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| SGYP.OB > SEC Filings for SGYP.OB > Form 10-Q on 20-May-2009 | All Recent SEC Filings |
20-May-2009
Quarterly Report
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 "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 this Report on Form 10-Q as of and for the three months ended March 31, 2009 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 the Company, please be advised that the Company's actual financial condition, operating results and business performance may differ materially from that projected or estimated by the Company in forward-looking statements.
RECENT DEVELOPMENTS
On July 14, 2008, Pawfect Foods Inc. ("Pawfect"), a Florida corporation incorporated on November 15, 2005, acquired 100% of the common stock of Synergy Pharmaceuticals, Inc. and its wholly-owned subsidiary, Synergy Advanced Pharmaceuticals, Inc. (collectively "Synergy-DE"), a Delaware corporation incorporated on September 11, 1992, under the terms of an Exchange Transaction among Pawfect, Callisto Pharmaceuticals, Inc. ("Callisto'), Synergy-DE, and certain other holders of Synergy-DE common stock ("Exchange Transaction").
On July 14, 2008, Synergy discontinued its pet food business and is now exclusively focused on the development of drugs to treat gastrointestinal ("GI") disorders and diseases. Synergy acquired the GI drugs and related technology in connection with the Exchange Transaction.
On July 21, 2008, Pawfect amended its articles of incorporation to effect the actions necessary to complete the transactions contemplated by the Exchange Transaction and changed its name to Synergy Pharmaceuticals, Inc. ("Synergy" or "the Company").
Synergy's lead drug candidate is SP-304, a guanylyl cyclase C ("GC-C") receptor agonist to treat GI disorders, primarily chronic constipation ("CC") and constipation-predominant irritable bowel syndrome ("IBS-C"). On April 2, 2008, Synergy-DE filed an investigational new drug ("IND") application with the United States Food and Drug Administration ("FDA"). On May 2, 2008, Synergy-DE received notice from the FDA that the proposed study was deemed safe to proceed and Synergy-DE initiated a Phase I clinical trial in volunteers on June 4, 2008. The purpose of the initial Phase I trial was to establish the safety of the drug. This first trial was a single-dose, dose- escalation, placebo-controlled trial in volunteers. Synergy plans to open a Phase Ib repeated-dose trial of SP-304 in CC patients in early 2010.
SP-304 was developed by Synergy scientists based on structure-function studies performed in-house. A patent covering composition of matter and therapeutic applications of SP-304 was granted by the
U.S. Patent and Trademark Office on May 9, 2006. SP-304 is an analog of uroguanylin, a natural GI hormone produced in the gut that is a key regulator of intestinal function. Uroguanylin works by activating the GC-C receptor on intestinal cells. The GC-C receptor, promotes fluid and ion transport in the GI tract. Under normal conditions, the receptor is activated by the natural hormones uroguanylin and guanylin. Activation of the receptor leads to the transport of chloride and bicarbonate into the intestine, and water is carried with these ions into the lumen of the intestine, thereby softening stool, and producing other pharmacologic effects that could potentially benefit patients with CC and IBS-C.
A practical, efficient and cost effective method for producing SP-304 on a commercial scale is currently being investigated in concert with a contract research organization. At present, we have multiple 100 gram-scale lots of SP-304, produced under current good manufacturing practices ("cGMP"), which may be used for non-clinical work to support further human studies.
SP-304 has also undergone pre-clinical animal studies as a treatment for GI inflammation in a collaborative study involving clinical gastroenterologist Dr. Scott Plevy of the University of North Carolina, Chapel Hill, NC. Recent results from his laboratory also showed that SP-304 was efficacious in animal models of ulcerative colitis ("UC"). A second generation GC-C receptor analog, SP-333, is now in pre-clinical development and Synergy plans to file an IND and initiate a Phase I clinical trial in UC patients in early 2010.
FINANCIAL OPERATIONS OVERVIEW
From inception through March 31, 2009, we have sustained cumulative net losses of $32,791,970, resulting primarily from acquired in-process research and development valued at $28,156,502 which was expensed upon the acquisition of Synergy on July 14, 2008. From inception through March 31, 2009, 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.
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-Note 3. Summary of Significant Accounting Policies and New Accounting Pronouncements, included in our Report on Form 10-K as of and for years ended December 31, 2008 and 2007, filed with the SEC on April 15, 2009. There have been no changes to our critical accounting policies since December 31, 2008.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
For a discussion of changes in contractual obligations since December 31, 2008, see Item 1. Financial Statements and Notes to Condensed Consolidated Financial Statements-Note 6. Commitments and Contingencies, included elsewhere in this Report on Form 10-Q for the three months ended March 31, 2009.
OFF-BALANCE SHEET ARRANGEMENTS
We had no off-balance sheet arrangements as of March 31, 2009.
RESULTS OF OPERATIONS
As discussed above, on July 14, 2008, Synergy completed the acquisition of Synergy-DE. The acquisition of Synergy-DE was treated as an asset acquisition, since Synergy-DE is a development stage company and does not have the necessary inputs and outputs to meet the definition of a business. The results of operations of Synergy-DE are included in the accompanying consolidated financial statements from July 14, 2008 to March 31, 2009. As a result of the acquisition of Synergy-DE on July 14, 2008, the Company decided to discontinue its pet food business and accordingly, amounts in the consolidated statements of operations and related notes for all historical periods have been restated to reflect these operations as discontinued.
We had no revenues during the three months ended March 31, 2009 and 2008 because we do not have any commercial biopharmaceutical products and we do not expect to have such products for several years, if at all.
For the three months ended March 31, 2009, research and development expenses totaled $333,147. These research and development expenses were primarily attributable to our SP-304 product candidate. These expenses included clinical program expenses of approximately $60,000, scientific and regulatory advisory fees and expenses of approximately $68,000, in-house staff compensation and employee benefits of approximately $145,000 and patent related legal fees of approximately $59,000. There were no such expenses during the three months ended March 31, 2008 because the SP-304 product was acquired in connection with the July 14, 2008 Exchange Transaction discussed above.
For the three months ended March 31, 2009, general and administrative expenses were $663,512. These expenses primarily include non-scientific salaries and related employee benefits of approximately $353,000, facilities cost of approximately $93,000, accounting, legal and tax services of approximately $68,000 and consultants and advisors, including Board fees, of approximately $115,000. Such expenses during the three months ended March 31, 2008 were exclusively devoted to our pet food business which was discontinued on July 14, 2008 and reported as $6,874 "loss from discontinued operations" in the accompanying financial statements.
Net loss for the three months ended March 31, 2009 was $996,529 compared to a net loss (from discontinued operations) of $6,874 incurred for the three months ended March 31, 2008.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2009 we had $7 in cash and cash equivalents, compared to $216,007 as of December 31, 2008. Net cash used in operating activities was $408,602 for the three months ended March 31, 2009. Net cash provided by financing activities for the three months ended March 31, 2009 was $200,000. On February 13, 2009, we sold 285,714 shares of unregistered common stock at $0.70 per share to a private investor for aggregate proceeds of $200,000. On March 31, 2009, we sold 280,000 shares of unregistered common stock at $0.70 per share to two private investors for aggregate proceeds of $196,000. There were no warrants issued or finder's fees associated with these transactions, although we incurred $5,000 in legal fees. The proceeds from the 280,000 shares sold on March 31, 2009 were included in cash in escrow at March 31, 2009 and were deposited into our cash account on April 2 and 13, 2009.
As of March 31, 2009 we had a working capital deficit of $1,600,432. On April 15, 2009, we sold 1,045,714 shares of unregistered common stock at $0.70 per share to a private investor for aggregate proceeds of $732,000. Recent worldwide economic conditions and the international equity and credit
markets have significantly deteriorated and may remain depressed for the foreseeable future. These developments will make it more difficult to obtain additional equity or credit financing, when needed. We have accordingly taken steps to conserve cash which include extending payment terms to our suppliers as well as substantial management and staff salary cuts and deferrals. These actions may not be sufficient to allow the Company time to raise additional capital.
Our working capital requirements will depend upon numerous factors including
but not limited to the nature, cost and timing of pharmaceutical research and
development programs. We will be required to raise additional capital within the
next twelve months to complete the development and commercialization of current
product candidates and to continue to fund operations at our current cash
expenditure levels. To date, our sources of cash have been primarily limited to
the sale of equity securities. We cannot be certain that additional funding will
be available on acceptable terms, or at all. 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 business. If we are unable to raise
additional capital when required or on acceptable terms, we may have to
(i) significantly delay, scale back or discontinue the development and/or
commercialization of one or more of 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
ourselves on unfavorable terms.
Our consolidated financial statements as of March 31, 2009 and December 31, 2008 have been prepared under the assumption that we will continue as a going concern for the next twelve months. Our ability to continue as a going concern is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to generate revenue. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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