Theriva Biologics, Inc. (TOVX) Q3 2018 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Synthetic Biologics 2018 Third Quarter 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. At this time, I would like to turn the conference over to Vincent Perrone, Director of Corporate Communications at Synthetic Biologics. Vincent?

Thank you, Keith, and good afternoon everyone. Welcome to Synthetic Biologics 2018 third quarter investor conference call. Today, I'm joined by our Acting CEO and CFO, Steve Shallcross; Dr. Michael Kaleko, Senior Vice President, Research and Development; and Dr. Vince Wacher, Product Development and Partnering. Synthetic Biologics issued a press release this afternoon which provided operational highlights and reported our financial results for the period ending September 30, 2018. The release can be found on the Investors Relations section of our website. During our call today, we will provide an operational update on our microbiome-focused clinical programs and summarize our financial results. We'll take questions after our prepared remarks. In addition to the phone lines, this call is being streamed live via webcast which will be archived on our website synthethicbiologics.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 terminology such as may, should, expects, anticipates, intends, plans, believes, estimates, and 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 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?

Thanks, Vincent. Good afternoon and thank you for joining us today. I'll be spending most of today's call providing important and exciting updates on our planned advancement of our late-stage and emerging clinical programs. But I want to begin by discussing the recent steps we have taken to further fortify our organizations financial footing and why we chose to undertake them. As you know, last month we announced the closing of our underwritten public offering of over $18 million, which will be used in part to fund the advancement of our late-stage clinical assets. Beginning in the third quarter, we were also able to utilize our at-the-market or ATM facility to raise an additional $11.8 million in net proceeds. With these proceeds, we have cash on hand of approximately $32 million which has substantially strengthened our financial position and provides us with runway to continue our operations into 2020. I have clearly heard and truly appreciate the concerns raised by some of our long-term investors about our decision to undertake this financing and the impact that has had on them. So let me assure you, it was an essential step in ensuring that we can bring the promise of these assets to reality. Quite frankly, it was also critical in ensuring the long-term sustainability and survivability of our organization. Our recent offering goes a long way and removing the significant financing overhang that has been ripping our stock. At the same time, it has enabled us to bring on board well known fundamental investors who believe in our programs and who may help to reduce volatility with experience with our stock during the last two years. Having said that, we are still very much to believe that there remain a serious disconnect between perceived value of the Company and the potential value of our product portfolio is evidenced by the fact that their stock is currently trading significantly below cash. As a matter of fact, after one takes into account the number of common and common equivalent shares outstanding following our offering, we are trading approximately $12 million below cash today. Just as importantly, the funding provides us with the resources to continue to advance our clinical assets independent of an immediate partnership, ideally unlocking value decreasing risk and improving potential downstream commercial opportunities. Furthermore, we now believe we have a clear path forward and the financial stability to move SYN-004 and SYN-010 back into the clinic and to advance SYN-020, an important and significant preclinical asset to an IND filing by the end of next year. All of these activities are geared toward growing the body of clinical evidence and support of moving our assets closer to commercialization and doing so in a manner that creates long-term value and potentially a more compelling investment opportunity for interested parties. Let me explain in a bit more detail the rationale behind our current development strategy. Over the course of many interactions with different companies and potential investors worldwide, we have received feedback that has been in partial and forthright and importantly it helps define the product development strategies I will highlight today. Frankly, the primary challenge for partnering both -004 and SYN-010 has been the large size and cost of the Phase 3 clinical programs required for approval. This is impacted perceptions of both potential risk and value. First, in the case of SYN-010, the constipation in IBS-C marketplace is viewed as crowded and with products that have largely the same therapeutic mode of action. However, there is also a recognized need for novel approaches like SYN-010 to treat constipation in IBS-C. It has been made clear to us that we need more definitive clinical data that clearly differentiates SYN-010 in order for potential partners to take on financial risk of a Phase 3 program. As you know, we have taken steps in the form of our expanded collaboration with Cedars-Sinai to address this concern. On a very positive note, our ability to manufacture SYN-010 in a very cost-effective manner has proven very compelling and partnering discussions potentially facilitating market access and competitive landscape. Second, a comprehensive body of evidence has established that the cost of CDI to patients, healthcare providers and the community is devastating. Even with this backdrop, SYN-004 faces a challenge implicit to all preventative agents in that the incidence of the actual disease, in this case, CDI is low and the product will be administered to a broad-range of patients who might never have contracted CDI at all. This mandates large clinical trials in order to establish both efficacy and safety in broad patient populations. Despite the potential therapeutic value of SYN-004, the perceived low incidence of CDI and the nominal availability of potentially cheap "CDI treatments" have so far proven a persistent challenge in attracting partners fund the high cost of the SYN-004 clinical development programs in this broad indication. With this feedback in mind, we have identified a pathway which we believe will help us bridge the gap that exists between the true value of our assets and how they are currently perceived by the market. I will now walk you through that pathway. I'll begin within SYN-004 our ribaxamase, our first-in-class therapeutic intervention designed to protect the gut microbiome from antibiotic-mediated dysbiosis. Ribaxamase is designed to be taken in conjunction with certain IV beta-lactam of odds. Its novel mechanism of action is to degrade residual antibiotics excreted into the GI tract before it can disrupt the natural balance of the gut microbiome. It has been well established that the prolonged use of antibiotics significantly increases the risk of developing gastrointestinal infections like CDI as well as the emergence and spread of antimicrobial-resistant genes. In advancing ribaxamase, we have focused on preventing the onset of primary C. difficile infection in patients treated with IV beta-lactam antibiotics. More than 7.5 billion doses of IV beta-lactams are administered worldwide each year and damage to the gut microbiome by these antibiotics is a well established risk factor for developing CDI. During the third quarter, we held an End of Phase 2 meeting with the FDA to solidify, the remaining elements of a Phase 3 clinical program for ribaxamase in this broad indication. Having a clear path forward to advanced ribaxamase and being in possession of firm details on trial end points, patient enrollment size and cost will be highly beneficial in our ongoing partner discussions. Based on our previous interactions as well as the official guidance we expect to receive in the next week or two from the FDA in response to our End to Phase 2 meeting, we believe the cost of this broad indication Phase 3 trial is not feasible for us to undertake at this time without a partner given the capital constraints tied to our current market cap and share price. We intend to continue to pursue potential pharmaceutical partnering relationships in order to advance ribaxamase in this broader indication. However, as noted above interested parties have so far proven reluctant to commit to the large Phase 3 clinical programs in this indication. With that said, we do not want to lose clinical momentum and we believe there's a valuable opportunity for us to advance in for in a more specialized patient population with multiple potential disease endpoints associated with the gut microbiome bowel damage including higher rates of beta-lactam induced CDI. We anticipate that targeting such a patient population would enable us to advance ribaxamase in a more cost-effective manner via smaller and more focused clinical trials. It will also provide us with an expanded set of data which could further validate and support ribaxamase as advancement as a potential means of preventing CDI in a broader IV beta-lactam treated population. We are excited about this potential pathway forward for ribaxamase and are currently in the process of evaluating and refining this narrow indication concept with key opinion leaders and potential foreign partners. So far, there's been great receptiveness to this idea and a belief that pursuing a more narrow indication for ribaxamase would help overcome the financial and clinical development risk concerns that have been expressed by several interested parties. In evaluating potential narrow indications, we’ve identified bone marrow transplant patients more specifically allogeneic hematopoietic cell transplantation or HCT recipient as a potential ideal patient population that may benefit from SYN-004 use. 80% to 90% of allogeneic HCT patients are treated with long courses of IV beta-lactam antibiotics with treatments typically lasting weeks not days. The CDI rates in this population average above a staggering 31%. While this high CDI rate let us to consider HCT recipients, our discussions with KOLs and a thorough review of the literature found that there is also a striking association between reduced microbiome diversity due to IV beta-lactam antibiotics and acute graft-versus-host disease or AGVHD in this population. Notably, AGVHD occurs in 40% to 60% of HCT recipients. First line AG VHD therapies failed in more than 50% of the patients and results in very poor overall survival. The need for a novel therapy to prevent AG VHD and allogeneic HCT recipient could not be more clear. An additional endpoint that may also be of benefit, if the reduction of colonization by vancomycin-resistant enterococcus or VRE, which confers a nine-fold increased risk of potentially fail of fatal VRE bacteremia in these patients. AGVHD VRE colonization and CDI thus comprise three comparably high incident and potentially fatal clinical outcomes in the allogeneic HCT recipient all of which are associated with gut microbiome damage by IV beta-lactam antibiotics and could potentially be reduced or prevented by SYN-004. Based on this compelling scientific and clinical rationale, we are in the process of evaluating the potential regulatory framework required to pursue an additional indication for ribaxamase for the prevention of AGVHD in HCT recipients. Reductions in CDI and VRE colonization would be key secondary endpoints in this program. We believe this program would initially entail conducting a small Phase 1/2 study which would evaluate ribaxamase pharmacokinetic safety and microbiome protection profiles in allogeneic HCT recipients and we could begin enrollment as early as the second half of next year. Importantly, we anticipate the total cost for the development pathway for ribaxamase in this indication including a potential Phase 3 trial to be approximately one-third of the cost of the current broad indication a far more appropriate and viable investment for our company at this time. We are excited about this potential path forward for ribaxamase and expect to be in a position to share additional details about this program in the first half of 2019. To reiterate, our pursuit of this indication would be in tandem with and ultimately support of our advancement of ribaxamase in the broader indication for the prevention of CDI. However, we believe we may be in a position where we could feasibly move this program forward in a specialty patient population on our own. Importantly, we expect both the broad and narrow indications to have similar timelines for marketing approval. Moving onto SYN-010, our proprietary modified-release formulation of lovastatin lactone, SYN-010 is designed to reduce methane production in the GI tract and is a star contrast current standard of care to actually treat the underlying cause of the symptoms often experienced with irritable bowel syndrome with constipation. In September, we were excited to announce the expansion of our relationship with Cedars-Sinai Medical Center in the form of an agreement to co-fund in the investigator sponsored Phase 2b clinical study to further evaluate the efficacy and safety of SYN-010. This study will be led by the prestigious Pimentel laboratory at Cedars-Sinai. The study will be a 12-week randomized placebo-controlled trial evaluating to two dose strands of SYN-010 and approximately 150 patients with IBS-C. This trial is designed to address specific queries about dose response and length of treatment that led to the design of the Phase 2b/3 adaptive design clinical program agreed with the FDA last year. Importantly, by partnering with Cedars-Sinai, we will be able to generate meaning data necessary to continue SYN-010 advancement at a significantly lower cost than if we were to perceive on our won. Equally as critical, we believe that positive data from this study may permit us to choose a single SYN-010 dose strength for our Phase 3 clinical trials. This may enable us to design a revised Phase 3 clinical trial program with a reduced overall number of patients in a significantly lower clinical development costs. We expect enrollments in the Phase 2b trial to commence before the end of this year or very early in Q1 of next year, and we anticipate having data readout from this trial share in the second half of 2019. We believe that the successful completion of this trial will allow us to reopen discussions with prospective partners who found the Phase 2a data compelling but not conclusive enough to justify the significant capital investment required to complete the clinical trials required for registration. While we move forward with our later stage assets ribaxamase and SYN-010, we are also continuing to drive new value of our microbiome-focused R&D engine. One of the most promising preclinical assets is SYN-020 in oral form of intestinal alkaline phosphatase or IAP. IAP is an endogenous enzyme expressed in the upper small intestine that plays a role in maintaining GI homeostasis and promoting a healthy gut microbiome. IAP has several key functions, two of which are detoxify the GI inflammation mediators and to diminish so called leaky gut. Through these activities, oral delivery of IAP has the potential to treat both local and GI systemic disorders. Despite its broad therapeutic potential, the development of IAP is an oral drug has been hindered by manufacturing hurdles which has led to currently commercially available IAP cost of $10,000 per gram. We have overcome these hurdles and now have the ability to produce 3 grams per liter of IAP for roughly a few hundred dollars a true game changer for us. We are currently planning to pursue clinical trials for SYN-020 and have identified three novel indications with unmet medical needs which span a range of market sizes. These three indications are the following. Enterocolitis associated with radiation therapy for cancer, Enterocolitis associated with checkpoint inhibitor therapy for cancer and microscopic colitis. We intend to move forward with an IND filing for one of these indications to be identified based on further preclinical research in the fourth quarter of 2019. We have every confidence will be able to do so with a small and appropriate capital commitment. I believe our strategies creatively and aggressively advanced both our late-stage and early-stage clinical assets in the ways that have the potential to drive significant value for our company and our investors, change the way our assets are perceived and valued and frankly to definitively untether ourselves from some of mid steps of our past. With that backdrop I'll our review our financial results for the third quarter. As I mentioned earlier, the completion of our public offering and the proceeds raised from our ATM facility beginning in the third quarter significantly strengthens our balance sheet and provides the financial resources for us to continue to execute against our planned clinical activities and value driving milestones. As I previously stated, we will continue to operate in an efficient manner as financial stewardship and cash management remain a top priority for us. Now the details for the quarter. General and administrative expenses decreased 12% to $1.5 million for the three months ended September 30, 2018, compared to $1.7 million for the same period in 2017. This decrease is primarily the result of lower salary expense, stock-based compensation and related benefits costs incurred during the three months ended September 30, 2018 as compared to the three months ended September 30, 2017 and due to the resignation of the prior CEO along with the reduction of travel and consulting expenses offset by higher registration, investor relations and legal costs. The charge related to stock-based compensation expense was $186,000 for the three months ended September 30, 2018, compared to $583,000 for the three months ended September 30, 2017. Research and development expenses decreased by 32% to $2.8 million for the three months ended September 30, 2018, compared to $4.1 million for the same period in 2017. This decrease is primarily the result of lower SYN-004 and SYN-010 program costs for the three months ended September 30, 2018 since no clinical trials were ongoing during the quarter. The research and development costs incurred during the quarter were primarily related to planning for future Phase 3 SYN-004 and Phase 2b/3 SYN-010 clinical programs as we sought to secure the financial resources necessary for the advancement of these clinical trials. The charge related to stock-based compensation was $289,000 for the three months ended September 30, 2018, compared to $317,000 for the three months ended September 30, 2017. Other income was $631,000 for the three months ended the 30, 2018 compared to other expense of $5.1 million for the three months ended September 30, 2017. Other income for the three months ended September 30, 2018 is primarily comprised of non-cash income of $626,000 from the change in fair value of warrants. The decrease in fair value of the warrants was due to the decrease in our stock price from the prior quarter. Cash and cash equivalents as of September 30, 2018 totaled $9.5 million. However, this figure does not include the $18.6 million in gross proceeds raised from our public offering or the $5.8 million the net proceeds raised from the utilization of our ATM facility beginning in October. As of the date of this call our cash position is approximately $32 million, providing us with a substantial runway to continue our operations into 2020. In closing, I would like to thank each of you for joining the call today. As I hope I've conveyed clearly in the remarks, we are embarking on an exciting new direction for Synthetic Biologics which should allow us to unlock and showcase the value of our clinical assets and our practical in financially responsible manner. I and the entire team at Synthetic Biologics are focused on executing on the clear and achievable milestone and value drivers we have established as a part of this pathway. We will continue to look for every opportunity to build long-term value for our shareholders in reward the continued confidence as a board you've given us. We look forward to continuing to update you on our progress in the weeks and months ahead. And now, I will turn the call back over to Vincent.

Thank you, Steve. Keith, we'd like to open up the phone line to questions. Can you please describe the procedure to ask questions for our listeners?

Yes, thank you. [Operator Instructions] And the first question comes from Katherine Xu with William Blair.

Steve, I’m just wondering with regards to the sort of new direction to take SYN-004, the allogeneic transplant markets. And can you just talk a little bit more about the size of the market? And how many patients are actually taking the IV beta-lactam antibiotics? And also from a pricing perspective, this could be a premium pricing market versus the broader indication and that could be much lower in pricing. So just curious about the thought there and also for the China partnership, can you just give some update on that?

So, you've raised a really good point on pricing power in this more narrowed indication. As a matter of fact, we think we also have the opportunity to possibly apply for orphan status. So along with that obvious would come significant pricing power. Let me let Vince Wacher talk a little bit about the market and then I could follow up with what we’re seeing in our China discussions?

Thanks Steve. The overall number of allogeneic transplants in the U.S. is significantly lower than CDI cases as you could imagine, there is about I think 10,000 per year so far. In the U.S. allogeneic HCT procedures and all prior to that Steve indicated before, there will be very few people that did not get the IV beta-lactams. It's a standard therapy to treat people for febrile neutropenia or months in the allogeneic HCT population. So 80% to 90% of those people would be eligible to receive that drug in the U.S. The numbers will be similar in Europe and somewhat lower in China. But as pointed out, the potential pricing power is significant and that’s because of the outcomes because the GVHD is so prevalent because the primary therapy for GVHD which is steroids filed more than 50% of the time. Prevention is everything in that indication. There no excuse to not trying for AGVHD. So, the smaller numbers have balanced out with higher processing power. And then moving forward into the broader indication leveraging the data from that study, we could then post-market on the HCT side have off label use Phase 2 studies by before expanded Phase 4 studies on putting the broader CDI population and look to leverage the higher price from the bone marrow transplant to get an increase in either the diagnosis-related group payments for the CDI or maybe a new technology add-on payment for the ribaxamase in the CDI populations. There are opportunities to really fix the appropriate payment for the product in the bigger indication at the higher price. But, again that’s all right now hypothetical was about to get to our clinical trials first.

So, then Katherine to answer your question about China, our discussions continue. We have a number of parties that remain engaged and interested. We continue to have various degrees of diligence, and we are having discussions with folks about how to possibly proceed into the clinic. I'll be honest though and I could tell you that, we've also experienced that since the Chinese market, particularly the biotech market there since it's taken hit in some of the value and these companies that are public have seen the value eroded that it is put some of them on their heels. We don't think overtime this is going to be an issue as we continue to try to move the ball forward, but it is an issue. And again, as I said before, I'm not going to talk any further about where we stand in terms of status and when we have something more definitive to talk about obviously we will make the disclosure at that time.

[Operator Instructions] And the next question comes from Jim Molloy with AGP.

I had a quick question on the HCT indication of the [skin end] to the wedge to sort of get some data rather have to pay for the much larger study. How much would data from that study inform any potential FDA approvals for the largest study? Should you get a partnership and get that up and running? Is that something that can be used adjunctively with the largest study to sort of order sort of show hey, we can get this to the FDA look at the small phase kind of work in and make sure to have a largest study?

Vince, why don’t you go ahead?

So, I think inform is the right word. I think it informs on a number of levels we can use safety data. We would definitely anticipate using pharmacokinetic data from that study. One of the things about the bone marrow transparent population is that they have a somewhat flammable intestine and so, if we demonstrate that our drug is not absorbed in that population and it doesn’t alter the pharmacokinetic of the intravenous antibiotics then that data will be extremely beneficial since that sort of question comes up with the FDA that can we be sure that the drug has not absorbed in a sick population. If we see an effect on the VRE, if you see an effect on the CDI in our studies, that is all submissible to the FDA as part of our overall data package to show hence of efficacy and also safety. So, I think it contributes to that, but it wouldn’t necessarily be considered the subgroup that would we could discount the largest study based on that. It may up rise our dosing, but we couldn’t say, hey, we have done 200 patients here and we have to do 200 less in the big indication.

And then, could you talk a little bit about the timing of the HCT study? I know there is a lot work that’s we've done, but second half of next year seems like, is that allowing too much time and proceed put there for a reason, but can you talk a little bit why it's going to be second half next year?

Go ahead Vince.

So, this population as you can imagine is quite sensitive. They're quite ill -- these are people that are going to be treated with chemotherapy to wipeout their immune systems before they get the bone morrow transplant and before they get the antibiotics. So, we have to move with a great degree of caution in this population and that's reflected in the different institutions. And some of our earlier conversations have highlighted that there are a number of levels of approval within any given institution as many as five and some of them. So, we have to move to some degree of caution with this. We also have to have our sourced discussions with the FDA about this indication. We have not approached the FDA and all devising a protocol organizing a pre-IND making those key near term elements that have their own timelines. As you know, the FDA has a certain set of timing to accept date meetings up, but beyond that I think really the length of time will be driven more by the institutions and then need to be sure that they are taking appropriate care with their patients.

My last question is on the 020 Dr. Pimentel study, in his lab study, that’s pretty good turnaround from starting it to getting the data by the second half next year. Obviously, Dr. Pimentel's lab done a quite a bit, if you talk little bit about the sort of excitement level on this compound and getting this trial up and running?

So, this is SYN-010, our lovastatin program. You're quite right. There is a great deal of excitement and a lot of this is to do with the fact that Cedars-Sinai has such a comprehensive GI presence but also has specializing functional gastrointestinal disorders like IBS. And so, Mark and the Cedars-Sinai team, he's the person that will actually get executing the study. Ruchi Mathur who is the Head of the MAST Program and Ali Rezaie who is also well known probably for the breath gas analysis. This is a team that sees a lot of patients. They have advised them that the patients are well educated about gas about methane, and they have been pumping the amino -- they have been saying, once we get studies, would you be available, are you interested. And so, people know that SYN-010 is in the works. And now, they have something concrete to hold on to. So they projected that they can enroll the kind of patients in the time of timeframe that we've anticipated and we look forward to saying that those results happened ideally in the timeframe that we've discussed.

Thank you. I would now like to turn the conference back over to Steve Shallcross for any closing remarks.

Great, thanks, Keith. Well, before we end today’s call, I just want to make a couple of final comments here. First and foremost, thank you again for your support and believing in the assets that we currently have underdevelopment. These assets are great and more importantly as we move them back into the clinic, something that often gets left on the sideline when you think about biotechs is that we have, what I will refer to as multiple shots on goal that significantly reduce the risks as we move back to the clinic to develop these programs that we outlined for you today. The other point I hope we made clear to you is that, we're taken a very strategic and thoughtful approach toward unlocking the value of the assets that we own. And we believe that not only have we taken this approach that makes most sense for a company our size, we've taken steps to make sure we can maximize our ROI with the appropriate degree of clinical development risk that one would expect with the investment that we are trying to make. Finally, I just want to highlight once again the serious disconnect that we believe that exist between the perceived value of the Company and the potential value that we can unlock through our product portfolio. We again are trading significantly below cash and we are going to do everything we can to continue to reach out to new and existing investors so that we could fix this. We laid out a number of short-term and long-term milestones so that we can identify the key inflection and value creating point over the next 12 to 18 months that each of our investor should be able to benefit from, but more importantly, we have the cash to support these programs into 2020. And finally, you have the commitment from me and our team that we will do whatever it takes and we will remain focused on execution and ultimately delivering results. Thanks again and we look forward to keeping you updated on our progress as we move our lead programs back into the clinic and move our SYN-020 program further down the path toward an IND. Thanks again and have a great weekend.

Thank you. This conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.