Theriva Biologics, Inc. (TOVX) Q2 2015 Earnings Report, Transcript and Summary

Good morning. And welcome to the Synthetic Biologics’ Second Quarter 2015 Investor Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kris Maly, Vice President, Corporate Communications at Synthetic Biologics. Please go ahead.

Thank you, Emily, and good morning, everyone. Welcome to Synthetic Biologics’ second quarter 2015 financial results conference call. Today, I’m joined by our CEO, Jeff Riley; and our CFO, Steve Shallcross. Synthetic Biologics issued a press release this morning reporting its second quarter 2015 financials results and an update on our recent operational highlights. The release can be found on the Investors section of our website. During our call today, Jeff, will provide an update on our pipeline of programs and Steve will summarize our financial highlights. We will take questions after our prepared remarks. In addition to the phone line, this call is being streamed live over the internet today and the webcast replay will be archived on our website 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 terminology such as, may, should, expects, anticipates, intends, plans, believes, estimates and similar expressions. These statements are based on 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 contained on the conference call on account of new information, future events or otherwise, except as required by law. With that, I’ll turn the call over to Jeff. Jeff?

Thanks, Kris, and thanks everybody for joining us this morning. We’ve had a very busy quarter and we will try and share everything we can about it. During the second quarter and the first half of 2015, we’ve achieved significant clinical milestones with the initiation of Phase 2 clinical trials for both our C. difficile program and our irritable bowel syndrome program with constipation or IBS, and we expect to have Phase 2 data from both programs focusing on protecting the microbiome by the end of this year. As we move through Phase 2 development and begin to plan for Phase 3 trials and commercial entry of our microbiome candidates, it’s critical we have the financial resources and the team in place that can support these efforts. While there is likely less time spent in the clinical with the microbiome programs and the typical drug development program, these programs still require significant resources to complete clinical studies. To provide some of these resources we recently complete a public offering for net proceeds of approximately $42.6 million. Our continued progress combined with investor interest related to the microbiome enabled us to strengthen our balance sheet and provide resources to fund our current clinical development programs. We also expanded our leadership team during the second quarter, with the appointment of industry veterans of proven track records. Steve Shallcross, joined us as CFO and brings operational, financial and international biotech industry experience, as well as an established career leading the financial development and strategy for several publicly-traded biotech companies, including Vanda Pharmaceuticals. Maureen Early joined us in the newly created position of VP, Commercial to lead all commercial and marketing efforts. And Klaus Gottlieb, MD, joined us as President of Clinical and Regulatory Affairs, having served as Senior Medical Director, Therapeutic Strategy Lead, Gastroenterology of Quintiles and as a Senior Clinical Review for the Division of Gastroenterology and Inborn Errors Products with the FDA. Each of these new team members are already making significant contributions to our company. I would like to provide you with a brief overview of our clinical programs focused on the microbiome, including SYN-004 designed to protect the gut microbiome from the effects of certain commonly used IV antibiotics and for the prevention of C. difficile infection in antibiotic-associated diarrhea also known as AAD and SYN-010 intended to reduce the impact of methane producing organisms on the gut microbiome to treat the underlying cause of IBS-C. The majority of C. difficile cases are caused by the unintended consequences of IV antibiotic therapy to the gut microbiome. Antibiotics are excreted to the gut and often disrupt the natural balance of GI microflora. This imbalance creates an opportunity for stronger bad bacteria to wipe out the good bacteria, and to over grow in the gut microbiome. The overgrowth of C. difficile can lead you antibiotic associated diarrhea, colitis and perforation of the intestinal wall, with potentially fatal outcomes. Rather than treating the patient who already has an established C. difficile infection, we are designing SYN-004 to be what we believe is the first point of care preventative therapy. We don't want to treat a C. diff infection like many of the other candidates currently in development. We want to protect the gut microbiome from the effects of certain IV beta-lactam antibiotics and therefore prevent the onset of primary C. difficile infection and antibiotic-associated diarrhea. Our initial product, oral SYN-004 is intended to be given to a hospitalized patient at the same time as they are administered certain IV antibiotics. SYN-004 is intended to target a neutralize antibiotics that are excreted into the gut before they have a chance to disrupt the microbiome causing the conditions that allow the overgrowth of C. difficile bacteria and the onset of C. difficile infection and AAD. We believe a prevention therapy such as SYN-004 could potentially represent significant cost savings to the U.S. healthcare system. As a preventative, SYN-004 also has a much larger potential market. While it’s difficult to predict who among the 14 million hospitalized patients receiving IV beta-lactam antibiotics as part of surgical or other hospital procedures might develop a C. diff infection, we do know approximately 30,000 patients die each year with a C. difficile infection. Therefore, it is conceivable that all or at least a very large percentage could be co-administered SYN-004. Each year approximately 118 million doses of common IV beta-lactam antibiotics are administered in hospitals across America. Each of those doses represents an opportunity for SYN-004 to prevent the onset of C. difficile infection. Keep in mind those numbers are for the -- are U.S. specific. With SYN-004 we have completed Phase 1a and 1b clinical trials, and reported positive topline safety and tolerability data from both studies. In the first quarter of this year, we reported positive PK results from both the Phase 1a and 1b clinical trials, with supportive evidence that there is no active enzyme absorption into the bloodstream. In March, we initiated our first SYN-004 Phase 2a clinical trial to evaluate gastrointestinal antibiotic degrading effects and safety in ileostomy patients. This Phase 2a randomized multicenter open-label study is expected to evaluate the ability of two different dose strengths of SYN-004 to degrade residual IV ceftriaxone in the GI tract of healthy participants, with functioning ileostomies, without affecting the concentrations of IV ceftriaxone in the bloodstream. The study consists of two treatment phases for all participants, one, the administration of IV ceftriaxone alone, and two, the administration of one of two doses of oral SYN-004 and IV ceftriaxone. Time samples are being collected from the participants to measure the ability of SYN-004 to degrade the residual antibiotic. Participants are currently being enrolled at up to four trial sites located in North America. In early July, we reported from four of 12 expected participants in the Phase 2a open-label clinical trial. The data was consistent with our expectations and the positive PK and safety results demonstrated in the SYN-004 Phase 1a and Phase 1b studies. SYN-004 degraded IV ceftriaxone in the chyme of the four healthy participants with functioning ileostomies without affecting ceftriaxone in the bloodstream. We expect to report topline data from the first 2a trial during the current quarter. In June 2015, we also announced that the first participant was dosed in a second SYN-004 Phase 2a clinical trial. This trial will evaluate the gastrointestinal antibiotic degrading effects and the safety of SYN-004 in the presence of the protein-pump inhibitor, esomeprazole. This Phase 2a Multi-Center, Open-Label, 2-Period, Fixed-Sequence Study is expected to evaluate the ability of SYN-004 to degrade residual IV ceftriaxone in the GI tract in the presence of a PPI and up to 20 healthy participants with functioning ileostomies. This study consists of two treatment periods for all participants, one, the administration of SYN-004 and IV ceftriaxone and two, the administration of SYN-004 and IV ceftriaxone in the presence of a PPI. Time samples were being collected from the participants to measure the ability of SYN-004 to degrade the residual antibiotic. Participants are expected to be enrolled at up to four trial sites located again in North America. PPIs are up and used prophylactically in hospitalized patients. Therefore with guidance from the FDA, we are conducting the study to demonstrate the ability of SYN-004 to degrade an IV ceftriaxone in the presence of a PPI. We expect to report topline data from the second Phase 2a trial during the second half of this year. The next significant clinical milestone for the SYN-004 program is to initiate a Phase 2b proof-of-concept trial that is planned to launch this quarter. This randomized placebo-controlled clinical trial is expected to enroll approximately 370 patients at up to 75 global clinical sites. The objectives of the SYN-004 Phase 2b study is to demonstrate efficacy preventing C. difficile associated diarrhea and AAD, following IV ceftriaxone and to demonstrate efficacy of limiting disruption of the gut microbiome by IV ceftriaxone. We anticipate an interim analysis of blinded data from the Phase 2b by year end. This interim analysis will be conducted as soon as prespecified criteria are fulfilled and will be performed by an independent data monitoring committee. Let’s turn to our SYN-010 program that is addressing IBS-C, which is a functional GI disorder characterized by gas, abdominal pain, bloating and constipation. The illness affects both men and women, although two-thirds of diagnosed sufferers are women. Current treatment options which include over-the-counter laxatives, treat the symptoms of constipation, intend to cause an IBS-C patient to swing from suffering from constipation to suffering from diarrhea. We are collaborating with Dr. Mark Pimentel at Cedars-Sinai whose work has demonstrated that a leading cause of IBS-C is excessive production of methane gas in the gut microorganisms by M. smithii or Methanobrevibacter smithii is the name of the organism. The methane gas has been shown to slow GI motility causing intestinal blockage at least gas, abdominal pain, bloating and constipation associated with IBS-C. The Synthetic Biologics IBS-C candidate SYN-010 is a proprietary, modified release formulation of the widely prescribed drug lovastatin. SYN-010 is designed to reduce the impact of methane-producing organisms and restore normal bowel function without disturbing the balance of the patient's gut microbiome. SYN-010 is designed to treat the underlying cause of pain, bloating and constipation associated with IBS-C, not just the symptoms. Using stringent disease diagnosis criteria to ensure market relevance and a population most likely to receive a diagnosis and prescription drug treatment, there are an estimated 40.7 million cases of IBS reported in the US, Europe and Japan, and it has been reported up to 20% of all IBS patients have IBS constipation. In June 2015, we initiate our first SYN-010 Phase 2 placebo-controlled clinical trial. This clinical trial is expected to enroll approximately 60 patients who are being randomly assigned in a 1-4-1-4 ratio to one of three groups including two different SYN-010 dose groups and one placebo group. Randomized patients are already being dosed and patients are scheduled to receive single oral doses of SYN-010 or placebo each day for 28 days. The primary objective of this clinical study is to evaluate the change from baseline in breath methane, as determined by a lactulose breath test, in methane positive patients with IBS-C after seven days of treatment with one of two formulations of SYN-010 compared with placebo. Secondary endpoints included improvement in the number of complete spontaneous bowel movements per week and improvement in our abdominal pain and bloating for standard scales require per FDA guidance. We anticipate reporting topline results from first Phase 2 clinical trial during the second half of this year. We are on target to initiate the second SYN-010 Phase 2 clinical trial during the second half of this year as well as patients complete the first four week SYN-010 trial, they were little over into the second week, eight week -- second eight week extension trial which will evaluate the efficacy of the higher dose of SYN-010. The primary endpoint of this trial is to evaluate the ability of SYN-010 to sustain reduction in breath methane levels and secondary endpoints including pain, bloating, and complete, spontaneous bowel movements. We expect completion of the second SYN-010 study by year-end and we expect topline results from this study early next year. Our 505(b)(2) regulatory pathway is anticipated for the development of SYN-010, which may allow a less complex route to the market. While we are focused on maximizing the opportunities of our two microbiome programs in the clinic, our team continues to evaluate other development stage products adding early stage programs to our development pipeline for broadening our product portfolio and build additional shareholder value. Earlier this morning, we are pleased to announce that we are expanding and further strengthening our existing relationship with Intrexon Corporation and its suite of technologies. We have entered into a new exclusive channel collaboration to pursue the development and commercialization of novel biotherapeutics for the treatment of patients with phenylketonuria, also called PKU, a serious and debilitating metabolic disorder. Pursuant to this collaboration, we plan to utilize Intrexon’s ActoBiotics platform to provide a proprietary method of delivering an essential enzyme to the GI tract through food-grade microbes without impacting the patient's gut microbiome. PKU is a genetic disease that begins at birth, characterized by the deficiency in the liver enzyme that breaks down the essential amino acid phenylalanine, a building block of proteins normally obtained through the foods we eat. As a result, phenylalanine accumulates in the body, becoming toxic and leading to serious health consequences to include profound mental retardation, brain damage, mental illness, behavioral problems, seizures, tremors, limited cognitive ability and hyperactivity. If left untreated, the most of their form of PKU leads to permanent cognitive damage. PKU affects more than 14,000 people in the United States and an estimated 50,000 people across developed nations globally. There is no existing cure for PKU, requiring patients to maintain a lifelong treatment program and a carefully controlled diet. We believe a therapeutics-based approach has great potential to provide relief for patients managing this devastating disease and an opportunity to improve upon current therapies that rely on constant dietary monitoring and drugs to increase phenylalanine breakdown. The development of these biotherapeutics expands Synthetic Biologics' pipeline of products targeted for release in the GI tract without adverse impact on the natural balance of the patient’s gut microbiome. We look forward to commencing this discovery stage program shortly. We have two other programs that we are seeking to fund with partnerships. Our Trimesta program for relapsing-remitting multiple sclerosis and our SYN-005 program for the treatment of pertussis. Those of you, who have followed us for a while, are aware that last year at two scientific forums, the lead investigator from UCLA presented data that showed Trimesta in combination with Copaxone improved disability scores at 12-month among the 158 women in the study with relapsing-remitting multiple sclerosis. The data also showed a specifically significant and clinically relevant improvement in cognition, which distinguishes Trimesta from all currently available MS therapies. In July 2015, we were informed by UCLA that MRI analysis are ongoing to evaluate changes in the brain that correlate with improvements seen in the clinical outcomes. We expect to report topline MRI data 30 days following our receipt of this data from UCLA. However, while we are moving as quickly as possible in conjunction with UCLA, we do not have a definitive timeline for the receipt of this data. Meanwhile, we continue to engage the neurology community and potential strategic partners regarding Trimesta, our Phase 2 candidate for the treatment of relapsing-remitting MS. Pending MRI data from UCLA, we intend to advance our discussions with potential partners with the goal of accelerating the development of Trimesta. In addition, enrollment continues in a separate UCLA led Phase 2 study specifically designed to evaluate the neuroprotective properties of Trimesta in combination with any of the leading MS therapies. Moving on, SYN-005 is Synthetic Biologics pathogen-specific candidate being developed in collaboration with Intrexon and is based on research and IP license from the University of Texas at Austin. SYN-005 combines two novel monoclonal antibodies to target and destroy pertussis toxin, which is responsible for pertussis, also known as whooping cough. We are continuing our discussions with international nonprofit health organizations to secure nondilutive funding to advance our SYN-005 program. If secured, Synthetic Biologics intends to initiative a non-human primate program to explore the prophylaxis and therapeutic effects of our antibodies and then move the program into human clinical trials. Before I turn the call over to Steve, I would like to mention our robust patent portfolio. All of our programs are supported by growing patent estates that we either owned or exclusively licensed. Each potential product has issued patents that provide protection. In total, we have approximately 100 US and foreign patents and over 55 US and foreign patents pending. We believe our expanding patent portfolio is an important asset that has potential to provide significant shareholder value. Now I would like to turn the call over to our CFO, Steve Shallcross. Steve, welcome to our first quarterly investor conference call with Synthetic Biologics.

Thanks, Jeff. And good morning, everyone. As Jeff mentioned earlier, we recently completed a public offering of 15.3 million shares, including the fully exercised over-allotment option by the underwriters covering 2 million shares for net proceeds of approximately $42.6 million. The completion of this offering further strengthens our balance sheet and provides the financial resources for us to complete the ongoing Phase 2 programs for our two lead product candidates. During the second quarter of 2015, we continue to operate in an efficient manner. G&A expenses for the quarter increased to $2.2 million, compared to $1.8 million for the same period in 2014, reflecting the investment we continue to make in our administrative resources. R&D expenses for the quarter increased to $7.5 million, compared to $2.8 million for the same period in 2014. The increase in R&D expenses of approximately 165% is primarily the result of increased program cost associated with expanded clinical development, manufacturing, and research activities for our microbiome-focused pipeline, including company’s C. difficile and IBS-C programs. In addition to accommodate our expanded team, we will be moving into our new corporate offices in Rockville, Maryland on the Johns Hopkins NCI campus later this month. We anticipate cash utilization to continue to increase in the second half of this year due to expenses related to the initiation of a Phase 2b clinical trial for SYN-004 and of a second Phase 2 trial for SYN-010. We expect to report topline data from multiphase Phase 2 clinical trials during the second half of this year, which illustrate the value and potential of our microbiome-related programs. In addition to our second quarter 10-Q, we will be filing three other documents with the SEC today. First, to ensure the company flexibility, we are filing a Form S-3 to register in sale of $200 million worth of securities under shelf registration. We do not have immediate plans for using this vehicle but want to maintain maximum flexibility as the company moves forward. We are also filing a Form S-8, which registers the additional 2 million shares of common stock in the company’s 2010 stock incentive plan that were approved by our shareholders at the annual meeting in May. And finally, we will file a Form S-3 to supersede the current Form S-3, under which forms from the October 2014 financing are registered to ensure there is not a lapse in timing of an effective registration statement for these particular warrants. Now I will turn the call back over to Jeff.

Thanks, Steve. In summary, we demonstrated significant process during the second quarter and the initiatives to expand our management team and strength our balance sheet position as per further success. Synthetic Biologics is a leader in the microbiome space, the two Phase 2 drugs in the clinic which protect the microbiome while targeting specific pathogens. For our C. difficile program, we look forward to reporting topline data from our two Phase 2a trials and to the interim analysis of blinded data from our Phase 2b study later this year. For our IBS-C program, we look forward to completing both of the Phase 2 clinical studies and reporting topline data from our first Phase 2 trial later this year. We are also on look out for additional development stage microbiome folks programs that could position our team to build additional shareholder value over the long term. We believe we have a rich asset in our Trimesta MS program, which we intend to move forward during the remainder of 2015 potentially with the partner, and our monoclonal antibody candidate to treat whooping cough has demonstrated strong preclinical data that supports preparing for clinical development. Overall, we are very optimistic about the potential of Synthetic Biologics to address large markets and to meet unmet medical needs while generating significant returns for our shareholders. At this time, I will turn this back over to Kris.

Thanks, Jeff. Emily, we would like to open the phone line to questions now. Would you please describe the procedure to ask questions for our listeners?

[Operator Instructions] Our first question is from Katherine Xu of William Blair. Please go ahead.

Hi. Good morning. I do have a few questions. First, on the SYN-004 program, how many patients do you expect to report data on in the Phase 2a later this quarter? And then on the SYN-010 program, you have a secondary endpoint of, of course, the complete spontaneous bowel movements, abdominal pain, and bloating, do you plan to report that with the one week methane data as well, or is that three months endpoint? And on the PKU side, can you just compare some class, your program candidates with the BioMarin products? And lastly, on Trimesta, the UCLA last Phase 2 study in cognition, who is funding that study? Thank you.

Hi, Katherine. Good morning. Thanks for all the questions. The SYN-004 study, we’re looking at -- I’d say, I totally forgot what you just said. Let me go to the IBS space, so the IBS space, the both those Phase 2s, we are looking at all the tertiary endpoints of constipation, bloating, and pain, post 7 days and 28 days, so we are measuring that both in the first study as well as for the full three-month period in the second study. The MS drug cognition that current phase, that’s ongoing, is funded by both UCLA and Synthetic Biologics. And we’re looking forward to moving that thing forward. I mean at the end of the day, we did issue some data here a few weeks ago that we did talk to UCLA and basically renegotiated set of terms that were more beneficial to both parties. We got some intellectual property, they got better economics and that has given us the ability to move the MRI program and the data forward. Keep in mind that both the MRI data as well as the relapse remitting data will also be analyzed by the independent third party, I mean, that’s typical in the industry. And it’s really important to note that because it does take time for us to have a third party, look at the data, provide their analysis back for potential partnering with various folks out there. With respect to PKU, the commercial capability, this drug is quite large, it is an orphan drug. At first blush, we look at the market as being fairly robust, probably $500 million give or take total, and that is worldwide, worldwide being Europe and United States, Japan in this case. We feel that our product is significantly different from the other products out there as we’ll be delivering this using a lactase platform, which is part of the ActoGeniX, Intrexon collaboration. And could you repeat the SYN-004 question Katherine one more time for me? I apologies.

No problem. So the Phase 2a, you’re looking at eligibly it was developed for 20 patients, because you have some difficulty recruiting patients earlier in the times, just wondering we report a final data in this quarter, is it going to be 20 patients?

No. Likely be 12 patients in both those studies and we go up to 20, that was if we’re going to have some data that was the little less clear than what we get at -- we’re getting at the moment. But it appears that in the first set of patients that we’ve looked at for the Phase 2a PK/PD study that ceftriaxone SYN-004 behaving exactly the way that we expected them too and we expect the same thing with the PPI study. So my guess is we will have under 20 patients, but probably more than 12, 12 or more in each of those two Phase 2a studies.

Thank you.

Our next question is from Daryl Weber at Wells Fargo. Please go ahead.

Good morning, gentlemen. So with these two products, can you just give us a little more color as to the clinical pathway into humans, I mean, I know you got orphan drug and all. But maybe if you can us little more detail when we could be in humans and so the details to have a trials on all of it? Secondly, has the work progressed with Intrexon with respect to the specific gene for this therapy?

So some of this information we’ve released some of it we have not. I will speak with what we have talked about in the press release. PKU is an area that obviously is a genetic defect in these folks that have it or a missing gene in this case and as we all know UltraVector and the capability that Intrexon has internally is second to not in our particular space of identifying that. What Intrexon Belgium brings to the table is the delivery of that particular enzyme to the right spot. So given our technology, our ability to deliver things to the GI and have them released in a particular way throughout the GI tract and the L. lactis vector that they’re going to be using, we should be to deliver that particular enzyme replacement very efficiently to the gut of these particular patients. Well, looking at this is a discovery stage program that there already has been a fair amount of work done on it. We’re probably looking at between 12 and 18 months of as far as the discovery program to get a viable vector to move forward with this particular project.

Okay. Now last thing is can you tell us -- share with some of the economics of this deal with Intrexon? I mean, I know you guys announced it, but there were no details as what wasn’t accomplished?

What we did announced Dale, we are going to be paying an upfront fee for technology access fee to the product that’s being moved along in access to particular platform. We’ll also be paying on a monthly basis or quarterly basis for R&D support as we don't have true R&D or labs inside of our company. We’ll be utilizing Intrexon’s Belgium and U.S.-based labs for that. So there will be a monthly fee in addition to an upfront equity-based fee.

Thank you.

[Operator Instructions] Our next question is from Keith Markey of Griffin Securities. Please go ahead.

Hi. Thanks. Good morning. This is Zack Ajzenman in for Keith. Our first question and I’m sorry, if I missed in the prepared remarks but one more data from the cognition study of Trimesta be available?

The current status that’s ongoing is still recruiting, so what we’re looking at probably 18 months to two years at this stage.

Okay. And the number of shares outstanding as of today?

About 90 million give or take.

Great. Thanks a lot.

That concludes our question-and-answer session. I’d like to turn the conference back over to Jeff Riley for any closing remarks.

Thanks, Emily. I like to thank our new shareholders for joining us today. I also like to thank all of our long-term shareholders for their continued support. Everyday Synthetic Biologics moves closer to the goal of offering novel microbiome focused products to large markets with clear unmet medical needs. With our two lead microbiome programs in Phase 2 development, we are very excited about the progress we're making. We look forward to reporting our continued progress, especially reporting topline results from our multiple Phase 2 studies in C. diff and IBS by the end of this year. We are positioned to create value for shareholders at multiple inflection points through the remainder of 2015 and well into 2016 as well. Thanks again everybody and have a great day.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.