SURROZEN, INC. The following discussion and analysis should be read in conjunction with our
unaudited condensed consolidated financial statements and related notes included
elsewhere in this Quarterly Report on Form 10-Q, or this Report, and our
consolidated financial statements and related notes thereto for the year ended
Forward-Looking Statements
The following discussion of our financial condition and results of operations contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management. All statements other than statements of historical facts are "forward-looking statements" for purposes of these provisions, including those relating to future events or our future financial performance and financial guidance. In some cases, you can identify forward-looking statements by terminology such as "may," "might," "will," "should," "expect," "plan," "anticipate," "project," "believe," "estimate," "predict," "potential," "intend" or "continue," the negative of terms like these or other comparable terminology, and other words or terms of similar meaning in connection with any discussion of future operating or financial performance. These statements are only predictions.
All forward-looking statements included in this document are based on
information available to us on the date hereof, and we assume no obligation to
update any such forward-looking statements. Any or all of our forward-looking
statements in this document may turn out to be wrong. Actual events or results
may differ materially. Our forward-looking statements can be affected by
inaccurate assumptions we might make or by known or unknown risks, uncertainties
and other factors. In evaluating these statements, you should specifically
consider various factors, including the risks outlined under the caption "Risk
Factors" set forth in Item 1A of Part II of this Report, as well as those
contained from time to time in our other filings with the
Overview
We are discovering and developing biologic drug candidates to selectively
modulate the Wnt pathway, a critical mediator of tissue repair, in a broad range
of organs and tissues, for human diseases. Building upon the seminal work of our
founders and scientific advisors who discovered the Wnt gene and key regulators
of the Wnt pathway, we have made breakthrough discoveries that we believe will
overcome previous limitations in harnessing the potential of Wnt biology. These
breakthroughs enable us to rapidly and flexibly design tissue-targeted
therapeutics that modulate Wnt signaling. As a result of our discoveries, we are
pioneering the selective activation of Wnt signaling, designing and engineering
Wnt pathway mimetics, and advancing tissue-specific Wnt candidates. Our lead
product candidates are multi-specific, antibody-based therapeutics that mimic
the roles of naturally occurring Wnt or R-spondin proteins, which are involved
in activation and enhancement of the Wnt pathway, respectively. Given Wnt
signaling is essential in tissue maintenance and regeneration throughout the
body, we have the potential to target a wide variety of severe diseases,
including certain diseases that afflict the intestine, liver, retina, cornea,
lung, kidney, cochlea, skin, pancreas and central nervous system. In each of
these areas, we believe our approach has the potential to change the treatment
paradigm for the disease and substantially impact patient outcomes. Our strategy
is to exploit the full potential of Wnt signaling by identifying disease states
responsive to Wnt modulation, design tissue-specific therapeutics, and advance
candidates into clinical development in targeted indications with high unmet
need. Our unique approach and platform technologies have led to the discovery
and advancement of two lead product candidates. We plan to initiate a Phase 1
clinical trial in the third quarter of 2022 for SZN-1326, our candidate in
development for moderate to severe inflammatory bowel disease, or IBD, with
ulcerative colitis, or UC, as our first proposed indication. Furthermore, we
plan to initiate a Phase 1 clinical trial in the third quarter of 2022 for
SZN-043, our candidate in development for severe alcoholic hepatitis, or AH. We
expect to nominate additional lead candidates and advance them into the clinic
in 2023 and beyond. In
The chart below represents a summary of our wholly owned product candidates:
[[Image Removed: img198851673_0.jpg]]
By leveraging our scientific capabilities and approach, we have identified more than 20 potential tissue types to explore. In our most advanced research programs, we are developing potential therapeutics for ocular diseases such as retinal vascular diseases. Genetic
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studies in the literature have identified that the Wnt signaling pathway is
critical for maintenance of healthy retinal blood vessels. We have shown that
activation of Wnt-pathway signaling can potentially reverse vascular damage
through a mechanism that is distinct from the mechanisms of currently approved
therapeutics that target angiogenesis. We also have identified the potential for
regeneration of retinal pigment epithelium, or RPE, an important cell type in
the retina. RPE cells are required for maintenance and viability of
photoreceptors and as such are a potential target for the treatment of dry
The chart below represents a summary of our wholly-owned research programs:
[[Image Removed: img198851673_1.jpg]]
Since our inception in 2015, we have devoted substantially all of our efforts
and financial resources to organizing and staffing our company, business
planning, raising capital, developing and optimizing our Wnt therapeutics
platform, identifying potential product candidates, undertaking research and
development activities, engaging in strategic transactions, establishing and
enhancing our intellectual property portfolio, and providing general and
administrative support for these operations. We have incurred net losses since
inception. During the three months ended
We expect to continue to incur losses for the foreseeable future and expect to incur increased expenses as we expand our pipeline and advance our product candidates through clinical development and regulatory submissions. Specifically, in the near term we expect to incur substantial expenses relating to our planned Phase 1 clinical trials, the development and validation of our manufacturing processes, and other research and development activities.
Impacts of the Conflict between
UCSF Commercial License Agreement
In
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Components of Results of Operations
Revenue
We have not generated any revenue from the sale of our products, and we do not expect to generate any revenue unless and until we obtain regulatory clearance or approval of, and commercialize, our product candidates.
Operating Expenses
We classify operating expenses into two main categories: (i) research and development expenses and (ii) general and administrative expenses.
Research and Development Expenses
Since our inception, we have focused significant resources on our research and development activities. Our research and development expenses consist of external and internal expenses incurred in connection with our research activities and development programs.
External expenses include:
•
costs incurred under agreements with third parties, including CROs and other third parties conducting research and development activities on our behalf;
•
costs of outside consultants, including their fees, stock-based compensation and related travel expenses;
•
costs of laboratory supplies and acquiring, developing and manufacturing drug candidate materials; and
•
license payments under our license agreements made for intellectual property used in research and development activities.
Internal expenses include:
•
personnel-related costs, including salaries, bonuses, benefits and stock-based compensation for individuals involved in our research and product development activities; and
•
facilities, depreciation, and other allocated costs, which include rent and insurance.
We expect our research and development expenses will increase significantly for the foreseeable future as we identify and develop product candidates, in particular as we seek to initiate clinical trials and pursue regulatory approval and commercialization for SZN-1326 and SZN-043.
The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs required to complete the remaining development of SZN-1326 and SZN-043 or any future product candidates. This is due to the numerous risks and uncertainties associated with the development of product candidates, many of which are outside of our control, including those associated with:
•
our ability, and the ability of our primary business partners, to hire and retain key personnel;
•
the timing and progress of preclinical and clinical development activities;
•
the number and scope of preclinical and clinical programs we decide to pursue;
•
our ability to maintain our current research and development programs and to establish new ones;
•
establishing an appropriate safety profile with IND-enabling studies;
•
the number of sites and patients included in the clinical trials;
•
the countries in which the clinical trials are conducted;
•
per patient trial costs;
•
successful patient enrollment in, and the initiation of, clinical trials, as well as drop out or discontinuation rates, particularly in light of the lingering effects of the COVID-19 pandemic;
•
the successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;
•
the number of trials required for regulatory approval;
•
the timing, receipt and terms of any regulatory approvals from applicable regulatory authorities;
•
our ability to establish new licensing or collaboration arrangements;
•
the performance of our future collaborators, if any;
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•
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
•
significant and changing government regulation and regulatory guidance;
•
the impact of any business interruptions to our operations or to those of the
third parties with whom we work, particularly in light of the conflict between
•
launching commercial sales of our drug candidates, if approved, whether alone or in collaboration with others;
•
the effect of products that may compete with our product candidates or other market developments; and
•
maintaining a continued acceptable safety profile of the drug candidates following approval.
Any changes in the outcome of any of these variables could mean a significant change in the costs and timing associated with the development of our drug candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related
costs, including salaries, bonuses, benefits and stock-based compensation
expense for personnel in executive, finance, human resources, business and
corporate development, legal, and other administrative functions. General and
administrative expenses also include legal fees, professional fees paid for
accounting, auditing, consulting, tax, investor relations services, insurance
costs, and facility costs not otherwise included in research and development
expenses, and costs associated with compliance with the rules and regulations of
the
Interest Income
Interest income consists primarily of interest earned on our cash equivalents and marketable securities.
Other Income
Other income consists of the gain on the change in fair value of warrant liabilities.
Results of Operations
Comparison of the Three Months Ended
The following table summarizes results of operations for the periods presented
(dollars in thousands):
Three Months Ended March 31, $ %
2022 2021 Change Change
Operating expenses:
Research and development $ 9,371 $ 8,601 $ 770 9 %
General and administrative 5,122 4,430 692 16 %
Total operating expenses 14,493 13,031 1,462 11 %
Loss from operations (14,493 ) (13,031 ) (1,462 ) 11 %
Interest income 49 9 40 444 %
Other income 6,497 - 6,497 *
Net loss $ (7,947 ) $ (13,022 ) $ 5,075 -39 %
*Percentage is not meaningful
Research and Development Expenses
The following table summarizes research and development expenses for the periods presented (dollars in thousands):
Three Months Ended March 31, $ %
2022 2021 Change Change
External expenses(1) $ 3,366 $ 4,314 $ (948 ) -22 %
Internal costs:
Personnel expenses (including
stock-based compensation) 4,194 2,971 1,223 41 %
Facilities and other expenses 1,811 1,316 495 38 %
Total research and
development expenses $ 9,371 $ 8,601 $ 770 9 %
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(1) In future periods when clinical trial expenses are incurred, external expenses will be broken out between our clinical programs and preclinical programs.
The increase of
General and Administrative Expenses
The increase of
Interest Income
The increase of
Other Income
The increase of
Liquidity and Capital Resources
Since inception, we have incurred significant net operating losses and negative
cash flows from operations. Historically, we financed our operations primarily
from the sale of our redeemable convertible preferred stock. As of
In
We believe, based on our current operating plan, that our existing cash, cash equivalents, and marketable securities will be sufficient to fund our operations for at least the next 12 months from the date of this Report. However, if the anticipated operating results are not achieved in future periods, we could use our capital resources sooner than expected which may result in the need to reduce future planned expenditures and/or raise additional capital to continue to fund the operations.
Future Funding Requirements
To date, we have not generated any revenue. We do not expect to generate any meaningful revenue unless and until we obtain regulatory approval and commercialize SZN-1326 and SZN-043 or any future product candidates, and we do not know when, or if, that will occur. We will continue to require substantial additional capital to develop SZN-1326 and SZN-043 and fund operations for the foreseeable future. Since our inception in 2015, we have devoted substantially all of our efforts and financial resources to organizing and staffing our company, business planning, raising capital, developing and optimizing our Wnt therapeutics platform, identifying potential product candidates, undertaking research and development activities, engaging in strategic transactions, establishing and enhancing our intellectual property portfolio, and providing general and administrative support for these operations. We expect our expenses to continue to increase in connection with our ongoing activities as we continue to advance SZN-1326 and SZN-043 into clinical development and regulatory approval. In addition, we will continue to incur additional costs associated with operating as a public company.
We expect that our cash, cash equivalents and marketable securities, will
provide the capital needed to fund our operations in the short-term. We expect
that in the long-term we will need to raise additional capital through public or
private equity offerings, debt financings or other capital sources, including
government grants, potential collaborations with other companies or other
strategic transactions as we do not expect sales of common stock to
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We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
•
the scope, rate of progress, results and costs of researching and developing our lead product candidates or any future product candidates, conducting preclinical studies, in particular our current ongoing preclinical studies of SZN-1326 and SZN-043;
•
the outcome, costs, and timing involved in, obtaining regulatory approvals for our lead product candidate or our other product candidates;
•
the number and scope of clinical programs we decide to pursue;
•
the cost of acquiring, licensing, or investing in product candidates and technologies;
•
the costs associated with securing and establishing commercialization;
•
our ability to maintain, expand, and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense, and enforcement of any patents or other intellectual property rights;
•
our need and ability to retain key management and hire scientific, technical, business, and medical personnel;
•
the effect of competing products and product candidates and other market developments;
•
the timing, receipt, and amount of sales from SZN-1326 and SZN-043 and any future product candidates, if approved;
•
our need to implement additional internal systems and infrastructure, including financial and reporting systems;
•
the economic and other terms, timing of, and success of any collaboration, licensing, or other arrangements which we may enter in the future; and
•
the effects of the disruptions to and volatility in the credit and financial
markets in the
In addition, any future financing through sales of equity securities, including
sales to
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