Earnings Call Transcript - TOVX Q1 2020

Vincent Perrone, Director, Corporate Communication

Good afternoon and welcome to the Synthetic Biologics 2020 First Quarter Investor Conference Call. At this time, I would like to turn the call over to Vincent Perrone, Director, Corporate Communication at Synthetic Biologics. Please go ahead, Vincent. Thank you, Taylor and good afternoon everyone. Welcome to Synthetic Biologics 2020 first quarter investor conference call. Today, I'm joined remotely by our Chief Executive and Financial Officer, Steven Shallcross; 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, 2020. The release can be found on 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 prepared remarks. In addition to the phone line, this call is being streamed live via webcast, which 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 and 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.

Steven Shallcross, CEO and CFO

Thanks, Vincent. Good afternoon, everyone, and thank you for joining our 2020 first quarter investor conference call. On behalf of the team here at Synthetic Biologics, we hope you're safe and in good health. I'm glad to be with you all this afternoon and I look forward to sharing important updates on our strategy for advancing our portfolio of GI and microbiome-focused clinical programs during today's call. Today, I'll review our 2020 first quarter operational highlights and financial results and go over our updated clinical development strategy, which reflects the rise and impact of COVID-19 as well as the regional and national response to it. Our focus now and in the past is the safety and wellbeing of patients we aim to serve, our clinical and research and development partners and of course the dedicated team here at Synthetic Biologics. For the better part of the first quarter of 2020, we remain in line to deliver on the timelines and milestones we set out for our SYN-010 and SYN-004 clinical programs at the beginning of last year. As we disclosed in a press release earlier today, recommendations by local governments, hospitals and healthcare organizations to reallocate their resources towards battling the COVID-19 pandemic are having a widespread material impact on ongoing and planned clinical trials. This includes our ongoing Phase 2b investigator-sponsored clinical trial of SYN-010, which is intended to treat irritable bowel syndrome with constipation and is being conducted out of Cedars-Sinai Medical Center in California. And our planned Phase 1b/2a clinical trial of SYN-004 in allogeneic hematopoietic cell transplant recipients, which will be conducted by the Washington University School of Medicine in St. Louis. We support governments and hospital policies and efforts to battle the spread of the novel coronavirus and recognize these policies will vary greatly by region and hospital system. And while we've experienced some additional delays in enrollment and site visits from our planned and ongoing clinical trials, we believe we've implemented an operational framework which will allow us to navigate this crisis and ultimately deliver on the tangible results and goals we've established for our company. Importantly, these initiatives will be conducted with a sharp focus on prudent cash management and financial stewardship, including an amended financial plan intended to further reduce our cash burn and extend our cash runway through at least the first quarter of 2021. This is necessary as the timeline surrounding the ability of our clinical development partners to resume clinical trial activities remains uncertain. With that backdrop, I'd like to provide an update on our late-stage and emerging clinical programs beginning with our SYN-010 program. SYN-010 is designed to target an underlying microbial cause of constipation in IBS-C patients with the goal of normalizing bowel habits without the diarrhea and nausea often associated with over-the-counter and prescription therapies. Last year, we began enrollment in a Phase 2b investigator-sponsored clinical trial of SYN-010 in collaboration with our research partner, Cedars-Sinai Medical Center, to further evaluate the efficacy and safety of SYN-010 in IBS-C patients. This clinical trial was designed with three specific objectives in mind. One, to generate a data set of the highest quality in order to provide additional insight into dose response and length of treatment for future pivotal trials. Second, to allow us to reengage with perspective partners who found the Phase 2a data compelling yet inconclusive enough to justify significant investment for Phase 3 development. And importantly three, to generate this dataset in a cost-effective manner. The Phase 2b study commenced last year and enrollment remained ongoing through most of the first quarter. Unfortunately, in late March, the unforeseen and unique challenges posed by the global COVID-19 pandemic required Cedars to temporarily limit all non-essential activities which directly impacted their ability to actively recruit and screen new patients. As a result, additional enrollment for this trial has been suspended until COVID-19 restrictions can be lifted. With respect to active patients who are currently enrolled in the study, Cedars has implemented steps to allow this group to complete the full 12-week treatment period. They've also taken steps to ensure that data from this group is collected properly and in accordance with the clinical trial protocol. Once this active group completes the study, we anticipate conducting a futility analysis likely during the third quarter of 2020. We expect the outcomes from this data readout to inform a discussion with Cedars on whether to resume enrollment post-COVID-19 or whether the study may be completed and the data unblinded. At this time, it is difficult to provide firm guidance on when or if additional enrollment will resume as it remains contingent upon Cedars-Sinai's capacity to commence normal clinical trial activities post-COVID-19. However, Cedars remains engaged with an active queue of prospective study participants who submitted their informed consent forms to begin the trial but were not able to do so as a result of COVID-19. We remain in close contact with the team at Cedars and look forward to providing additional updates as they become available. Next, I'd like to provide a brief update on 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. Last year, we announced our intention to move this program forward 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 of SYN-004 in allogeneic HCT recipients. Following this announcement, we held a Type-C meeting with the FDA to solidify the clinical program requirements needed to evaluate the safety, tolerability and potential absorption into the systemic circulation, if any, of SYN-004 in adult allogeneic HCT recipients. During the first quarter of 2020, we continued to move this program forward with the intent on its initiation during the second quarter this year. However, in response to the global COVID-19 pandemic, Washington University temporarily limited non-essential activities which directly impacts planned clinical trials, including the Phase 1b/2a clinical trial of SYN-004. We recently held discussions with Dr. Erik R. Dubberke, Professor of Medicine and Clinical Director, Transplant Infectious Diseases at Washington University and the primary investigator of this clinical trial to better understand what the path forward for SYN-004 looks like in the face of COVID-19. He indicated that as the effect of COVID-19 continues to evolve, Washington University's primary focus remains the health and safety of its patients. The university is closely monitoring the ever-changing situation and is following guidance from the CDC, the State Department, its infectious disease experts at the School of Medicine and local and public health agencies. At this time, it has been determined that postponing the initiation of the SYN-004 Phase 1b/2a clinical trial is the appropriate response to COVID-19. While uncertainty surrounding the long-term impact of COVID-19 makes it difficult to provide a firm timeline, preliminary guidance from Washington University suggests we may be in a position to begin this clinical program during the first quarter of 2021. However, this remains at the discretion of Dr. Dubberke and his team at Washington University. Importantly, deferring this program until early 2021 further reduces our cash burn as we do not anticipate any additional expense related to this program during the remainder of 2020. We will continue to remain in close contact with Washington University and will be ready to proceed with this program if it is deemed safe to do so by the University IRB and the FDA. Before reviewing our financials, I'd like to share a quick update on our SYN-020 preclinical program. SYN-020 is an oral form of bovine Intestinal Alkaline Phosphatase or IAP. IAP is an indigenous enzyme expressed in the upper small intestine that plays an important role in reducing GI inflammation, tightening the gut barrier, and promoting a healthy gut microbiome. Preclinical studies have shown that IAP diminishes anti-inflammatory mediators found in the GI tract and serves as an important positive regulator of gut barrier function and microbial diversity. Recent studies suggest that these outcomes may be particularly beneficial in mitigating the effects of certain agents. If translated to humans, we believe oral delivery of IAP has the potential to treat both GI and systemic disorders broadly associated with chronic gut inflammation. We are currently pursuing the treatment and prevention of radiation enteropathy secondary to cancer therapy as the first indication with a large unmet need. During the first quarter, we made significant progress towards the completion of IND enabling toxicology studies, assay development, and GMP manufacturing that are expected to support our IND filing for this program later this quarter. At the same time, we continue to review and evaluate a number of potential clinical indications in which IAP may provide a significant therapeutic benefit. We are very excited about this program and its potential to be a value-adding catalyst for our company. With that backdrop, I’ll review our financial results for the quarter ended March 31, 2020. During the first quarter of 2020, we continued to operate in a lean and efficient manner. We remain focused on prudent cash management and have successfully identified additional areas to further reduce non-central operating expenses. We ended the quarter with approximately $10.1 million in cash and cash equivalents and looking ahead, we anticipate additional reductions to clinical expenses as a result of the response to COVID-19. This is due primarily to the postponement of the Phase 1b/2a trial of SYN-004 and allogeneic HCT recipients as we do not anticipate additional expenses related to this program for the remainder of the year. As a result, we anticipate that our current cash position will allow us to continue our operations through at least the first quarter of 2021. Now, I'll turn to the first quarter financial results. General and administrative expenses increased by 21% to $1.4 million for the three months ended March 31, 2020, from $1.1 million for the same period last year. This increase was primarily due to increased insurance costs, registration fees, and legal costs. The charge related to stock-based compensation expense was $65,000 for the three months ended March 31, 2020, compared to $65,000 for the same period last year. Research and development expenses decreased by 32% to $1.6 million for the three months ended March 31, 2020, from $2.4 million for the same period last year. This decrease is primarily the result of lower indirect program costs for the three months ended March 31, 2020, including salary and related expenses and reductions resulting from the 2019 headcount reduction and a decrease in manufacturing costs for SYN-020. The research and development costs incurred during the quarter were primarily related to the investigator-sponsored Phase 2b clinical study of SYN-010. We anticipate research and development expenses to decrease as a result of the response to the global COVID-19 pandemic by our clinical development partners which has led to the postponement of the Phase 1b/2a clinical trial of SYN-004 in allogeneic HCT recipients and a temporary halt to new enrollment in the Phase 2b investigator-sponsored study of SYN-010. The charge related to stock-based compensation expense was $18,000 for the three months ended March 31, 2020, compared to no charge related to stock-based compensation expense for the same period last year. Other income was $38,000 for the three months ended March 31, 2020, compared to other income of $44,000 for the three months ended March 31, 2019. Other income for the three months ended March 31, 2020 and 2019 is primarily comprised of interest income. In closing, the first quarter began as a period of progress and keen execution as we remain well positioned to deliver on the clinical milestones we set out at the beginning of the year. However, we are now in unprecedented times and like most, we are trying to navigate this uncertainty as best we can. After careful planning, we have realigned our clinical development strategies to coordinate with recommendations by government and healthcare organizations including the actions taken by our clinical development partners in response to the global coronavirus pandemic. For SYN-010, Cedars has taken steps to ensure that active study participants can complete the trial and data can be properly collected. Again, an interim or futility analysis is anticipated during the third quarter and is expected to inform decisions about future enrollment pending COVID-19. For SYN-004, Washington University has postponed the initiation of the Phase 1b/2a clinical trial in allogeneic HCT recipients until the impact of COVID-19 can be properly mitigated in a clinical setting. Initial guidance from Washington University suggests this trial may begin in Q1 of next year. Preparations to submit an IND filing for our SYN-020 program remain on track for the second quarter of 2020, and importantly, we expect significant reductions to clinical expenses during the remainder of the year to reduce our cash burn and extend our cash runway through the first quarter of 2021. Despite global uncertainty around COVID-19, we at Synthetic Biologics remain focused on the execution of our strategy of advancing our portfolio of GI and microbiome-focused clinical programs. We continue to support the efforts of our clinical development partners and the healthcare workers around the globe who continue to risk their own health to help others battling the novel coronavirus. On behalf of Synthetic Biologics, we thank you. We look forward to continuing to update you on our progress in the weeks and months ahead. Now I'll turn the call back to Vincent for questions.

Vincent Perrone, Director, Corporate Communication

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

Operator, Operator

Thank you. Your first question comes from James Molloy from Alliance Global Partners. Please go ahead.

James Molloy, Analyst

Hey guys, thanks for taking my question and certainly some unprecedented times and some real challenges for you guys going forward. I know that you've given sort of the best guidance and the hospitals giving you the best guidance that they can at this time. Given sort of how things have progressed and the way things are looking at least in the areas of the hospitals are and how realistic you think those guidelines are potential restarting knowing this virus seems to be impacting different parts of the country in different ways?

Steven Shallcross, CEO and CFO

So, thanks for asking the question, Jim. I'll do the best to give you my opinion and maybe Vince has an opinion as well. So, you know, we have regular discussions with the team at Cedars and the team at WashU. And interestingly, although they're both in different locations, they are also in large population centers. So as we watch this all unfold, every night on the various news networks, I think we're getting the best information that we can at this time on what's going on, sort of at a macro level. And then, the hospitals individually have taken their internal resources and they're focused on dealing with this matter at the micro level. So, unless we see some dramatic changes, my expectation is that we won't see significant movement from the guidance that we've given. But on the other hand of the coin, if things change positively perhaps the guidance can be changed and we'll get back on track sooner than later.

James Molloy, Analyst

I think maybe on the SYN-010, the interim look in the third quarter for the futility analysis third quarter 2020. How much should you—should turn out that you need to keep enrolling? What's the expectation for final data? Should that be the case?

Vincent Perrone, Director, Corporate Communication

Let me, I'll hand that off to Vince and let him take that one on.

Vince Wacher, Head of Product and Corporate Development

So the short answer is that depends on the results of the analysis. So I think there's a case where we can say that we guarantee that the results would come out in this timeframe, that the interim analysis will do two things, whereas it'll tell us if the study looks like it's worth continuing. And then we have a discussion to be had with the study site and the sponsor Cedars-Sinai about the ability to go forward and the length of time that investigators feel comfortable advancing the study. We still don't know yet where Cedars-Sinai, the institution is in terms of their COVID-19 actions and recovery from having to deal with the COVID-19 measures, sorry, I was actually on a web call this morning and one of the Directors from Cedars-Sinai, one of the operational Directors from Cedars-Sinai and I was asked a question about when they would get back to normal, and they are working through all of the things I need to do, and that's quite a list, and so I wasn't able to give any specific guidance on that. And so we don't know either when the study might kick off if we decide to start it again.

James Molloy, Analyst

Understood. Unprecedented times to be sure. Just a quick clarification, I think on the call you said you've cashed first quarter 20, I believe you didn’t say first quarter 2021, maybe misheard.

Vincent Perrone, Director, Corporate Communication

Right. To get us at least through the first quarter of 2021.

James Molloy, Analyst

Perfect. Then have you guys applied for or received any, have you got the small business loans or cash that the payroll protection things that have been enacted?

Vincent Perrone, Director, Corporate Communication

So we've taken a position in our company that since we're a public entity, that these funds are better suited for folks that really need them. We haven't laid off any of our staff, we don't intend to. And there's a lot of other folks that I think need those types of funds more than we do.

James Molloy, Analyst

Awesome. Thank you for taking the questions.

Operator, Operator

Thank you. Your next question comes from Jason McCarthy from Maxim Group. Please go ahead.

Michael Okunewitch, Analyst

Hey guys, this is Michael Okunewitch on the line for Jason. Thank you for taking the question.

Vincent Perrone, Director, Corporate Communication

Hey, Mike.

Michael Okunewitch, Analyst

The first one is a bit more high level, but with the ongoing pandemic, the anti-infective space overall seems like it might be getting more attention than we haven't seen in past years especially, you know, these patients are being heavily treated with antibiotics to prevent secondary bacterial pneumonia, which is one of the major causes of death. So looking at that, antimicrobial resistance could also be brought into greater focus. So my question is, as more patients receive antibiotics and AMR comes into greater focus, is there a possibility that ribaxamase attracts a partner or development gets accelerated towards those larger indications?

Vincent Perrone, Director, Corporate Communication

I'll take a first stab at that and then maybe Vince can relay some of our discussion that we had with Dr. Dubberke. I think you're right, but it still doesn't change the matter of having to conduct a pretty large clinical trial to get a program like this over the line, and that would require us ultimately recruiting dozens and dozens of sites around the world in order to accomplish that. I think you're thinking about this is right on. And we'll see what happens. I know, Vince, you want to talk about some of the comments Erik had about the specific transplantations.

Vince Wacher, Head of Product and Corporate Development

Yes, I think the opportunity to use ribaxamase in populations where antibiotic use is going up is very encouraging, we like to see that. We can't make a prediction about partnering, of course, because that whole area is still vague as far as people's interests in treatments versus preventatives versus focus on COVID-19. And I'm sure that your question is very astute in understanding who else is thinking about other things other than COVID-19. I think there's an education curve around potential partnering that's required. But if you look at things like the GI symptoms that are associated with things like COVID and they're aggravated by antibiotics, that's the ribaxamase sweet spot—preventing that GI damage caused by antibiotics. So hypothetically, that should encourage further interest in the product. And we hope that that holds true, not just for ribaxamase, but across interest in antibiotics and making antibiotics better and safer and prevention. Prevention is key, I think we're finding. So we have something that prevents that damage and could help, it's just a question of resources. And I think the overall partnering population is coming to the realization that these are all part of the same antibiotic strategy to be able to deliver the best antibiotic care with the greatest safety and possible preventative outcomes, preventing secondary infections and other things like that.

Michael Okunewitch, Analyst

All right. Yes. Thank you. Thank you. And then the next one is on SYN-010, you're expecting that futility analysis in the near future. So I'd like to see, I guess, a two-parter. First, what sort of result would you think that a prospective partner would need to see in order to consider the data compelling? And then could you give us an idea of how many patients have already been enrolled in the study and like the size of that futility analysis?

Steven Shallcross, CEO and CFO

Why don't you go ahead, Vince?

Vince Wacher, Head of Product and Corporate Development

So, what a partner – what we hear from partners is that they're looking for something differentiated, and so we have to show that we are differentiated. Clearly people want to see efficacy out of the trial in terms of the symptoms—dose, we're looking to see if we can get a better dose response we didn't get in our first Phase 2 study. And so we would like to see efficacy and a dose response and ideally some other added benefits, something useful. For example, we—even in the study today, we've had no incidences of diarrhea. So that's potentially a benefit if it holds up in unblinded analysis. But those are the sorts of things that partners are looking for. The futility analysis, we have outpatients in SYN-010 to decide whether or not the study should keep going, whether we're actually seeing a meaningful signal. We will have to wait until an analysis is done before calculating what length of time and number of patients we might be looking at to continue the study, if that's what is required. I mean, if the futility analysis somehow gives us some terrific outcome, that's a futility analysis, so it's very limited. We can evaluate that in the overall scope and the overall context of what's going on with the hospitals and clinical trials and clinical trial participation and determine how long we go and how many more patients are needed.

Michael Okunewitch, Analyst

All right, thank you. And just—I'm sorry, are you going to continue?

Steven Shallcross, CEO and CFO

No, go ahead. Go ahead. I'm sorry. Go ahead.

Michael Okunewitch, Analyst

Just—so my last question is going to be on the GVHD trial. And so now that initiation is expected in the first quarter of 2021. I'd like to see obviously everything goes on track with COVID. Would it be reasonable to expect data from that trial emerging around year-end 2021?

Steven Shallcross, CEO and CFO

If we were to engage in the first quarter of 2021, we could possibly have at least one of the three cohorts report out some data. And we'll see what happens. If things turn out to be better and now we start to get through this difficult period much more quickly, there's always a possibility of starting this trial before then. In the meantime, we're still doing work on the program. We're near completion on aligning with WashU and establishing the safety data monitoring committee, setting up all the necessary databases. We've submitted the final revisions of the protocol to the FDA and we're waiting for that period for the FDA to review that to pass. And once that happens, it will be handed off back to WashU for their approval. So we are continuing to work on the program so whenever we get the green light, we'll be prepared to advance into the clinic.

Michael Okunewitch, Analyst

All right. Thank you very much.

Operator, Operator

Thank you. There are no further questions at this time. I would now like to hand the conference back to Steve Shallcross for any closing remarks.

Steven Shallcross, CEO and CFO

Thank you. And thank you, our shareholder base for the support that you continue to give us. We, I think, are making tremendous progress across the board with all of our programs. We look forward to future news flow and updating you on our continued progress. Thanks again and stay safe.