Synlogic’s Financial Performance and Strategic Outlook

Synlogic, a biopharmaceutical company focused on developing novel therapies for rare metabolic disorders, has recently reported its financial results for the three and six months ended June 30, 2024. The company’s performance during this period reflects both progress and challenges in its drug development efforts, as well as a strategic shift in its corporate direction.

Revenue and Collaboration Agreements

Synlogic’s revenue for the three and six months ended June 30, 2024 was $0 and $8,000 respectively, compared to $35,000 and $209,000 for the same periods in 2023. This decrease in revenue was due to the conclusion of Synlogic’s collaboration agreement with Roche in October 2023, after the company achieved the last milestone under the agreement. Roche did not exercise its option to further develop and commercialize the product candidate from this collaboration.

Synlogic had previously established a technology collaboration with Ginkgo in 2017, which was expanded in 2019. Under this agreement, Synlogic made a $30 million prepayment to Ginkgo for foundry services to be provided over an initial five-year term. However, in February 2024, Synlogic decided to discontinue its Synpheny-3 clinical trial and significantly reduce its workforce. As a result, the company would no longer be purchasing services from Ginkgo, and the remaining $5.2 million of the prepaid expenses were recorded as restructuring and other charges.

Research and Development Expenses

Synlogic’s research and development (R&D) expenses decreased significantly, from $11.8 million in the three months ended June 30, 2023 to $2.2 million in the same period of 2024, a reduction of $9.6 million. For the six-month period, R&D expenses decreased from $24.2 million in 2023 to $9.9 million in 2024, a decline of $14.3 million.

The primary driver of this decrease was Synlogic’s decision to discontinue its Synpheny-3 clinical trial for its lead product candidate, labafenogene marselecobac (SYNB1934), as a potential treatment for phenylketonuria (PKU). This decision, made in February 2024, led to a reduction in clinical, manufacturing, and professional costs associated with the trial. Synlogic also saw decreases in expenses for other earlier-stage product candidates, such as SYNB1618, SYNB8802, and SYNB1353, as well as a reduction in internal R&D costs due to the workforce reduction.

General and Administrative Expenses

General and administrative (G&A) expenses also decreased, from $3.9 million in the three months ended June 30, 2023 to $1.2 million in the same period of 2024, a reduction of $2.7 million. For the six-month period, G&A expenses decreased from $7.9 million in 2023 to $4.1 million in 2024, a decline of $3.8 million.

The decrease in G&A expenses was primarily due to lower compensation, benefits, and other employee-related expenses resulting from the reduced headcount, as well as decreased professional services costs.

Restructuring and Other Charges

In February 2024, Synlogic’s board of directors decided to discontinue the Synpheny-3 trial and conduct a comprehensive review of strategic alternatives for the company. As a result, Synlogic announced a corporate restructuring that included a reduction in its workforce by more than 90%, leaving a core team to lead the strategic review process.

During the three months ended June 30, 2024, Synlogic recorded a gain of $3.8 million related to these restructuring activities, which included a $3.2 million gain on the termination of the lease for its headquarters, offset by severance expenses and other charges. For the six-month period, Synlogic recorded $24.5 million in restructuring and other charges, primarily due to impairment charges related to leases, property, equipment, and prepaid research and development expenses, as well as severance costs and accelerated stock compensation expense.

Net Income (Loss) and Cash Flows

Synlogic reported net income of $2.0 million for the three months ended June 30, 2024, compared to a net loss of $15.0 million in the same period of 2023. For the six-month period, the company recorded a net loss of $29.6 million, compared to a net loss of $30.7 million in the first half of 2023.

The company’s cash, cash equivalents, and restricted cash balance decreased from $25.0 million as of December 31, 2023 to $20.0 million as of June 30, 2024, a decline of $5.0 million. This decrease was primarily due to the cash used to operate the business, which was partially offset by proceeds from the maturity of marketable securities and the sale of property and equipment.

Strengths and Weaknesses

Synlogic’s key strengths include its proprietary platform for developing Synthetic Biotics, which are genetically engineered probiotics designed to target specific metabolic pathways. This platform has enabled the company to build a pipeline of product candidates for rare metabolic disorders, such as phenylketonuria (PKU) and homocystinuria (HCU), which represent significant unmet medical needs.

However, Synlogic’s decision to discontinue its lead program, Synpheny-3, for the treatment of PKU is a significant setback. This decision was based on the trial’s unlikely ability to meet its primary endpoint, rather than any safety or tolerability concerns. The discontinuation of this pivotal study has led to a substantial reduction in the company’s workforce and a strategic shift towards exploring alternative options, including a potential merger or sale of the company.

Synlogic’s early-stage pipeline, which includes product candidates for enteric hyperoxaluria, gout, and cystinuria, represents potential upside, but the company will need to carefully manage its resources and prioritize its development efforts as it navigates this strategic review process.

Outlook and Conclusion

Synlogic’s current focus is on pursuing strategic initiatives to enhance shareholder value, including a potential merger or sale of the company. The company believes that allowing sufficient time to pursue and consummate such transactions is in the best interest of its shareholders. However, there is no guarantee that these efforts will result in a successful transaction or that any such transaction will ultimately enhance shareholder value.

Given the discontinuation of the Synpheny-3 trial and the significant reduction in Synlogic’s workforce, the company expects its expenses to decrease in the near term. However, should the company decide to continue advancing the clinical development of its other product candidates, it would likely incur additional costs in connection with those activities.

Synlogic’s current cash and cash equivalents are expected to be sufficient to fund its operations for at least the next 12 months. The company’s future funding requirements will depend on the outcome of its strategic review process, as well as the progress and success of its remaining research and development efforts.

In conclusion, Synlogic’s financial performance in the first half of 2024 reflects the challenges the company has faced with its lead program, as well as its strategic shift towards exploring alternative options to enhance shareholder value. While the company’s proprietary platform and early-stage pipeline represent potential opportunities, Synlogic will need to carefully manage its resources and navigate the uncertain path ahead as it seeks to find the best path forward for the company and its shareholders.