approach of using synthetic biology to create novel medicines is unproven and may never lead to marketable products[132][161] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the reporting period - None[362] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - None[363] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[364] Item 5. Other Information No directors or executive officers adopted, modified, or terminated Rule 10b5-1 trading plans during the quarter - During the quarter, none of the company's directors or executive officers adopted, modified, or terminated any Rule 10b5-1 trading plans[365] Item 6. Exhibits This section provides an index of exhibits filed with the Form 10-Q, including officer certifications and interactive data files - The report includes an index of exhibits filed, such as officer certifications (31.1, 31.2, 32.1, 32.2) and a Statement of Work with Azzur Group (10.1)[368]