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| SGYP.OB > SEC Filings for SGYP.OB > Form 10-Q on 16-Nov-2009 | All Recent SEC Filings |
16-Nov-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 and nine months ended September 30, 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 October 30, 2009, we closed a private placement of 9,389,428 unregistered shares of our common stock to certain investors at a per share price of $0.70 for aggregate gross proceeds of $6,572,600 pursuant to a Securities Purchase Agreement dated as of October 30, 2009. On November 5, 2009, Synergy sold 1,114,286 shares of unregistered common stock to certain investors, at a per share price of $0.70, for aggregate gross proceeds of $780,000, pursuant to a Securities Purchase Agreement dated as of November 5, 2009. On November 12, 2009, Synergy sold 1,664,284 shares of unregistered common stock to certain investors, at a per share price of $0.70, for aggregate gross proceeds of $1,165,000, pursuant to a Securities Purchase Agreement dated as of November 12, 2009.
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.
On December 9, 2008, Synergy announced the completion of the Phase I clinical trial of SP-304 in healthy volunteers that was initiated in June 2008. This first study was a double-blind, placebo-controlled, randomized single, oral, ascending dose trial performed in 71 healthy male and female volunteers. The primary objective of the Phase I clinical trial with SP-304 was to characterize the safety, tolerability, pharmacokinetic and pharmacodynamic effects of the drug in healthy volunteers. The clinical data from the SP-304 Phase I healthy volunteer study was included in an abstract presented at the Digestive Disease Week conference held in Chicago IL from May 30 through June 4, 2009. SP-304 was well tolerated at all doses studied (0.1 mg to 48.6 mg) and exhibited pharmacodynamic activity in healthy volunteers with no detectable systemic absorption. These data clearly supported advancing
SP-304 for further clinical studies in patients with CC and IBS-C. Synergy plans to initiate a Phase IIa 14-day, repeated-oral-dose trial of SP-304 in chronic constipation 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 GC-C receptors 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, beneficial 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 multiple manufacturing contract research organizations (CRO's). At present, Synergy's CROs have produced over 650 grams of SP-304, under current good manufacturing practices ("cGMP"), which have been primarily used for non-clinical work to support further human clinical trials.
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. Results from his laboratory and from separate CRO's who conducted animal model studies for us 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 to treat UC patients in 2010.
FINANCIAL OPERATIONS OVERVIEW
From inception through September 30, 2009, we have sustained cumulative net losses of $36,978,212, resulting primarily from acquired in-process research and development valued at $28,156,503 which was expensed upon the acquisition of Synergy on July 14, 2008. From inception through September 30, 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 of our Annual 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 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 Commitments, included in our Annual Report on Form 10-K as of December 31, 2008. There have been no changes in our contractual obligations and commitments during the three and nine months ended September 30, 2009.
OFF-BALANCE SHEET ARRANGEMENTS
We had no off-balance sheet arrangements as of September 30, 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 September 30, 2009. As a result of the acquisition of Synergy-DE on July 14, 2008, we decided to discontinue our 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 September 30, 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.
Research and development expenses for the three months ended September 30, 2009 increased $454,807 or 64%, to $1,163,643 for the three months ended September 30, 2009 from $708,836 for the three months ended September 30, 2008. This increase was primarily due to higher development expenses, related to our SP-304 candidate, including analytical testing, animal studies and clinical trial insurance which increased by approximately $470,000 to approximately $770,000 during the three months ended September 30, 2009.
For the three months ended September 30, 2009, general and administrative expenses increased $118,659 or 13%, to $1,058,928 for three months ended September 30, 2009 from $940,269 for the three months ended September 31, 2008. This increase was primarily due to higher stock based compensation expense which increased by approximately $218,000 to approximately $382,000 during the three months ended September 30, 2009, partially offset by legal and accounting fees which decreased by approximately $83,000 as compared to the three months ended September 30, 2008.
Net loss for the three months ended September 30, 2009 was $2,211,709 compared to a net loss of $29,840,015 incurred for the three months ended September 30, 2008 which was primarily due to the operating expense items discussed above and from acquired purchased in-processes research and development of $28,156,503 which was expensed upon the acquisition of Synergy on July 14, 2008.
We had no revenues during the nine months ended September 30, 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 nine months ended September 30, 2009, research and development
expenses totaled $2,611,666. These research and development expenses were
entirely attributable to continuing the development of our SP-304 product
candidate. These expenses included (i) procurement of drug substance, totaling
approximately $880,000, to move our clinical trials into Phase II a ,
(ii) program expenses including animal studies analytical testing and clinical
trial insurance of approximately $815,000 (iii) scientific and regulatory
advisory fees and expenses of approximately $162,000, (iv) in-house staff
salaries and wages, stock based compensation and employee benefits of
approximately $483,000 and (v) patent related legal fees of approximately
$208,000. Such expenses during the nine months ended September 30, 2008 are
addressed above in our three month discussion because the SP-304 product was
acquired in connection with the July 14, 2008 Exchange Transaction.
For the nine months ended September 30, 2009, general and administrative
expenses were $2,582,113. These expenses primarily include (i) non-scientific
salaries and wages, stock based compensation and related employee benefits of
approximately $1,350,000, (ii) facilities cost of approximately $443,000,
(iii) independent public accounting, corporate legal and tax services of
approximately $277,000 (iv) consultants and advisors of approximately $410,000
and (v) travel of approximately $70,000. Such expenses during the nine months
ended September 30, 2008 were related to the SP-304 product was acquired in
connection with the July 14, 2008 Exchange Transaction.
Net loss for the nine months ended September 30, 2009 was $5,182,771 compared to a net loss of $29,840,015 incurred for the nine months ended September 30, 2008 which was resulted primarily from acquired purchased in-processes research and development valued at $28,156,503 and expensed upon the acquisition of Synergy on July 14, 2008.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2009 we had $3,086,171 in cash and cash equivalents, compared to $216,007 as of December 31, 2008. Net cash used in operating activities was $3,985,949 for the nine months ended September 30, 2009. During the nine months ended September 30, 2009, we incurred net losses from continuing operations of $5,182,771. To date, our sources of cash have been primarily limited to private placements of common stock. Net cash provided by financing activities for the nine months ended September 30, 2009 was $6,987,500. As of September 30, 2009 we had working capital of $662,907 as compared to a working capital deficit of $1,171,893 as of December 31, 2008.
During the nine months ended September 30, 2009 Synergy sold 10,332,144 shares of unregistered common stock at $0.70 per share to private investors for aggregate proceeds of $7,232,500. On October 30, 2009, we closed a private placement of 9,389,428 shares of our common stock to certain investors at a per share price of $0.70 for aggregate gross proceeds of $6,572,600 pursuant to a Securities Purchase Agreement dated as of October 30, 2009. On November 5, 2009, Synergy sold 1,114,286 shares of unregistered common stock to certain investors, at a per share price of $0.70, for aggregate gross proceeds of $780,000, pursuant to a Securities Purchase Agreement dated as of November 5, 2009. On November 12, 2009, Synergy sold 1,664,284 shares of unregistered common stock to certain investors, at a per share price of $0.70, for aggregate gross proceeds of $1,165,000, pursuant to a Securities Purchase Agreement dated as of November 12, 2009.
We will be required to raise additional capital within the next year to complete 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. 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 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.
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.
Our condensed consolidated financial statements as of September 30, 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 negative outcome of this uncertainty.
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