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GEVA > SEC Filings for GEVA > Form 10-Q on 31-Jul-2014All Recent SEC Filings

Show all filings for SYNAGEVA BIOPHARMA CORP

Form 10-Q for SYNAGEVA BIOPHARMA CORP


31-Jul-2014

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. These forward-looking statements address, among other matters, our plans to submit the Phase 3 ARISE (Acid Lipase Replacement Investigating Safety and Efficacy) trial results for future publication, our plans and timing to submit sebelipase alfa for regulatory approval, the plans for additional clinical studies for sebelipase alfa, the timing for the initiation of clinical trial sites and dosing of the first patient for SBC-103 and our plans to advance additional programs into the clinic. Our actual results or experience could differ significantly from the forward-looking statements. Factors that could cause or contribute to these differences include inaccurate assumptions and a broad variety of risks and uncertainties some of which are known, including, unanticipated delays in our submission timelines, risk that the outcomes of our clinical trials may not support registration or further development of our product candidates due to safety, efficacy or other reasons, the content and timing of decisions by the U.S. Food and Drug Administration (FDA) and other regulatory authorities, and the risks 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. Our most advanced pipeline programs are enzyme replacement therapies for lysosomal storage diseases (LSDs) and we have additional protein therapeutic programs for other rare diseases, which are currently at different stages of preclinical development. These programs are selected based on scientific rationale, unmet medical need within the patient population, potential to substantially impact disease course, and strategic alignment with our corporate and commercial efforts. Our lead program, sebelipase alfa for lysosomal acid lipase deficiency (LAL Deficiency), is in global Phase 3 clinical trials.

Sebelipase Alfa for 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, historically called Cholesteryl Ester Storage Disease, is an underappreciated cause of cirrhosis and accelerated atherosclerosis. These complications are due to the buildup of fatty material in the liver, blood vessel walls and other tissues as a result of the decreased LAL enzyme activity. Infants presenting with LAL Deficiency, historically called Wolman disease, show very rapid progression, with death usually in the first six months of life. Affected infants develop growth failure, severe liver complications and malabsorption.

Sebelipase alfa is a recombinant form of the human LAL enzyme being developed by us as an enzyme replacement therapy for LAL Deficiency. We are evaluating sebelipase alfa in global Phase 3 clinical trials in infants, children and adults with LAL Deficiency. Sebelipase alfa has been granted orphan designation by the 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 in infants.

Top-Line Results from Phase 3 Study of Sebelipase Alfa in Children and Adults with LAL Deficiency

On June 30, 2014, we announced that the global, randomized, double-blind, placebo-controlled Phase 3 ARISE trial of sebelipase alfa in 66 children and adults with LAL Deficiency met the primary endpoint of normalization of alanine aminotransferase (ALT), a marker of liver injury (p=0.027). In addition, sebelipase alfa demonstrated statistically significant improvement in multiple other disease-related abnormalities as measured by a number of secondary endpoints.


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LAL Deficiency patients enrolled in the trial presented with multiple clinically important abnormalities at baseline. Fibrosis and/or cirrhosis was documented in 100% (32/32) of patients who had baseline biopsies even though the median age of patients enrolled in the trial was only 13 years old. Dyslipidemia was common at baseline, with a median low-density lipoprotein (LDL) cholesterol of 204 mg/dl (which is in the very high category of >190 mg/dl), and an abnormally low median high-density lipoprotein (HDL) cholesterol of 32.5 mg/dl.

Impact on Dyslipidemia. In addition to demonstrating a statistically significant improvement in ALT normalization, sebelipase alfa improved dyslipidemia with statistically significant reductions in LDL cholesterol (p<0.001), non-HDL cholesterol (p<0.001) and triglycerides (p=0.038), as well as a statistically significant increase in HDL cholesterol (p<0.001), all compared with placebo from baseline to the completion of the double-blind treatment period of 20 weeks.

Impact on Other Liver Abnormalities. Statistically significant improvements were also seen in AST normalization (p<0.001) and in liver fat fraction as assessed by multi-echo gradient echo (MEGE) magnetic resonance imaging (MRI) (p<0.001). Paired liver biopsies at baseline and at 20 weeks were available in 26/66 patients. Of these, 63% of patients treated with sebelipase alfa (10/16) had improvement in hepatic steatosis compared to 40% of patients on placebo (4/10). This difference did not reach statistical significance. The hierarchical fixed-sequence testing statistical methodology did not allow for a formal assessment of the remaining secondary endpoint, but decreased liver volume as assessed by MRI was observed with sebelipase alfa compared with placebo.

Sebelipase Alfa Safety Overview. The sebelipase alfa and placebo arms had a similar number of patients with reported adverse events during the double-blind treatment period. Most adverse events were mild in nature and considered unrelated to sebelipase alfa. The adverse events occurring in three or more sebelipase alfa treated patients, and which occurred more commonly in treated than placebo patients, were headache (28% versus 20%), pyrexia or body temperature increased (25% versus 23%), oropharyngeal pain (17% versus 3%), nasopharyngitis (11% versus 10%), abdominal pain (8% versus 3%), constipation (8% versus 3%), nausea (8% versus 7%) and asthenia (8% versus 3%). One patient discontinued from the double-blind portion of the clinical trial. This patient experienced a serious adverse event described as an atypical infusion related reaction following treatment with sebelipase alfa. Four patients in the placebo arm and two patients in the sebelipase alfa arm experienced infusion associated reactions during the double-blind portion of the study.

Clinical Trial Design. The ARISE trial enrolled 66 children and adults with LAL Deficiency. Patients enrolled in the trial were randomized on a one-to-one basis to every other week infusions of sebelipase alfa (1 mg/kg) or placebo for the double-blind treatment period of 20 weeks. Details of the Phase 3 ARISE trial will be submitted to a future medical conference and for publication.

Together with safety and efficacy data from the Phase 2/3 study in infants with rapidly progressive LAL Deficiency, in which six of the nine infants enrolled met the primary endpoint of survival to 12 months of age, data from this Phase 3 study in children and adults will be used to support global submissions for product registration. We plan to complete submission of a Biologic License Application (BLA) to the FDA and a Marketing Authorization Application (MAA) to the European Medicines Agency (EMA) for sebelipase alfa for the treatment of LAL Deficiency by the end of the first quarter of 2015.

We continue to progress additional clinical trials to expand the clinical experience with sebelipase alfa in LAL Deficiency. The data from these trials are not required for the planned regulatory submissions for sebelipase alfa for LAL Deficiency. Eligible patients may include those who were not able to enroll into one of the previously completed studies based on completion of enrollment, age, disease presentation, previous treatment by hematopoietic stem cell or liver transplantation, or disease characteristics that would have precluded participation in a placebo-controlled study.

Study LAL-CL06 is an open-label trial to assess the safety of sebelipase alfa in a broad LAL Deficiency patient population. Infants (greater than eight months of age), children and adults with LAL Deficiency with evidence of advanced liver disease or disease recurrence in patients with past liver or hematopoietic transplant, among other disease manifestations can be included in this study. Clinical trial site initiation began in April 2014 with the first of the patients dosed in July 2014.


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Study LAL-CL08 is an open-label trial to expand the clinical experience with sebelipase alfa in additional infants. The first of these patients was initially dosed under compassionate use in April 2014 and subsequently entered into this study in June 2014.

Additional studies may be initiated in order to further evaluate safety and efficacy and additional patients may also receive treatment under expanded access or compassionate use mechanisms unless or until we receive marketing approval of sebelipase alfa.

SBC-103 for MPS IIIB

Our SBC-103 program is another enzyme replacement therapy for an LSD known as MPS IIIB. 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. SBC-103 has been granted orphan designation by the FDA and the EMA. We plan to initiate clinical trial sites later this year and dose the first patient with intravenous administration of SBC-103 in a Phase 1/2 study in patients with mucopolysaccharidosis IIIB (MPS IIIB) by late 2014 or early 2015. This is based upon longer-term preclinical toxicology data expected during the second half of 2014 that could support a longer Phase 1/2 clinical trial than originally planned.

Using various dosing approaches, SBC-103 reduced HS substrate storage in the brain, liver and kidney in an MPS IIIB animal model. At the LDN WORLD Symposium in February 2014, we presented data from a preclinical study with SBC-103 in a mouse model of MPS IIIB. Data from this study confirmed that SBC-103 delivered by intravenous and intrathecal administration reduced abnormal heparan sulfate levels in the brain of NAGLU-deficient mice. In addition, intravenously administered SBC-103 increased NAGLU enzyme activity levels in the brain of a MPS IIIB mouse model and increased cerebrospinal fluid NAGLU enzyme activity in non-human primates in preclinical studies. These findings suggest that SBC-103 may have properties that allow it to cross the normal blood-brain barrier.

Additional data at the meeting supporting this observation concerned an investigation of SBC-103 in an in vitro model of the blood-brain barrier. In this study, SBC-103 was effectively transported from the apical side (representing the blood) to the opposite basolateral side (representing the brain tissue). The addition of mannose-6-phospate inhibited directional transport by more than 90%, suggesting that the observed transport of SBC-103 was mediated by the mannose-6-phosphate receptor. These data suggest that the previously reported effects of intravenous SBC-103 on central nervous system substrate accumulation in an MPS IIIB disease model may be mediated by specific cellular transport across the blood-brain barrier.

Additional Pipeline Programs

We continue to plan to advance two additional programs into clinical trials by the end of 2016. Our pipeline programs include 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 and commercial focus. We own the worldwide commercial rights to these programs.

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 and efforts for registration and commercialization of our products.


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A discussion of certain risks and uncertainties that could affect our 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.

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).

Collaboration and License Revenue

Collaboration and license revenue relates to revenue from the licensing of our intellectual property. In 2013 and 2012, revenues were primarily driven by our collaboration agreements with Mitsubishi Tanabe Corporation (Mitsubishi Tanabe) whereby we utilized our proprietary expression technology in two development programs, in exchange for upfront license payments and funded development. Under the first agreement, which was entered into in August 2011, we received an upfront license payment of $3.0 million and on-going funding of development costs. Additionally, we entered into a second agreement in March 2012, where we received an upfront license payment of $9.0 million and on-going funding of development costs. Both programs were completed in the fourth quarter of 2013. We recognized revenue under a proportional performance method.

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, medical affairs and regulatory costs outside consulting services, research license fees, depreciation and amortization of lab facilities, lab supplies and other external costs. We accrue costs for clinical trial activities based upon estimates of the services received and related expenses incurred that have yet to be invoiced by the vendors that perform the services. Research and development expense includes any costs associated with generating collaboration or grant revenue.

Selling, General and Administrative

Selling, general and administrative expense consists primarily of salaries, stock-based compensation expense and other related costs for personnel in commercial, executive, business development, finance, human resource, legal, information technology, and support personnel functions. 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.

Provision for Income Taxes

Provision for income taxes is comprised of the taxes currently payable as a result of foreign operations. We have certain international subsidiaries that are profitable on a stand-alone basis. Accordingly, a tax provision is reflected for the taxes incurred in such jurisdictions based on intercompany service arrangements.


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Results of Operations

Three and Six Months Ended June 30, 2014 and 2013

Revenues

The following tables present total revenue for the three and six months ended
June 30, 2014 and 2013, respectively (in thousands):



                                       Three Months Ended
                                            June 30,
                                        2014          2013       $ Change       % Change

 Royalty revenue                     $    2,240      $ 2,944     $    (704 )          (24 ) %
 Collaboration and license revenue          103          469          (366 )          (78 )

 Total revenue                       $    2,343      $ 3,413     $  (1,070 )          (31 )%

                                        Six Months Ended
                                            June 30,
                                        2014          2013       $ Change       % Change

 Royalty revenue                     $    3,687      $ 4,649     $    (962 )          (21 ) %
 Collaboration and license revenue          242        3,882        (3,640 )          (94 )%

 Total revenue                       $    3,929      $ 8,531     $  (4,602 )          (54 )%

Total revenue decreased by approximately $1.1 million and $4.6 million for the three and six months ended June 30, 2014, respectively, as compared to the same periods of the prior year. The decrease related to lower collaboration license and royalty revenues. In the prior year, collaboration and license revenue was driven by the first and second Mitsubishi Tanabe programs. These collaboration programs were completed in the fourth quarter of 2013 and as a result, collaboration and licensing revenue was lower for the three and six months ended June 30, 2014. In addition, royalty revenue decreased $0.7 million and $1.0 million, respectively, from the comparable prior year periods. Royalty payments were lower as a result of a general decrease in sales of FUZEON as compared to the prior year.

We expect license and collaboration revenue to continue to decrease in 2014 due to the completion of the Mitsubishi Tanabe programs in 2013. In addition, we estimate that royalty revenue in 2014 will be lower than 2013. FUZEON royalty revenues are unpredictable, as we are not marketing the product and inconsistent sales in certain regions can cause period to period variability.

Research and Development Expenses

Research and development expenses for the three months ended June 30, 2014 and
2013 are summarized as follows (in thousands):



                                                 Three Months Ended
                                                      June 30,
                                                 2014           2013        $ Change        % Change
Compensation and benefits-related             $    6,228      $  4,171      $   2,057              49 %
Clinical trials and manufacturing                 22,473         7,254         15,219             210
In-process research and development                   -          2,500         (2,500 )            -
Development and other external services            5,830         1,856          3,974             214
Facilities related and other                       3,156         1,961          1,195              61
Stock-based compensation expense                   1,841           712          1,129             159

Total research and development expense        $   39,528      $ 18,454      $  21,074             114 %

Research and development expense increased by approximately $21.1 million, or 114%, to $39.5 million for the three months ended June 30, 2014 as compared to $18.5 million for the prior year. The increase in total research and development


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expense is due to increased clinical trial costs, external manufacturing fees, toxicology studies 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 facilities and other expenses of $1.2 million. Higher facilities expenses primarily relate to increased depreciation expense related to manufacturing and lab facilities fixed asset additions, as well as higher costs to operate our facilities. For the three months ended June 30, 2014, research and development expense includes $1.8 million of stock-based compensation expense, compared to $0.7 million in the prior year.

Research and development expenses for the six months ended June 30, 2014 and 2013 are summarized as follows (in thousands):

                                            Six Months Ended
                                                June 30,
                                            2014         2013       $ Change       % Change
Compensation and benefits-related         $ 11,804     $  7,909     $   3,895             49 %
Clinical trials and manufacturing           36,542       13,264        23,278            176
In-process research and development             -         2,500        (2,500 )           -
Development and other external services      9,947        3,091         6,856            222
Facilities related and other                 5,795        3,652         2,143             59
Stock-based compensation expense             3,308        1,376         1,932            140

Total research and development expense    $ 67,396     $ 31,792     $  35,604            112 %

Research and development expense increased by approximately $35.6 million, or 112%, to $67.4 million for the six months ended June 30, 2014 as compared to $31.8 million for the six months ended June 30, 2013. The increase in total research and development expense is due to increased clinical trial costs, external manufacturing fees, toxicology studies 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 facilities and other expenses of $2.1 million. Higher facilities expenses primarily relate to increased depreciation expense related to manufacturing and lab facilities fixed asset additions, as well as higher costs to operate our facilities. For the six months ended June 30, 2014, research and development expense includes $3.3 million of stock-based compensation expense, compared to $1.4 million in the prior year.

We expect research and development expense to continue to increase as our clinical, manufacturing, and regulatory development activities for sebelipase alfa, SBC-103 and our other pipeline programs continue.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended June 30,
2014 and 2013 are summarized as follows (in thousands):



                                               Three Months Ended
                                                    June 30,
                                               2014            2013          $ Change        % Change
Compensation and benefits-related           $     5,053       $ 2,665       $    2,388              90 %
External and professional services                4,650         2,471            2,179              88
Facilities related and other                        484           149              335             225
Stock-based compensation expense                  2,404         1,158            1,246             108

Total selling, general and
administrative expense                      $    12,591       $ 6,443       $    6,148              95 %

Selling, general and administrative expense increased by approximately $6.1 million to $12.6 million for the three months ended June 30, 2014 as compared to $6.4 million for the comparable prior year period. The increase was primarily due to higher compensation-related expenses and external service costs. Compensation related costs, including stock-based compensation, increased $3.6 million as we continued to expand our resources to support our international organization and commercial preparations. External service costs contributed $2.2 million to the period-over-period increase in expense and were primarily due to increased consulting, accounting, patent and external commercial related costs.


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Selling, general and administrative expenses for the six months ended June 30, 2014 and 2013 are summarized as follows (in thousands):

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