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SGYP > SEC Filings for SGYP > Form 10-Q on 9-Aug-2013All Recent SEC Filings

Show all filings for SYNERGY PHARMACEUTICALS, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for SYNERGY PHARMACEUTICALS, INC.


9-Aug-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our condensed consolidated financial statements and other financial information appearing elsewhere in this quarterly report. In addition to historical information, the following discussion and other parts of this quarterly report contain forward-looking statements. You can identify these statements by forward-looking words such as "plan," "may," "will," "expect," "intend," "anticipate," believe," "estimate" and "continue" or similar words. Forward-looking statements include information concerning possible or assumed future business success or financial results. You should read statements that contain these words carefully because they discuss future expectations and plans, which contain projections of future results of operations or financial condition or state other forward-looking information. We believe that it is important to communicate future expectations to investors. However, there may be events in the future that we are not able to accurately predict or control. Accordingly, we do not undertake any obligation to update any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties set forth under "Risk Factors" in our Annual Report on Form 10-K as of and for the year ended December 31, 2012 and other periodic reports filed with the United States Securities and Exchange Commission ("SEC"). Accordingly, to the extent that this Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of us, please be advised that our actual financial condition, operating results and business performance may differ materially from that projected or estimated by us in forward-looking statements.

Business Overview

We are a biopharmaceutical company focused primarily on the development of drugs to treat gastrointestinal, or GI, disorders and diseases. Our lead product candidate is plecanatide (formerly called SP-304), a non-systemic guanylyl cyclase C, or GC-C, receptor agonist, to treat GI disorders, primarily chronic idiopathic constipation, or CIC, and constipation-predominant irritable bowel syndrome, or IBS-C. CIC and IBS-C are functional gastrointestinal disorders that afflict millions of sufferers worldwide. CIC is primarily characterized by symptoms such as hard stool, infrequent bowel movements, and straining, but a majority of these patients also report experiencing bloating and abdominal discomfort as among their most bothersome symptoms. IBS-C is characterized by frequent and recurring abdominal pain and/or discomfort associated with chronic constipation. We are also developing SP-333, our second-generation GC-C receptor agonist for the treatment of gastrointestinal inflammatory diseases, such as ulcerative colitis, or UC.

Our patented GI drug candidates were discovered and developed in-house by our own scientists. Today there are few available therapies for CIC and IBS-C, with diarrhea and nausea being common side effects of such therapies.

Plecanatide

Plecanatide is a synthetic analog of uroguanylin, a natural human hormone that regulates ion and fluid transport in the intestine. Orally-administered, plecanatide binds to the same receptors on the inside of the gastrointestinal tract as uroguanylin, and we believe it is capable of restoring the normal balance of fluid, thus restoring the regular function of the intestine in patients suffering from GI disorders such as CIC and IBS-C.

Constipation can be the by-product of other disease states, as well as due to certain drug therapies (e.g., narcotics) or anatomic anomalies. CIC, in contrast, has no identifiable causes. Patients diagnosed with CIC have had symptoms for 6 months or more, and commonly have less than 3 bowel movements a week and often less than one. They suffer from very hard stool and abdominal symptoms such as bloating, discomfort, gas, and a feeling of incomplete evacuation. Over-the-counter medications offer only short-term relief and are not indicated for chronic treatment. The prescription drugs available have significant side effects and are only effective in less than half of patients treated. Plecanatide offers hope for a more effective and tolerable treatment that can relieve the significant burden CIC places on patients' lives.

On July 17, 2013, we announced that we had reached the halfway mark for total enrollment in our plecanatide Phase 2b clinical trial in patients with IBS-C. At present, over 726 patients have been screened, and 204 patients have been enrolled in the study. We anticipate completing enrollment in the fourth quarter of 2013 and reporting top line data in the first quarter of 2014.

On January 2, 2013, we announced positive results from our large multicenter clinical trial of our lead investigational drug plecanatide in patients with
CIC. On May 15, 2013, at Digestive Disease Week 2013, we presented a late-breaking abstract, the title of which is: "Plecanatide, a Novel Guanylate Cyclase C (GC-C) Receptor Agonist, is Efficacious and Safe in Patients with Chronic Idiopathic Constipation (CIC): Results from a 951-Patient, 12-Week, Multi-Center Trial."

On August 5, 2013, we completed an End-of-Phase 2 meeting with the U.S. Food and Drug Administration (FDA) regarding plecanatide for the treatment of CIC. Agreement was reached with the FDA on design, duration, size and primary and secondary efficacy endpoints for pivotal phase 3 studies. A pivotal phase 3 program evaluating the safety and efficacy of plecanatide in CIC patients is expected to be initiated in the fourth quarter of 2013.

In addition to CIC, plecanatide is also being developed to treat IBS-C. IBS is generally characterized by symptoms of abdominal pain or discomfort such as cramping, bloating, gas, and constipation or diarrhea or both. IBS-C is the subtype of IBS that plecanatide is being developed to treat. IBS is one of the most commonly diagnosed GI illnesses in the United States. As many as 1 in 6 or up to 50 million adult Americans suffer from IBS. About 13 million of them suffer from the IBS-C subtype.

IBS profoundly impacts patients' physical, social and working lives. A quarter of patients describe their abdominal pain as constant. IBS is one of the most common reasons for work or school absenteeism, second only to the common cold. Fewer than 1 in 10 patients say they are satisfied with available IBS treatments. Healthcare systems spend billions of dollars annually to diagnose and treat this disorder. In the U.S.


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alone, the annual cost of IBS treatment is estimated to be as much as $10 billion in direct medical costs (doctor and hospital visits, diagnostic procedures, etc.)

On December 27, 2012, we commenced a Phase2b clinical trial of plecanatide to treat patients with IBS-C. This study is currently being conducted at 70 sites in the U.S., and is planned to enroll 350 patients. To qualify for enrollment, patients must meet the Rome III criteria for IBS-C as modified for this study. Abdominal pain is a major part of this syndrome and patients need to have pain scores of 3 or more (on a scale of 1 to 10) for 3 days in each of the two pre-treatment weeks. Qualified patients are being randomized to receive 0.3, 1, 3 or 9 mg of plecanatide or placebo once daily for 12 weeks, and will be seen at the clinical site once a month during the study. At the end of treatment, patients are followed for two weeks, and return for an end of study visit. The primary objective of this study is to select doses for the following Phase 3 studies, based on safety and efficacy endpoints including bowel movements, stool consistency, time to first bowel movement, reduction of abdominal pain, and quality of life measures.

SP-333

We are developing a second-generation GC-C receptor analog, SP-333, for the treatment of inflammatory bowel diseases, or IBD. SP-333 is a synthetic analog of uroguanylin, a natriuretic hormone that is normally produced in the body's intestinal tract. Deficiency of this hormone is thought to be one of the primary reasons for the formation of polyps that can lead to colon cancer, as well as debilitating and difficult-to-treat GI inflammatory disorders such as ulcerative colitis, or UC and Crohn's disease.

On September 7, 2012, we submitted an Investigational New Drug, or IND, application for clinical evaluation of SP-333 to treat IBD. On December 28, 2012, we successfully completed a Phase 1 placebo-controlled, dose escalating, single-dose study of 70 healthy adult volunteers. On January 28, 2013, we commenced a multiple ascending oral dosing study of healthy volunteers in a Phase 1 trial of SP-333 and completed during the quarter ended June 30, 2013.

FV-100

On August 17, 2012, we signed an Asset Purchase Agreement with Bristol-Myers Squibb Company and acquired certain assets related to FV-100, an orally available nucleoside analog, that was currently being developed for the treatment of shingles, a severe, painful skin rash caused by reactivation of the varicella zoster virus - the virus that causes chickenpox. The terms of the Agreement provide for an initial base payment of $1 million, subsequent milestone payments covering (i) marketing (FDA) approval and (ii) on achieving the milestone of aggregate net sales equal to or greater than $125 million, as well as a single digit royalty based on net sales. Please refer to Note 12 to our condensed consolidated financial statements, Item 1 of this Report on Form 10-Q, for discussion of spin-off of FV-100, via our newly formed subsidiary, ContraVir.

On August 8, 2013 ContraVir Pharmaceuticals, Inc., filed an initial Form 10 Registration Statement ("Form 10") with the U.S. Securities and Exchange Commission. The separation contemplates a 100% distribution of the ContraVir shares of common stock, now held by Synergy, to Synergy's stockholders on a pro-rata basis. Completion of the transaction is subject to a number of conditions, including effectiveness of the registration statement filed with the SEC and other customary conditions. The transaction also remains subject to final approval by the Synergy Board of Directors. Synergy notes that there can be no assurance that any separation transaction will ultimately occur, or, if one does occur, its terms or timing.

FINANCIAL OPERATIONS OVERVIEW

From inception through June 30, 2013, we have sustained cumulative net losses of approximately $137.8 million. From inception through June 30, 2013, we have not generated any revenue from operations and expect to incur additional losses to perform further research and development activities and do not currently have any commercial biopharmaceutical products. We do not expect to have such for several years, if at all.

Our product development efforts are thus in their early stages and we cannot make estimates of the costs or the time they will take to complete. The risk of completion of any program is high because of the many uncertainties involved in bringing new drugs to market including the long duration of clinical testing, the specific performance of proposed products under stringent clinical trial protocols, the extended regulatory approval and review cycles, our ability to raise additional capital, the nature and timing of research and development expenses and competing technologies being developed by organizations with significantly greater resources.

On April 16, 2013, we closed a registered direct offering of 16,375,000 shares of its common stock at a price of $5.50 per share. The gross proceeds to us from this sale was approximately $90 million, after deducting underwriting discounts and commissions and other offering expenses payable of approximately $5.5 million.

From January 1, 2013 through June 30, 2013, we sold 758,093 shares of common stock with gross proceeds of approximately $4.7 million, at an average selling price of $6.16 per share, pursuant to the June 2012 controlled equity sales agreement with a placement agent. Selling expenses totaled approximately $0.1million.


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CRITICAL ACCOUNTING POLICIES

Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. Our accounting policies are described in ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA of our Annual Report on Form 10-K as of and for year ended December 31, 2012, filed with the SEC on March 18, 2013. There have been no changes to our critical accounting policies since December 31, 2012.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

For a discussion of our contractual obligations see (i) our Financial Statements and Notes To Consolidated Financial Statements-Note 7. Commitments and Contingencies, and (ii) Item 7 Management Discussion and Analysis of Financial Condition and Results of Operations- Contractual Obligations and Commitment, included in our Annual Report on Form 10-K as of December 31, 2012.

OFF-BALANCE SHEET ARRANGEMENTS

We had no off-balance sheet arrangements as of June 30, 2013.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2013 AND 2012

We had no revenues during the three months ended June 30, 2013 and 2012 because we do not have any commercial biopharmaceutical products and we do not expect to have such products for several years, if at all.

Research and development expenses for the three months ended June 30, 2013 ("Current Quarter") increased approximately $1.5 million or 20%, to approximately $9.1 million from approximately $7.6 million for the three months ended June 30, 2012 ("Prior Year Quarter"). This increase in research and development expenses was largely attributable to the ongoing development of our plecanatide and SP-333 product candidates. The following table sets forth our research and development expenses directly related to our product candidates for the three months ended June 30, 2013 and 2012. These expenses were primarily external costs associated with chemistry, manufacturing and controls including costs of drug substance and product (CMC), as well as preclinical studies and clinical trial costs, as follows:

                                    ($ in thousands)
                                   Three Months Ended
                                        June 30,
Drug candidates                      2013        2012
Plecanatide                      $      6,164   $ 6,044
SP-333                                  1,515       848
Total direct costs               $      7,679   $ 6,892
Total indirect costs                    1,376       734
Total Research and Development   $      9,055   $ 7,626

Indirect research and development costs related to in-house staff compensation, facilities, depreciation, stock-based compensation and research and development support services are not directly allocated to specific drug candidates. Indirect costs were approximately $1.4 million in the Current Quarter, as compared to approximately $734,000 during the Prior Year Quarter primarily due to higher stock based compensation and scientific advisory costs.

General and administrative expenses increased approximately $0.9 million or 47%, to approximately $2.8 million for the Current Quarter from approximately $1.9 million for the Prior Year Quarter. These increased expenses were primarily the result of (i) higher compensation and related employee benefits of approximately $1.1 million, as compared to $0.6 million during the Prior Year Quarter, which were primarily due to higher stock based compensation expense, (ii) higher facilities cost of approximately $0.6 million in the Current Quarter as compared to approximately $0.3 million during the Prior Year Quarter, reflecting our recent move into our larger New York City headquarters which required a one time overlap of rent.

Net loss for the Current Quarter was approximately $10 million as compared to a net loss of approximately $10.6 million incurred for the Prior Year Quarter. This decrease in our net loss of approximately $0.6 million or 5% was a result of a gain from the change in fair value of derivative instruments-warrants of approximately $1.8 million during the Current Quarter, as compared to a loss of approximately $1.3 million during the Prior Year Quarter, offsetting the increases in operating expenses discussed above.


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SIX MONTHS ENDED JUNE 30, 2013 AND 2012

We had no revenues during the six months ended June 30, 2013 and 2012 because we do not have any commercial biopharmaceutical products and we do not expect to have such products for several years, if at all.

Research and development expenses for the six months ended June 30, 2013 ("Current Period") increased approximately $10.4 million or 80%, to approximately $23.4 million from approximately $13 million for the six months ended June 30, 2012 ("Prior Year Period"). This increase in research and development expenses was largely attributable to ongoing development of our plecanatide and SP-333 product candidates. The following table sets forth our research and development expenses directly related to our product candidates for the six months ended June 30, 2013 and 2012. These expenses were primarily external costs associated with chemistry, manufacturing and controls including costs of drug substance and product (CMC), as well as preclinical studies and clinical trial costs, as follows:

                                   ($ in thousands)
                                   Six Months Ended
                                       June 30,
Drug candidates                    2013        2012
Plecanatide                      $  14,853   $ 10,677
SP-333                               5,423        954
Total direct costs               $  20,276   $ 11,631
Total indirect costs                 3,123      1,333
Total Research and Development   $  23,399   $ 12,964

Indirect research and development costs related to in-house staff compensation, facilities, depreciation, stock-based compensation and research and development support services are not directly allocated to specific drug candidates. Indirect costs were approximately $3.1 million in the Current Period, as compared to approximately $1.3 million during the Prior Year Period primarily due to higher stock based compensation and scientific advisory costs.

General and administrative expenses increased approximately $2.4 million or 65%, to approximately $6.1 million for the Current Period from approximately $3.7 million for the Prior Year Period. These increased expenses were primarily the result of (i) higher compensation and related employee benefits of approximately $2.4 million, as compared to $1.2 million during the Prior Year Period, which were primarily due to higher stock based compensation expense, (ii) higher facilities cost of approximately $1.1 million in the Current Period as compared to approximately $0.6 million during the Prior Year Period, reflecting our recent move into our larger New York City headquarters and (iii) higher corporate legal services of approximately $0.9 million for the Current Period, as compared to $0.7 million for the Prior Year Period, primarily as a result of ongoing class action litigation in connection with the Callisto merger.

Net loss for the Current Period was approximately $28.8 million as compared to a net loss of approximately $17.6 million incurred for the Prior Year Period. This increase in our net loss of approximately $11.2 million or 64% was a result of the increases in operating expenses discussed above, offset by a gain resulting from the change in fair value of derivative instruments-warrants of $710,000 during the Current Period, as compared to a loss of approximately $1.3 million during the Prior Year Period.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2013, we had approximately $8.3 million in cash and cash equivalents and approximately $84 million in available for sale securities, compared to approximately $12.4 million in cash and cash equivalents and approximately $20.1 million in available for sale securities as of December 31, 2012. Net cash used in operating activities was approximately $28.6 million for the six months ended June 30, 2013 as compared to approximately $13.8 million during the six months ended June 30, 2012. Approximately $89.2 million was provided by financing transactions for the six months ended June 30, 2013, as compared to $48.4 million provided by financing activity for the six months ended June 30, 2012. As of June 30, 2013, we had working capital of approximately $86.7 million, as compared to working capital of $26.7 million on December 31, 2012.

As of June 30, 2013, we had an accumulated deficit of approximately $137.8 million and expect to incur significant and increasing operating losses for the next several years as the we continue to expand our research, development and clinical trials of plecanatide and SP-333 for the treatment of GI diseases and disorders, acquire or license technologies, advance other product candidates into clinical development, seek regulatory approval and, if FDA approval is received, commercialize products. Because of the numerous risks and uncertainties associated with product development efforts, we are unable to predict the extent of any future losses or when we will become profitable, if at all.


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We may be required to raise additional capital to continue the development and commercialization of current product candidates and to continue to fund operations at the current cash expenditure levels. We cannot be certain that additional funding will be available on acceptable terms, or at all. Recently worldwide economic conditions and the international equity and credit markets have significantly deteriorated and may remain difficult for the foreseeable future. These developments will make it more difficult to obtain additional equity or credit financing, when needed. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct delay, scale back or discontinue the development and/or commercialization of one or more product candidates;
(ii) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize its self on unfavorable terms.

PROPERTIES.

On June 14, 2013, we moved to our corporate headquarters and clinical development offices to the 20th floor of 420 Lexington Avenue from the 16th floor, resulting in approximately 50% more space, 6,722 square feet vs. 4,308 in suite 1609. The new lease has a monthly rate of approximately $35,000, expires March 31, 2019.

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