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GEVA > SEC Filings for GEVA > Form 10-Q on 4-Nov-2013All Recent SEC Filings

Show all filings for SYNAGEVA BIOPHARMA CORP

Form 10-Q for SYNAGEVA BIOPHARMA CORP


4-Nov-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" as defined under federal securities laws. Many of these statements can be identified by the use of words such as "believes," "expects," "anticipates," "plans," "may," "will," "projects," "continues," "estimates," "potential," "opportunity" or the negative versions of these terms and other similar expressions. Our actual results or experience could differ significantly from the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in "Risk Factors," in Part II, Item 1A of this Quarterly Report on Form 10-Q. You should carefully consider that information before you make an investment decision.

We cannot guarantee any future results, levels of activity, performance or achievements. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this Quarterly Report on Form 10-Q as anticipated, believed, estimated or expected. The forward-looking statements contained in this Quarterly Report on Form 10-Q represent our estimates as of the date of this Quarterly Report on Form 10-Q (unless another date is indicated) and should not be relied upon as representing our expectations as of any other date. While we may elect to update these forward-looking statements, we specifically disclaim any obligation to do so.

The following discussion of our financial condition and results of operations should be read in conjunction with our Financial Statements and the related Notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Our Business

We are a biopharmaceutical company focused on the discovery, development, and commercialization of therapeutic products for patients with rare diseases for which there is high unmet medical need. Our most advanced pipeline programs are enzyme replacement therapies for lysosomal storage diseases (LSDs). Our lead program, sebelipase alfa, is in global Phase 3 clinical trials and our next program, SBC-103, is in the late stages of preclinical testing.

Our Sebelipase Alfa Program

In February 2013, we announced the start of enrollment and the first patient dosed in the ARISE (Acid Lipase Replacement Investigating Safety and Efficacy) trial. ARISE is a global, Phase 3, randomized, double-blind, placebo-controlled study of sebelipase alfa in children and adults with lysosomal acid lipase (LAL) Deficiency. LAL Deficiency is a rare autosomal recessive LSD caused by a marked decrease in LAL enzyme activity. LAL Deficiency presenting in children and adults, sometimes called Cholesteryl Ester Storage Disease (CESD), is an underappreciated cause of cirrhosis and accelerated atherosclerosis. Infants with LAL Deficiency, historically called Wolman disease, show very rapid progression with death, usually in the first six months of life. Affected infants develop severe malabsorption, growth failure and liver complications.

Patients enrolled in the trial are randomized to every other week infusions of either sebelipase alfa (1 mg/kg) or placebo on a one-to-one basis for the double-blind treatment period of 20 weeks. Results from the double-blind period are intended to be used to demonstrate efficacy and safety in support of global regulatory submissions for product registration. Patients who participate in the trial may qualify to enter a long-term, open-label extension period. The primary endpoint of the trial is normalization of alanine aminotransferase (ALT), a marker of liver damage, which will be measured at the completion of the double-blind treatment period (week 20). Key secondary endpoints include the reduction from baseline to week 20 in low density lipoprotein cholesterol (LDL-C), non-high density lipoprotein cholesterol (non-HDL-C), triglycerides, normalization of aspartate transaminase (AST) and the increase in HDL-C. Additional secondary endpoints, including reductions in liver fat content and liver volume and improvements in liver pathology, will be examined in a proportion of patients who undergo these assessments. Deficiency of LAL enzyme activity is intended to be confirmed during screening with a dried blood spot biochemical enzyme activity assay performed by Laboratory Corporation of America Holdings, the central diagnostic testing laboratory performing the tests.

In addition to the ARISE trial, we conducted a Phase 1/2 trial and have an ongoing extension study in adults with LAL Deficiency. Nine adults with LAL Deficiency with a median age of 29 years (range 19-45) enrolled in the Phase 1/2 trial. Seven of nine patients in the Phase 1/2 trial had a history of hepatomegaly and/or splenomegaly, and two of nine patients had evidence of more advanced liver disease, including cirrhosis and portal hypertension. All nine patients had a history of dyslipidemia, and seven of nine patients also had a history of other cardiovascular conditions. Seven of nine patients received treatment with lipid modifying therapies including statins, ezetimibe and other medications.

Eight of nine patients continued treatment with sebelipase alfa as part of an ongoing, open-label extension study. The ninth patient delayed entering the extension study and, while off treatment, experienced progression of liver disease requiring an urgent liver transplant. As previously reported, one patient paused treatment but was subsequently deemed eligible to resume treatment by an independent safety committee. One patient continues on treatment and has not yet reached the 78-week time point.


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At 78 weeks of treatment with sebelipase alfa, patients continued to have sustained reductions in both ALT and AST, frequently into the normal range, from the pre-treatment baseline. In addition, sebelipase alfa maintained improvement in dyslipidemia associated with LAL Deficiency with decreases in LDL and triglycerides and increases in HDL from the pre-treatment baseline to week 78 of the extension study. Sebelipase alfa also reduced patients' liver fat fraction and liver volume from the beginning of the extension study to week 52, the latest time point for these assessments. Liver fat fraction and liver volume were measured by multi-echo magnetic resonance imaging (MRI).

Sebelipase alfa was generally well tolerated through 78 weeks of the extension study. Most adverse events were mild and unrelated to sebelipase alfa. Infusion-related reactions were uncommon and the majority were mild and gastrointestinal in nature (diarrhea, abdominal cramping). No anti-drug antibodies have been detected in the patients tested to date in either the initial portion or extension portion of the Phase 1/2 study. Two serious adverse events (cholecystitis/cholelithiasis) considered unlikely related to sebelipase alfa occurred in one patient and this patient continues treatment with sebelipase alfa in the study. No drug-related serious adverse events have been reported in this study to date

We are currently enrolling infants with LAL Deficiency in a Phase 2/3 open-label trial with sebelipase alfa. We have presented data for the first of the infants due to the fact that the infant started treatment on a compassionate use basis before the initiation of clinical trials with sebelipase alfa. This infant has received weekly infusions since April 2011, initially as part of the compassionate use program and now as part of the Phase 2/3 trial. The infant has tolerated the treatment well and continues to demonstrate normalization of growth and improvements in other disease-related abnormalities consistent with sebelipase alfa's preclinical data.

Sebelipase alfa has been granted orphan designation by the U.S. Food and Drug Administration (FDA), the European Medicines Agency (EMA), and the Japanese Ministry of Health, Labour and Welfare. Additionally, sebelipase alfa received fast track designation by the FDA, and Breakthrough Therapy designation by the FDA for LAL Deficiency presenting as infants.

Our SBC-103 Program

Our SBC-103 program is another enzyme replacement therapy for an LSD known as mucopolysaccharidosis type IIIB (MPS IIIB), or Sanfilippo B. The mucopolysaccharidoses (MPS) consist of a group of rare LSDs caused by a deficiency of enzymes needed to break down complex sugars called glycosaminoglycans. The MPS III syndromes (also known as Sanfilippo syndromes) share complications with other MPS diseases but represent a clinically distinct subset with marked central nervous system degeneration. MPS IIIB is caused by a marked decrease in alpha-N-acetyl-glucosaminidase (NAGLU) enzyme activity which leads to the buildup of abnormal amounts of heparan sulfate (HS) in the brain and other organs. The accumulation of abnormal HS, particularly in the central nervous system, leads to severe cognitive decline, behavioral problems, speech loss, increasing loss of mobility, and premature death.

SBC-103 is a recombinant form of the human NAGLU enzyme which we are developing as an enzyme replacement therapy for MPS IIIB. Using various dosing approaches, including intravenous administration, SBC-103 reduced HS substrate storage in the brain, liver and kidney in an MPS IIIB animal model. SBC-103 has been granted orphan designation by the FDA and the EMA. We plan to be in clinical trials with SBC-103 in mid-2014.

About our additional pipeline programs and manufacturing platform

Our additional pipeline programs include other proteins targeting rare diseases at various stages of preclinical development. These diseases are characterized by significant morbidity and mortality and are selected based on scientific rationale, high unmet medical need, potential to impact disease course and strategic alignment with our corporate focus. In addition to these first-mover pipeline programs, we are leveraging the manufacturing platform further to develop improved biologic therapies for diseases with high unmet medical need.

Our ability to initiate new programs is based on our proprietary manufacturing platform. This platform can produce glycoproteins with favorable structural properties for bio-distribution and cell targeting in comparison to glycoproteins produced from other sources.

Financial Operations Overview

General

Our future operating results will depend on the progress of drug candidates currently in our research and development pipeline. The results of our operations will vary significantly from year-to-year and quarter-to-quarter and will depend largely on, among other factors, the cost and outcome of any preclinical development or clinical trials then being conducted.

A discussion of certain risks and uncertainties that could affect our liquidity, capital requirements and ability to raise additional funds is set forth under the section entitled "Risk Factors" in this Quarterly Report on Form 10-Q.


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Revenue

Royalty Revenue

Royalty revenues are recognized in the period earned, based on contract terms when reported sales are reliably measurable and collectability is reasonably assured. Royalty revenue relates to amounts earned from the sale of FUZEON by Hoffman-La Roche, Inc. ("Roche"). The FUZEON royalty stream was acquired in the Reverse Merger in the fourth quarter of fiscal 2011.

Collaboration and License Revenue

Collaboration and license revenue primarily relates to our collaboration agreements with Mitsubishi Tanabe whereby we utilize our proprietary expression technology in two development programs, in exchange for upfront license payments, funded development, and the potential for additional payments upon the successful completion of the development programs. Under the first program, which was entered into in August 2011, we received an upfront license payment of $3.0 million, on-going funding of development costs, and the potential for an additional payment of $3.0 million due upon the successful completion of the initial development. Additionally, we entered into a second agreement in March 2012, where we received an upfront license payment of $9.0 million, on-going funding of development costs, and the potential for an additional payment of $3.0 million due upon the successful completion of the initial development stage of the second program. We are recognizing revenue on consideration received under a proportional performance method. Under both agreements, Mitsubishi Tanabe has an option to obtain an exclusive royalty-bearing license, with the right to grant sublicenses, to further develop and commercialize the licensed compound. If Mitsubishi Tanabe exercises its option, the parties intend to negotiate a follow-on collaboration and license agreement that may include potential future development and commercial sales based milestone payments, and potential royalty payments.

Other Revenue

Other revenues relate to a National Institutes of Health ("NIH") grant where revenue was recognized through the first quarter of fiscal 2012.

Research and Development

We expense research and development costs as incurred. Research and development expense consists of costs incurred to discover, research and develop drug candidates, including personnel and facility-related expenses, outside contracted services including clinical trial costs, manufacturing and process development costs, research costs, outside consulting services and other external costs. Research and development expense includes any costs associated with generating collaboration or grant revenue.

General and Administrative

General and administrative expense consists primarily of salaries, stock-based compensation expense and other related costs for personnel in executive, business development, commercial, finance, human resource, legal, information technology, and support personnel functions. We also expense patent costs and expenses associated with maintaining our intellectual property as incurred. Other costs include facility costs not otherwise included in research and development expense, insurance, and professional fees for legal, accounting and commercial services.

Amortization of Developed Technology

We provide for the cost of amortization of developed technology, computed using an accelerated method based on the undiscounted cash flows received from the FUZEON royalty stream, in proportion to the estimated total undiscounted cash flows.

Interest Income, net

Interest income relates to interest earned on our cash equivalent and short-term investment balances.

Results of Operations

Three and Nine Months Ended September 30, 2013 and 2012

Revenues

The following table presents total revenue for the three months ended
September 30, 2013 and 2012, respectively (in thousands):



                                        Three Months Ended
                                           September 30,
                                         2013          2012       $ Change       % Change

  Royalty revenue                     $    1,054      $ 2,132     $  (1,078 )          (51 )%
  Collaboration and license revenue          315        3,296        (2,981 )          (90 )

  Total revenue                       $    1,369      $ 5,428     $  (4,059 )          (75 )%


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Total revenues decreased by approximately $4.1 million for the three months ended September 30, 2013, as compared to the comparable period of the prior year. The decrease in revenues was primarily the result of lower collaboration revenue and FUZEON royalty revenue.

Royalty revenues of $1.1 million decreased $1.1 million from the comparable period of the prior year and relate to the royalty payment earned from Roche, based on total worldwide net sales of FUZEON. Royalty revenues were lower, the result of a general decrease in sales as compared to the prior year.

Collaboration and license revenue for the three months ended September 30, 2013 primarily relates to revenue recognized from development programs with Mitsubishi Tanabe. For the three months ended September 30, 2013, we recognized $0.2 million and $0.1 million related to the first and second Mitsubishi Tanabe programs, respectively. In the comparable three month period of the prior year, we recognized $0.4 million and $2.9 million related to the first and second programs, respectively. In the prior year, we performed a greater percentage of the projected hours, particularly related to the second Mitsubishi Tanabe program, for which we received an upfront payment of $9 million. As we are approaching the end of this project and our level of hours and effort decrease, collaboration and license revenue are expected to be lower related to the second program.

The following table presents total revenue for the nine months ended September 30, 2013 and 2012, respectively (in thousands):

                                        Nine Months Ended
                                          September 30,
                                        2013          2012        $ Change       % Change

  Royalty revenue                     $   5,703     $  5,028     $      675            13  %
  Collaboration and license revenue       4,197        4,990           (793 )           16 %
  Other revenue                              -            56            (56 )           -

  Total revenue                       $   9,900     $ 10,074     $     (174 )           (2 )%

Total revenues decreased by approximately $0.2 million for the nine months ended September 30, 2013, as compared to the comparable nine month period of the prior year. The increase in period-over-period total revenues was primarily the result of lower collaboration and license revenues of $0.8 million, partially offset by higher FUZEON royalty revenue of $0.7 million.

The increase in royalty revenue is primarily due to higher than normal royalty revenues in the second quarter of fiscal 2013, which totaled $2.9 million. FUZEON royalty revenues are unpredictable, as we are not marketing the product and large scale sales in certain regions can cause quarter to quarter variability.

For the nine months ended September 30, 2013, we recognized $1.0 million and $3.2 million related to the first and second Mitsubishi Tanabe programs, respectively. For the nine months ended September 30, 2012, we recognized $1.7 million and $3.3 million for the programs, respectively. As of September 30, 2013, our deferred revenue balance related to both of the Mitsubishi Tanabe collaboration agreements, totaled $1.0 million and $0.8 million, respectively. We expect to recognize both the upfront payments and additional funded development payments related to both arrangements over the next year, in proportion to our performance under the arrangements.

Research and Development Expenses

Research and development expenses for the three months ended September 30, 2013
and 2012 are summarized as follows (in thousands):



                                                 Three Months Ended
                                                   September 30,
                                                 2013           2012        $ Change       % Change
Compensation and benefits-related             $    4,504      $  2,719      $   1,785             66 %
Clinical trials and manufacturing                 10,950         4,249          6,701            158
In-process research and development                   -            344           (344 )           -
Development and other external services            4,262         1,724          2,538            147
Facilities and other                               1,930           848          1,082            128
Stock-based compensation expense                   1,030           495            535            108

Total research and development expense        $   22,676      $ 10,379      $  12,297            118 %


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Research and development expense increased by approximately $12.3 million, or 118%, to $22.7 million for the three months ended September 30, 2013 as compared to $10.4 million for the three months ended September 30, 2012. The increase in total research and development expense is due to increased clinical trial costs, manufacturing fees and other development related external services associated with on-going development of sebelipase alfa, SBC-103 and our pipeline programs, as well as higher compensation expense from hiring additional staff to move our programs forward. Higher facilities expenses primarily relates to increased costs to operate our manufacturing facilities and depreciation costs for both manufacturing and lab facilities. Additionally, for the three months ended September 30, 2013, research and development expense includes $1.0 million of stock-based compensation expense, compared to $0.5 million in the comparable prior year period. We expect research and development expense to continue to increase as development activities for sebelipase alfa, SBC-103 and our other pipeline programs continue.

Research and development expenses for the nine months ended September 30, 2013 and 2012 are summarized as follows (in thousands):

                                            Nine Months Ended
                                              September 30,
                                            2013          2012       $ Change      % Change
Compensation and benefits-related         $  12,413     $  7,296     $   5,117            70 %
Clinical trials and manufacturing            24,214       10,292        13,922           135
In-process research and development           2,500          344         2,156           627
Development and other external services       7,353        3,403         3,950           116
Facilities and other                          5,582        2,178         3,404           156
Stock-based compensation expense              2,406          926         1,480           160

Total research and development expense    $  54,468     $ 24,439     $  30,029           123 %

Research and development expense increased by approximately $30.0 million, or 123%, to $54.5 million for the nine months ended September 30, 2013 as compared to $24.4 million for the nine months ended September 30, 2012. The increase in total research and development expense is due to increased clinical trial costs, manufacturing fees and other development related external services associated with on-going development of sebelipase alfa, SBC-103 and our pipeline programs, as well as higher compensation expense from hiring additional staff to move our programs forward. Also contributing to the period-over-period increase in research and development expense was higher in-process research and development of $2.2 million and higher facilities and other expenses of $3.4 million. In-process research and development expense relates to an upfront license payment made to Shire Human Genetics Therapies, Inc. and its affiliates ("Shire") to sublicense multiple patent and patent applications relating to the use of LAL for the treatment of LAL Deficiency and atherosclerosis, which complement our intellectual property portfolio covering our LAL Deficiency program. Higher facilities expenses primarily relate to increased costs to operate our manufacturing and lab facilities and depreciation costs for our manufacturing and lab facilities. Additionally, for the nine months ended September 30, 2013, research and development expense includes $2.4 million of stock-based compensation expense, compared to $1.0 million in the comparable prior year period. We expect research and development expense to continue to increase as development activities for sebelipase alfa, SBC-103 and our other pipeline programs continue.

General and Administrative Expenses

General and administrative expenses for the three months ended September 30,
2013 and 2012 are summarized as follows (in thousands):



                                                 Three Months Ended
                                                    September 30,
                                                 2013            2012          $ Change      % Change
Compensation and benefits-related             $    2,630        $ 1,963       $      667            34 %
External services                                  2,027          1,111              916            82
Facilities related and other                         291            110              181           165
Stock-based compensation expense                   1,649          1,060              589            56

Total general and administrative expense      $    6,597        $ 4,244       $    2,353            55 %


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General and administrative expense increased by approximately $2.4 million to $6.6 million for the three months ended September 30, 2013 as compared to $4.2 million for the comparable period of the prior year. The increase was primarily due to higher compensation-related expenses of $1.3 million, including increased stock-based compensation expense of $0.6 million, resulting from hiring additional staff to support the growing company and commercial preparations. External service costs also contributed $0.9 million to the period-over-period increase, primarily due to increased consulting, accounting, patent and commercial related activities.

General and administrative expenses for the nine months ended September 30, 2013 and 2012 are summarized as follows (U.S. dollars in thousands):

                                                Nine Months Ended
                                                  September 30,
                                               2013            2012          $ Change       % Change
Compensation and benefits-related            $   7,773       $  4,916       $    2,857             58 %
External services                                6,508          3,647            2,861             78
Facilities related and other                       554            347              207             60
Stock-based compensation expense                 3,859          2,141            1,718             80

Total general and administrative expense     $  18,694       $ 11,051       $    7,643             69 %

General and administrative expense increased by approximately $7.6 million to $18.7 million for the nine months ended September 30, 2013 as compared to $11.1 million for the comparable period of the prior year. The increase was primarily due to higher compensation-related expenses of $4.6 million, including increased stock-based compensation expense of $1.7 million, resulting from hiring additional staff to support the growing company and commercial preparations. External service costs also contributed $2.9 million to the period-over-period increase in expense and were primarily due to increased consulting, accounting, patent and commercial related activities.

Amortization of Developed Technology

Costs recognized for the amortization of developed technology for the three and
nine months ended September 30, 2013 and 2012 are summarized as follows (in
thousands):



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