0000950170-24-055706.txt : 20240508 0000950170-24-055706.hdr.sgml : 20240508 20240508161842 ACCESSION NUMBER: 0000950170-24-055706 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 65 CONFORMED PERIOD OF REPORT: 20240331 FILED AS OF DATE: 20240508 DATE AS OF CHANGE: 20240508 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Surrozen, Inc./DE CENTRAL INDEX KEY: 0001824893 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] ORGANIZATION NAME: 03 Life Sciences IRS NUMBER: 301374889 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-39635 FILM NUMBER: 24926379 BUSINESS ADDRESS: STREET 1: 171 OYSTER POINT BLVD STREET 2: SUITE 400 CITY: SOUTH SAN FRANCISCO STATE: CA ZIP: 94080 BUSINESS PHONE: 650-475-2820 MAIL ADDRESS: STREET 1: 171 OYSTER POINT BLVD STREET 2: SUITE 400 CITY: SOUTH SAN FRANCISCO STATE: CA ZIP: 94080 FORMER COMPANY: FORMER CONFORMED NAME: Consonance-HFW Acquisition Corp. DATE OF NAME CHANGE: 20200915 10-Q 1 srzn-20240331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-39635

 

Surrozen, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

30-1374889

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

171 Oyster Point Blvd, Suite 400, South San Francisco, California

94080

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 489-9000

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

 

SRZN

 

The Nasdaq Capital Market

Redeemable warrants, each whole warrant exercisable for one-fifteenth of a share of Common Stock

 

SRZNW

 

The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

As of May 6, 2024, there were 3,198,786 shares of common stock, par value $0.0001 per share, issued and outstanding.

 

 


 

Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

1

Unaudited Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

1

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024 and 2023

2

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2024 and 2023

3

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023

4

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

Item 4.

Controls and Procedures

23

 

 

 

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

68

Item 3.

Defaults Upon Senior Securities

68

Item 4.

Mine Safety Disclosures

68

Item 5.

Other Information

68

Item 6.

Exhibits

69

Signatures

70

 

 

 

i


 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Some of the statements contained in this Quarterly Report on Form 10-Q for the three months ended March 31, 2024, or the Quarterly Report, constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. These forward-looking statements include statements about future financial and operating results of Surrozen; statements about the plans, strategies and objectives of management for future operations of Surrozen; and statements regarding future performance. In some cases, you can identify these forward-looking statements by the use of terminology such as “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words or phrases.

The forward-looking statements contained in this Quarterly Report reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause its actual results to differ significantly from those expressed in any forward-looking statement. There are no guarantees that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

the initiation, cost, timing, progress and results of research and development activities, preclinical and clinical trials with respect to SZN-043, SZN-413 and potential future drug candidates;
our ability to develop and expand our drug discovery and development capabilities;
our ability to obtain the necessary capital to fund our operations while we conduct clinical trials, seek regulatory approval for our product candidates, and complete the product development process;
our ability to identify, develop and commercialize drug candidates;
the successful development and commercialization of products that compete with our product candidates or receive regulatory approval in advance of our product candidates;
changes in personnel and availability of qualified personnel;
our ability to manage growth and expand business operations effectively;
the effects of macroeconomic conditions, volatile market conditions, and global events and the actions of U.S. and foreign governments to respond to these events;
whether the few stockholders who own a large number of shares of our common stock exercise their voting power in a manner that adversely affects us or our stockholders; and
the increasingly competitive environment in which we operate.

In addition, statements that “Surrozen believes” or “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and such statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. Except to the extent required by applicable law, we are under no obligation (and expressly disclaim any such obligation) to update or revise our forward-looking statements whether as a result of new information, future events, or otherwise. For a further discussion of these and other factors that could cause our future results, performance or transactions to differ significantly from those expressed in any forward-looking statement, please see the section titled “Risk Factors.” You should not place undue reliance on any forward-looking statements, which are based only on information currently available to us (or to third parties making the forward-looking statements) as of the date of this Quarterly Report.

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to the “company,” “Surrozen,” “we,” “us” and “our” refer to Surrozen, Inc.


 

 

ii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

SURROZEN, INC.

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

27,290

 

 

$

36,043

 

Accounts receivable

 

 

2,128

 

 

 

2,152

 

Prepaid expenses and other current assets

 

 

2,597

 

 

 

2,937

 

Total current assets

 

 

32,015

 

 

 

41,132

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

1,584

 

 

 

1,969

 

Operating lease right-of-use assets

 

 

1,532

 

 

 

1,889

 

Restricted cash

 

 

688

 

 

 

688

 

Other assets

 

 

897

 

 

 

402

 

Total assets

 

$

36,716

 

 

$

46,080

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

131

 

 

$

525

 

Accrued and other liabilities

 

 

3,485

 

 

 

4,126

 

Lease liabilities, current portion

 

 

2,563

 

 

 

2,497

 

Total current liabilities

 

 

6,179

 

 

 

7,148

 

 

 

 

 

 

 

Lease liabilities, noncurrent portion

 

 

223

 

 

 

882

 

Warrant liabilities

 

 

178

 

 

 

115

 

Total liabilities

 

 

6,580

 

 

 

8,145

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 10,000 shares authorized; no shares
   issued and outstanding as of March 31, 2024 and December 31, 2023

 

 

 

 

 

 

Common stock, $0.0001 par value, 500,000 shares authorized as of
   March 31, 2024 and December 31, 2023;
2,107 and 2,063 shares issued and
   outstanding as of March 31, 2024 and December 31, 2023, respectively

 

 

 

 

 

 

Additional paid-in-capital

 

 

260,661

 

 

 

259,630

 

Accumulated deficit

 

 

(230,525

)

 

 

(221,695

)

Total stockholders’ equity

 

 

30,136

 

 

 

37,935

 

Total liabilities and stockholders’ equity

 

$

36,716

 

 

$

46,080

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

1


 

SURROZEN, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

$

5,247

 

 

$

8,086

 

General and administrative

 

 

3,883

 

 

 

5,299

 

Restructuring

 

 

 

 

 

1,207

 

Total operating expenses

 

 

9,130

 

 

 

14,592

 

Loss from operations

 

 

(9,130

)

 

 

(14,592

)

Interest income

 

 

385

 

 

 

547

 

Other expense, net

 

 

(85

)

 

 

(252

)

Net loss

 

 

(8,830

)

 

 

(14,297

)

Unrealized gain on marketable securities, net of tax

 

 

 

 

 

191

 

Comprehensive loss

 

$

(8,830

)

 

$

(14,106

)

 

 

 

 

 

 

 

Net loss per share attributable to common
   stockholders, basic and diluted

 

$

(4.24

)

 

$

(7.16

)

 

 

 

 

 

 

 

Weighted-average shares used in computing net
   loss per share attributable to common
   stockholders, basic and diluted

 

 

2,083

 

 

 

1,998

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

2


 

SURROZEN, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common stock

 

 

paid-in

 

 

Accumulated

 

 

stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

equity

 

Balance at December 31, 2023

 

 

2,063

 

 

$

 

 

$

259,630

 

 

$

(221,695

)

 

$

37,935

 

Vesting of restricted stock units

 

 

44

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,030

 

 

 

 

 

 

1,030

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(8,830

)

 

 

(8,830

)

Balance at March 31, 2024

 

 

2,107

 

 

$

 

 

$

260,661

 

 

$

(230,525

)

 

$

30,136

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated
other

 

 

 

 

 

Total

 

 

 

Common stock

 

 

paid-in

 

 

comprehensive

 

 

Accumulated

 

 

stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

deficit

 

 

equity

 

Balance at December 31, 2022

 

 

2,006

 

 

$

 

 

$

254,895

 

 

$

(241

)

 

$

(178,653

)

 

$

76,001

 

Repurchase of early exercised stock options

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

13

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,129

 

 

 

 

 

 

 

 

 

1,129

 

Other comprehensive gain

 

 

 

 

 

 

 

 

 

 

 

191

 

 

 

 

 

 

191

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,297

)

 

 

(14,297

)

Balance at March 31, 2023

 

 

2,005

 

 

$

 

 

$

256,037

 

 

$

(50

)

 

$

(192,950

)

 

$

63,037

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3


 

SURROZEN, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

Operating activities:

 

 

 

 

 

Net loss

$

(8,830

)

 

$

(14,297

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Depreciation and amortization

 

392

 

 

 

482

 

Stock-based compensation

 

1,030

 

 

 

1,129

 

Non-cash operating lease expense

 

357

 

 

 

301

 

Amortization of discount on marketable securities, net

 

 

 

 

(241

)

Change in fair value of warrant liabilities

 

63

 

 

 

265

 

Loss on foreign currency remeasurement

 

24

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

Prepaid expenses and other current assets

 

340

 

 

 

592

 

Other assets

 

5

 

 

 

(2

)

Accounts payable

 

(394

)

 

 

(487

)

Accrued and other liabilities

 

(1,140

)

 

 

(1,387

)

Operating lease liabilities

 

(593

)

 

 

(525

)

Net cash used in operating activities

 

(8,746

)

 

 

(14,170

)

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(7

)

 

 

(315

)

Purchases of marketable securities

 

 

 

 

(7,857

)

Proceeds from maturities of marketable securities

 

 

 

 

25,500

 

Net cash (used in) provided by investing activities

 

(7

)

 

 

17,328

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

Repurchase of early exercised stock options

 

 

 

 

(39

)

Net cash used in financing activities

 

 

 

 

(39

)

Net (decrease) increase in cash, cash equivalents and restricted cash

 

(8,753

)

 

 

3,119

 

Cash, cash equivalents and restricted cash at beginning of period

 

36,731

 

 

 

25,095

 

Cash, cash equivalents and restricted cash at end of period

$

27,978

 

 

$

28,214

 

 

 

 

 

 

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

Deferred financing costs included in accrued and other liabilities

$

500

 

 

$

 

Purchases of property and equipment included in accounts payable

$

 

 

$

85

 

Vesting of early exercises of stock options

$

1

 

 

$

13

 

 

The following table presents a reconciliation of the Company’s cash, cash equivalents and restricted cash in the Company’s unaudited condensed consolidated balance sheets:

 

 

March 31,

 

 

2024

 

 

2023

 

Cash and cash equivalents

$

27,290

 

 

$

27,809

 

Restricted cash

 

688

 

 

 

405

 

Cash, cash equivalents and restricted cash

$

27,978

 

 

$

28,214

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

4


 

SURROZEN, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Note 1. Organization and Business

 

Organization

Surrozen, Inc., or the Company, is a clinical stage biotechnology company committed to discovering and developing drug candidates to selectively modulate the Wnt pathway, a critical mediator of tissue repair, in a broad range of organs and tissues. The Company, a Delaware corporation, is located in South San Francisco, California and it operates and manages its business in one operating segment. Surrozen Netherlands, B.V. was incorporated in May 2022 and is located in Amsterdam, Netherlands as a wholly-owned subsidiary of the Company.

 

Liquidity

The Company has incurred net losses since inception. During the three months ended March 31, 2024 and 2023, the Company incurred a net loss of $8.8 million and $14.3 million, respectively. For the three months ended March 31, 2024 and 2023, the Company used $8.7 million and $14.2 million of cash in operations, respectively. As of March 31, 2024, the Company had cash and cash equivalents of $27.3 million and an accumulated deficit of approximately $230.5 million. The Company expects operating expenses to continue to be significant in connection with its ongoing clinical study and anticipates the need to raise additional capital to continue to execute its long-range business plan.

 

Management believes that the existing cash, cash equivalents and the gross proceeds of approximately $17.6 million received in April 2024 from the closing of a private placement (see Note 12), before deducting placement agent fees and other expenses, are sufficient for the Company to continue operating activities for at least the next 12 months from the date of issuance of its unaudited condensed consolidated financial statements. However, if the Company’s anticipated cash burn is greater than anticipated, the Company could use its 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.

 

Reverse Stock Split

 

On December 13, 2023, the Company filed a certificate of amendment to its certificate of incorporation to effect a 1-for-15 reverse stock split of the issued and outstanding common stock, or the Reverse Stock Split. As a result of the Reverse Stock Split, every 15 shares of issued and outstanding common stock was converted into one issued and outstanding share of common stock, without any change in par value per share. The Reverse Stock Split affected all shares of common stock outstanding immediately prior to the effectiveness of the Reverse Stock Split, as well as the number of shares of common stock available for issuance under the equity incentive plans and employee stock purchase plan. In addition, the Reverse Stock Split effected a reduction in the number of shares of common stock issuable upon the exercise of stock options, restricted stock units and warrants outstanding immediately prior to the effectiveness of the Reverse Stock Split with a corresponding increase in the exercise price per share applicable to such stock options and warrants. No fractional shares were issued because of the Reverse Stock Split. Stockholders who would otherwise be entitled to receive a fractional share received a cash payment in lieu thereof. All share and per share amounts in these unaudited condensed consolidated financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to the Reverse Stock Split.

 

Note 2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The Company’s unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP, as determined by the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, and pursuant to the regulations of the U.S. Securities and Exchange Commission, or SEC. As permitted under those rules, certain notes or other financial information that are normally required by U.S. GAAP have been condensed or omitted and accordingly, the consolidated balance sheet as of December 31, 2023 has been derived from the Company’s audited consolidated financial statements at that date but does not include all of the information required by U.S. GAAP for complete consolidated financial statements. These unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of the Company’s consolidated financial statements. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the year ended December 31, 2024 or for any other interim period or future year.

 

5


 

 

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiary. All intercompany transactions and balances have been eliminated.

 

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K, filed with the SEC on April 10, 2024.

 

Use of Estimates

 

The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions made in the accompanying unaudited condensed consolidated financial statements include certain accrued expenses for research and development activities. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could materially differ from those estimates.

 

Concentration of Credit Risk

 

Financial instruments, which potentially subject the Company to significant concentration of credit risk, consist of cash and cash equivalents. The Company’s cash is held by financial institutions that may at times exceed federally insured limits. However, the Company’s exposure to credit risk in the event of default by the financial institution is limited to the extent of amounts recorded on the unaudited condensed consolidated balance sheets. The Company believes it is not exposed to significant credit risk on cash. The Company’s cash equivalents were held in custodial accounts maintained by third-party custodians. The Company’s policy is to invest cash in institutional money market funds with high credit quality to limit the amount of credit exposure. The Company has not experienced any losses on its cash equivalents.

Revenue Recognition

The Company records accounts receivable for amounts billed to the customer for which the Company has an unconditional right to consideration. The Company assesses accounts receivable for credit losses and, to date, no credit losses have been recorded.

 

The Company has a Collaboration and License Agreement, or CLA, with Boehringer Ingelheim International GmbH, or BI, to which the Company licensed certain rights to its intellectual property that is determined within the scope of ASC 606. The terms of the CLA include payments to the Company of a non-refundable upfront payment, development, regulatory and commercial milestone payments and royalties on net sales of licensed products.

 

The Company determined that the Company’s intellectual property granted to BI represented one performance obligation for the purposes of conducting the partnership research and further development on SZN-413. The transaction price was determined to be the non-refundable upfront payment. Variable consideration related to future milestones was fully constrained because the Company cannot conclude that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur, given the inherent uncertainty of success with these future milestones. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. The Company will recognize sales-based royalties as revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalties that have been allocated have been satisfied (or partially satisfied).

 

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss attributable to common stock by the weighted-average number of shares of common stock outstanding for the period, without consideration for potential dilutive securities. Since the Company was in a loss position for the periods presented, basic net loss per share is the same as diluted net loss per share as the effects of the potentially dilutive securities are antidilutive. The following table presents the potential shares of common stock outstanding that were excluded from the computation of diluted net loss per share of common stock as of the periods presented because including them would have been antidilutive (in thousands):

 

 

6


 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Common stock issuable upon exercise of stock options

 

 

310

 

 

 

342

 

Unvested restricted stock awards

 

 

3

 

 

 

6

 

Unvested restricted stock units

 

 

44

 

 

 

 

Unvested common stock subject to repurchase

 

 

 

 

 

1

 

Common stock issuable upon exercise of warrants

 

 

5,907

 

 

 

5,907

 

Total

 

 

6,264

 

 

 

6,256

 

 

Recent Accounting Pronouncements

In August 2020, the FASB issued Accounting Standards Update 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40). This standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments, amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions, and modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted earning per share calculation. The standard is effective for annual periods beginning after December 15, 2023 for smaller reporting companies, and interim periods within those reporting periods. The Company adopted this standard effective January 1, 2024, using a modified retrospective method. The adoption of the standard did not have a material impact on the Company's unaudited condensed consolidated financial statements and related disclosures.

In December 2023, the FASB issued Accounting Standards Update 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The standard requires entities to disclose additional categories about federal, state and foreign income taxes in the effective tax rate reconciliation as well as provide annual income taxes paid disaggregated by federal, state and foreign taxes. The standard is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company is evaluating the impact of adopting this standard on its unaudited condensed consolidated financial statements and related disclosures.

In November 2023, the FASB issued Accounting Standards Update 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The standard improves reportable segment disclosure requirements through enhanced disclosures about significant segment expenses and information used to assess segment performance. All disclosure requirements of the update are required for entities with a single reportable segment. The standard is effective for annual periods beginning after December 15, 2023, and interim periods beginning thereafter. Early adoption is permitted and requires retrospective application to all prior periods presented in the financial statements. The Company is evaluating the impact of adopting this standard on its unaudited condensed consolidated financial statements and related disclosures.

Note 3. Fair Value Measurement

 

The following tables summarize the Company’s financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):

 

 

 

As of March 31, 2024

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

22,397

 

 

$

 

 

$

 

 

$

22,397

 

Total financial assets measured at fair value

 

$

22,397

 

 

$

 

 

$

 

 

$

22,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities(2):

 

 

 

 

 

 

 

 

 

 

 

 

Public Warrants

 

$

82

 

 

$

 

 

$

 

 

$

82

 

PIPE Warrants

 

 

 

 

 

96

 

 

 

 

 

 

96

 

Total financial liabilities measured at fair value

 

$

82

 

 

$

96

 

 

$

 

 

$

178

 

 

 

 

7


 

 

 

As of December 31, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds(1)

 

$

33,014

 

 

$

 

 

$

 

 

$

33,014

 

Total financial assets measured at fair value

 

$

33,014

 

 

$

 

 

$

 

 

$

33,014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities(2):

 

 

 

 

 

 

 

 

 

 

 

 

Public Warrants

 

$

53

 

 

$

 

 

$

 

 

$

53

 

PIPE Warrants

 

 

 

 

 

62

 

 

 

 

 

 

62

 

Total financial liabilities measured at fair value

 

$

53

 

 

$

62

 

 

$

 

 

$

115

 

 

 

(1)
Included in cash and cash equivalents on the condensed consolidated balance sheet.
(2)
See Note 10.

There were no changes to the valuation methods utilized and there were no transfers of financial instruments between Level 1, Level 2, and Level 3 during the three months ended March 31, 2024.

 

The Public Warrants are classified as Level 1 due to the use of an observable market quote in an active market. The PIPE Warrants are classified as Level 2 due to the use of observable market data for identical or similar liabilities. The fair value of each PIPE Warrant is determined to be consistent with that of a Public Warrant because the PIPE Warrants are also subject to the make-whole redemption feature, which allows the Company to redeem both types of warrants on similar terms.

 

Assets that are Measured at Fair Value on a Nonrecurring Basis

 

The Company’s non-financial assets such as property and equipment and operating lease right-of-use assets, are adjusted to fair value on a nonrecurring basis when an impairment has occurred. As of December 31, 2023, the Company identified an indicator of impairment of its long-lived assets due to a sustained decline in the trading price of the Company’s common stock over the preceding year, resulting in the Company’s market capitalization being below its net asset value. The Company concluded that the carrying value of its long-lived assets was not recoverable and recognized an impairment loss of $0.2 million during the fourth quarter of 2023 based on the fair value of the individual assets.

To determine the fair value of the individual assets, the Company utilized the discounted cash flow method of the income approach based on market participant assumptions with Level 3 inputs. These represent a Level 3 nonrecurring fair value measurement. Calculating the fair value of the assets involves significant estimates and assumptions. These estimates and assumptions include, among others, projected future cash flows, risk-adjusted discount rates and market conditions. Changes in the factors and assumptions used could materially affect the amount of impairment loss recognized in the period the asset was considered impaired.

The Company is not aware of any identified events or changes in circumstances that would have a significant adverse effect on the carrying value of its long-lived assets for the three months ended March 31, 2024.

Note 4. Balance Sheet Components

 

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Prepaid research and development expenses

 

$

784

 

 

$

1,751

 

Prepaid insurance

 

 

418

 

 

 

606

 

Other

 

 

1,395

 

 

 

580

 

Prepaid expenses and other current assets

 

$

2,597

 

 

$

2,937

 

 

 

8


 

 

 

Accrued and Other Liabilities

Accrued and other liabilities consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Accrued payroll and related expenses

 

$

1,489

 

 

$

2,508

 

Accrued research and development expenses

 

 

1,162

 

 

 

1,261

 

Accrued professional service fees

 

 

679

 

 

 

65

 

Other

 

 

155

 

 

 

292

 

Accrued and other liabilities

 

$

3,485

 

 

$

4,126

 

 

Note 5. Collaboration and License Agreements

 

Collaboration and License Agreement with Boehringer Ingelheim International GmbH

 

In October 2022, the Company executed the CLA with BI to research, develop and commercialize Fzd4 bi-specific antibodies designed using the Company’s SWAP technology, including SZN-413. The Company and BI are conducting partnership research focused on SZN-413 during a one-year period, which BI extended for an additional six-month period. The Company granted BI an exclusive, royalty-bearing, worldwide, sublicensable license, under the applicable patents and know-how, to develop, manufacture and commercialize, for all uses, one lead and two back-up Fzd4 bi-specific antibodies selected by BI. After an initial period of joint research, BI shall be responsible for all further research, preclinical and clinical development, manufacturing, regulatory approvals, and commercialization of licensed products at its expense. Unless terminated earlier, the CLA will remain effective, on a country-by-country and product-by-product basis, until the expiration of BI's royalty obligations. BI has the right to terminate the CLA for any reason after a specified notice period. Each party has the right to terminate the CLA on account of the other party’s bankruptcy or material, uncured breach.

 

Under the terms of the CLA, BI agreed to pay a non-refundable upfront payment of $12.5 million less any applicable withholding tax, success-based milestone payments up to a total of $587.0 million and mid-single digit to low-double digit royalties on net sales of the licensed products should any reach commercialization. The royalty payments will be subject to reduction due to patent expiration, generic competition and payments made under certain licenses for third-party intellectual property. The Company received $10.5 million of the upfront payment from BI in November 2022. The associated withholding tax of $2.1 million is expected to be refunded to the Company in 2024 and recognized as accounts receivable on the condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023.

 

The Company determined that the CLA is within the scope of ASC 606. The Company evaluated the promised goods and services and determined that the license to the Company’s intellectual property granted to BI represented one performance obligation for the purposes of conducting the partnership research and further development on SZN-413. The transaction price was determined to be $12.5 million, which is the non-refundable upfront payment. Variable consideration related to future milestones was fully constrained because the Company cannot conclude that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur, given the inherent uncertainty of success with these future milestones. For sales-based royalties, the Company determined that the license is the predominant item to which the royalties relate to. Accordingly, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all the royalty has been allocated has been satisfied (or partially satisfied). The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

 

Note 6. License Agreements

 

Stanford License Agreements

 

In March 2016, the Company entered into a license agreement with Stanford University, or the 2016 Stanford Agreement, which was amended in July 2016, October 2016 and January 2021, pursuant to which the Company obtained from Stanford a worldwide, exclusive, sublicensable license under certain patents, rights, or licensed patents and technology related to its engineered Wnt surrogate molecules to make, use, import, offer to sell and sell products that are claimed by the licensed patents or that use or incorporate such technology, or licensed products, for the treatment, diagnosis and prevention of human and veterinary diseases. The Company agreed to pay Stanford (i) nominal annual license maintenance fees which are creditable against earned royalties owed to Stanford for the same year, (ii) an aggregate of up to $0.9 million for the achievement of specified development and regulatory milestones, and (iii) an aggregate of up to

 

9


 

$5.0 million for achievement of specified sales milestones. Stanford is also entitled to receive royalties from the Company equal to a very low single digit percentage of the Company’s and its sublicensees’ net sales of licensed products that are covered by a valid claim of a licensed patent. Additionally, the Company agreed to pay Stanford a sub-teen double digit percentage of certain consideration the Company receives as a result of granting sublicenses to the licensed patents. However, the Company and Stanford may be able to negotiate a lower non-royalty sublicense percentage based on then-current value of the licensed patents for each sublicense product. If the Company is acquired, it agreed to pay a one-time change of control fee in the low six figures. Stanford retains the right under the 2016 Stanford Agreement, on behalf of itself, Stanford Hospital and Clinics, the University of Washington and all other non-profit research institutions, to practice the licensed patents and technology for any non-profit purpose. The licensed patents and technology are additionally subject to a non-exclusive, irrevocable, worldwide license held by the Howard Hughes Medical Institute to practice the licensed patents and technology for its research purposes, but with no right to assign or sublicense.

In June 2018, the Company entered into another license agreement with Stanford, or the 2018 Stanford Agreement, pursuant to which the Company obtained from Stanford a worldwide, exclusive, sublicensable license under certain patent rights related to its surrogate R-spondin proteins, or the licensed patents, to make, use, import, offer to sell and sell products that are claimed by the licensed patents, or licensed products, for the treatment, diagnosis and prevention of human and veterinary diseases, or the exclusive field. Additionally, Stanford granted the Company a worldwide, non-exclusive, sublicensable license under the licensed patents to make and use licensed products for research and development purposes in furtherance of the exclusive field and a worldwide, non-exclusive license to make, use and import, but not to offer to sell or sell licensed products in any other field of use. The Company agreed to pay Stanford an aggregate of up to $0.4 million for the achievement of specified development and regulatory milestones. Stanford is also entitled to receive royalties from the Company equal to a sub-single digit percentage of the Company’s and its sublicensees’ net sales of licensed products. Additionally, Stanford is entitled to receive a one-time payment in the low six figures for each sublicense of the licensed patents that the Company grants to a third party and, if the Company is acquired, a one-time nominal change of control fee.

 

For the three months ended March 31, 2024 and 2023, the Company incurred de minimis research and development expenses under the Stanford agreements. No milestones have been achieved as of March 31, 2024.

 

UCSF License and Option Agreements

 

In September and October 2016, the Company entered into two separate license and option agreements with The Regents of the University of California, or the UCSF Agreements, pursuant to which the Company obtained exclusive licenses from UCSF for internal research and antibody discovery purposes and an option to negotiate with UCSF to obtain an exclusive license under UCSF’s rights in the applicable library to make, use, sell, offer for sale and import products incorporating antibodies identified or resulting from the Company’s use of such library, or licensed products.

In January 2020, the Company amended and restated the UCSF Agreements to provide non-exclusive licenses to make and use a certain human Fab naïve phage display library and to make and use a certain phage display llama VHH single domain antibody library for internal research and antibody discovery purposes and an option to negotiate with UCSF to obtain a non-exclusive commercial license under UCSF’s rights in the applicable library to make, use, sell, offer for sale and import products incorporating antibodies identified or resulting from the Company’s use of such library, or licensed products.

In March 2022, the Company exercised the option under the UCSF Agreements and entered into a non-exclusive commercial license agreement to make and use licensed products derived from the phage display llama VHH single domain antibody library. Under the commercial license agreement, the Company paid UCSF a nominal license issue fee and agreed to pay a nominal annual license maintenance fee, five- to six-digit payments per licensed product upon achievement of a regulatory milestone, nominal minimum annual royalties, and earned royalties equal to a sub-single digit percentage of the Company’s and the Company’s sublicensees’ net sales of licensed products.

For the three months ended March 31, 2024 and 2023 the Company incurred de minimis research and development expenses under the UCSF Agreements and the commercial license agreement. No milestones have been achieved as of March 31, 2024.

 

Distributed Bio Subscription Agreement

 

In September 2016, the Company entered into, and in January 2019, the Company amended, an antibody library subscription agreement with Charles River Laboratories International, Inc., formerly known as Distributed Bio, Inc., or the Distributed Bio Agreement, in which the Company obtained from Distributed Bio a non-exclusive license to use Distributed Bio’s antibody library to identify antibodies directed to an unlimited number of the Company’s proprietary targets and to make, use, sell, offer for sale, import and exploit products incorporating the antibodies that the Company identifies, or licensed products. The Company agreed to pay Distributed Bio an annual fee in the low six figures after the first three years. Additionally, the Company agreed to pay Distributed Bio an aggregate of $5.9 million for each licensed product that achieves specified development, regulatory and commercial milestones and royalties equal to a very low

 

10


 

single digit percentage of the Company’s and its sublicensees’ net sales of licensed products. The Company’s obligation to pay royalties will end for each licensed product ten years after its first commercial sale.

 

In September 2023, the Company amended the Distributed Bio Agreement to cease its use of Distributed Bio’s antibody library and terminate the Company’s obligation to pay the respective annual fee. The obligations to make milestone and royalty payments for use of each licensed product remain in full force and effect.

 

For the three months ended March 31, 2024 and 2023, the Company incurred zero and $0.1 million of research and development expenses under the Distributed Bio Agreement, respectively. The Company achieved a milestone with regard to the initiation of the Phase 1 clinical trial for SZN-1326 in May 2022.

 

Note 7. Restructuring

 

In January 2023, the Company implemented a restructuring plan approved by the board of directors to prioritize and focus its resources on key clinical and discovery programs. The plan included a reduction of the Company’s overall workforce by approximately 25% in the first quarter of 2023. In connection with the workforce reduction, the Company incurred one-time restructuring charges, including employee severance and other termination benefits, of approximately $1.2 million in the first quarter of 2023.

In July 2023, the Company implemented a restructuring plan approved by the board of directors to further reduce its overall workforce by approximately 38% to better align its workforce with the business needs and focus more of its capital resources on its clinical stage programs. The Company completed the workforce reduction in 2023 and incurred one-time restructuring charges, including employee severance and other termination benefits, of approximately $1.6 million to be recognized ratably over the requisite service period in 2023.

 

The outstanding restructuring liabilities are included in accrued and other liabilities on the condensed consolidated balance sheet. The following tables summarize activity during the three months ended March 31, 2024 and 2023 (in thousands):

 

 

Employee Severance and Other Benefits

 

Balance, December 31, 2023

 

$

74

 

Cash payments

 

 

(44

)

Personnel adjustments

 

 

(30

)

Balance, March 31, 2024

 

$

 

 

 

 

Employee Severance and Other Benefits

 

Balance, December 31, 2022

 

$

 

Restructuring charges

 

 

1,207

 

Cash payments

 

 

(726

)

Balance, March 31, 2023

 

$

481

 

 

Note 8. Commitments and Contingencies

 

Lease Agreement

 

In August 2016, the Company entered into a lease agreement for office and lab space, which consists of approximately 32,813 square feet of rental space in South San Francisco, California. The office space lease is classified as an operating lease. The initial lease term commenced in May 2017 and ends in April 2025, with rent payments escalating each year. The Company has options to extend the lease for additional years, but the exercise of the option was not reasonably certain. In connection with the lease, the Company maintains a letter of credit for the benefit of the landlord in the amount of $0.4 million, which is recorded as restricted cash in the condensed consolidated balance sheets.

 

The operating lease expense for each of the three months ended March 31, 2024 and 2023 was $0.4 million.

 

11


 

 

Aggregate future minimum rental payments under the operating leases as of March 31, 2024, were as follows (in thousands):

 

Remaining nine months ending December 31, 2024

 

$

2,014

 

Year ending December 31, 2025

 

 

891

 

Total lease payments

 

 

2,905

 

Less: Imputed interest

 

 

(119

)

Operating lease liabilities

 

$

2,786

 

 

Note 9. Stockholders’ Equity

 

Equity Purchase Agreement

 

In February 2022, the Company entered into a purchase agreement with Lincoln Park Capital Fund, LLC, or Lincoln Park, or the Equity Purchase Agreement, pursuant to which Lincoln Park is obligated to purchase up to $50.0 million shares of the Company’s common stock.

 

Upon execution of the Equity Purchase Agreement, the Company issued nominal shares of common stock to Lincoln Park with the fair value of $0.3 million as consideration for Lincoln Park’s commitment to purchase the Company’s common stock. In the event that the Company sells an aggregate of $30.0 million shares of its common stock under the Equity Purchase Agreement, the Company shall pay an additional commitment fee of $0.1 million in cash to Lincoln Park. As of March 31, 2024, the Company has not sold any shares of common stock under the Equity Purchase Agreement.

 

At-the-Market Sales Agreement

 

In December 2022, the Company entered into a sales agreement with Guggenheim Securities, LLC to issue and sell up to $23.0 million shares of the Company’s common stock, or the 2022 ATM. The compensation payable to Guggenheim is equal to 3.0% of the gross sales price of any shares sold through it pursuant to the sales agreement. As of March 31, 2024, the Company has not sold any shares of common stock under the 2022 ATM.

 

Note 10. Common Stock Warrants

 

The following table sets forth the common stock warrants outstanding as of March 31, 2024 and December 31, 2023 (in thousands, except exercise price per warrant):

 

Type

 

Classification

 

Expiration Date

 

Exercise Price per Share

 

 

March 31, 2024

 

 

December 31, 2023

 

Public Warrants

 

Liability

 

August 12, 2026

 

$

172.50

 

 

 

2,733

 

 

 

2,733

 

PIPE Warrants

 

Liability

 

August 12, 2026

 

 

172.50

 

 

 

3,174

 

 

 

3,174

 

Total

 

 

 

 

 

 

 

 

 

5,907

 

 

 

5,907

 

 

Public Warrants

 

Given the effect of the Reverse Stock Split as described in Note 1, every 15 shares of common stock that may be purchased pursuant to the Company’s outstanding warrants immediately prior to the Reverse Stock Split represents 1 share of common stock that may be purchased pursuant to such warrants immediately following the Reverse Stock Split at a price of $172.50 per share, at any time commencing on November 23, 2021 and terminating at the earlier of August 12, 2026 or upon redemption or liquidation. The exercise price and number of shares issuable upon exercise of the Public Warrants may be adjusted in the event of a share dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. The Company would not be obligated to deliver any shares of common stock pursuant to the exercise of a Public Warrant and would have no obligation to settle such Public Warrant exercise unless a registration statement under the Securities Act with respect to the common stock underlying the Public Warrants is then effective. If the Company fails to have maintained an effective registration statement, the Public Warrant holders have the right to exercise the Public Warrants on a cashless basis until such time as there is an effective registration statement.

 

The Company may redeem the outstanding Public Warrants at a price of $0.01 per warrant if the closing price of common stock equals or exceeds $270.00 per share (as adjusted for share sub-divisions, share capitalizations, reorganizations, recapitalizations and similar transaction). Additionally, the Company may redeem the outstanding Public Warrants at a price of $0.10 per warrant if the closing price

 

12


 

of common stock equals or exceeds $150.00 per share (as adjusted for share sub-divisions, share capitalizations, reorganizations, recapitalizations and similar transaction). Notice of redemption shall be mailed to the Public Warrant holders no less than 30 days prior to the redemption date, or the Redemption Period. If the closing price of common stock equals or exceeds $150.00 per share and is less than $270.00 per share, during the Redemption Period, the Public Warrant holders may elect to exercise their Public Warrants on a cashless basis based on a make-whole table.

 

In no event will the Company be required to net cash settle the Public Warrants. The Public Warrant holders do not have the rights or privileges of common stockholders and any voting rights until they exercise their Public Warrants and receive common stock.

 

PIPE Warrants

 

At March 31, 2024, the PIPE Warrants are the same in all respects as the Public Warrants. On March 31, 2023, the Company entered into an amended and restated warrant agreement with Continental Stock Transfer & Trust Company as warrant agent, or the PIPE Warrant Agreement. PIPE Warrants may be converted into Public Warrants on transfer pursuant to the terms of the PIPE Warrant Agreement. As of March 31, 2024, no PIPE Warrants were converted into Public Warrants.

 

Classification

 

The Public Warrants and PIPE Warrants are not considered indexed to the Company’s common stock as certain provisions of the warrant agreements could change the settlement amount of these warrants. As a result, they were classified as liabilities and recorded at fair value with subsequent change in their respective fair value recognized in other expense, net within the unaudited condensed consolidated statements of operations and comprehensive loss.

 

Note 11. Stock-Based Compensation Plans

The Company maintains the 2021 Equity Incentive Plan, or the 2021 Plan, which provides for the granting of stock awards to employees, directors and consultants. Options granted under the 2021 Plan may be either incentive stock options or nonqualified stock options. Options granted under the 2021 Plan expire no later than 10 years from the date of grant. Options and restricted stock awards, or RSAs, under the 2021 Plan generally vest over four years. Restricted stock units, or RSUs, granted under the 2021 Plan generally vest in one year. As of March 31, 2024, there were 0.4 million shares of common stock available for issuance under the 2021 Plan.

The Company maintains the 2021 Employee Stock Purchase Plan, or the ESPP, which allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to plan limitations. An offering period under the ESPP consists of four six-month purchase periods, unless otherwise determined by the Company. The eligible employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the purchase day. As of March 31, 2024, there were 35,000 shares of common stock available for issuance under the ESPP. During the three months ended March 31, 2024, no shares were issued under the ESPP.

 

Stock Options

 

A summary of stock option activity is set forth below (shares in thousands):

 

 

 

Options Outstanding

 

 

 

 

 

 

Weighted

 

 

Average

 

 

Aggregate

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Intrinsic

 

 

 

Number of

 

 

Exercise

 

 

Contractual Life

 

 

Value

 

 

 

Options

 

 

Price

 

 

(In years)

 

 

(In thousands)

 

Outstanding – December 31, 2023

 

 

311

 

 

$

27.70

 

 

 

7.99

 

 

 

 

Granted

 

 

 

 

 

7.89

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

25.02

 

 

 

 

 

 

 

Expired

 

 

(1

)

 

 

33.32

 

 

 

 

 

 

 

Outstanding – March 31, 2024

 

 

310

 

 

 

27.69

 

 

 

7.75

 

 

$

310

 

Exercisable – March 31, 2024

 

 

179

 

 

$

28.59

 

 

 

7.27

 

 

 

293

 

 

The aggregate intrinsic value of options outstanding and exercisable are the difference between the exercise price of the options and the fair value of the Company’s common stock at March 31, 2024.

 

 

13


 

During the three months ended March 31, 2024 and 2023, the Company granted options with a weighted-average grant-date fair value of $6.00 and $9.90 per share.

 

No options were exercised during the three months ended March 31, 2024 and 2023.

The fair value of options is estimated at the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

2024

 

 

2023

 

Expected term (in years)

 

 

 

 

 

 

6.02

 

 

 

5.89

 

Expected volatility

 

 

 

 

 

 

89.83

%

 

 

85.82

%

Risk-free rate

 

 

 

 

 

 

4.00

%

 

 

3.93

%

Dividend yield

 

 

 

 

 

 

 

 

 

 

 

Restricted Stock Awards

 

The following table summarizes the Company’s RSAs activity (shares in thousands):

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

Number of

 

 

Grant Date

 

 

 

Shares

 

 

Fair Value

 

RSAs, unvested at December 31, 2023

 

 

4

 

 

$

146.92

 

Vested

 

 

(1

)

 

 

145.23

 

RSAs, unvested at March 31, 2024

 

 

3

 

 

 

147.38

 

 

The fair value of RSAs vested during the three months ended March 31, 2024 and 2023 was de minimis.

 

Restricted Stock Units

 

The following table summarizes the Company’s RSUs activity (shares in thousands):

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

Number of

 

 

Grant Date

 

 

 

Shares

 

 

Fair Value

 

RSUs, unvested at December 31, 2023

 

 

90

 

 

$

7.73

 

Vested

 

 

(44

)

 

 

7.73

 

Cancelled

 

 

(2

)

 

 

7.73

 

RSUs, unvested at March 31, 2024

 

 

44

 

 

$

7.73

 

 

The fair value of RSUs vested during the three months ended March 31, 2024 was $0.4 million.

 

Stock-Based Compensation

 

Total stock-based compensation expense recorded in the unaudited condensed consolidated statements of operations and comprehensive loss was as follows (in thousands):

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

2024

 

 

2023

 

Research and development

 

 

 

 

 

$

298

 

 

$

343

 

General and administrative

 

 

 

 

 

 

732

 

 

 

786

 

Total stock-based compensation expense

 

 

 

 

 

$

1,030

 

 

$

1,129

 

 

 

14


 

 

As of March 31, 2024, there was approximately $4.5 million of stock-based compensation expense to be recognized over a weighted-average period of approximately 1.49 years.

 

Note 12. Subsequent Event

 

Private Placement

In April 2024, the Company entered into a securities purchase agreement with certain institutional investors (the “Investors”) and management whereby the Company issued and sold in a private placement : (i) shares of common stock, (ii) pre-funded warrants to purchase shares of common stock, and (iii) warrants to purchase shares of common stock.

 

Pursuant to the agreement, the Company issued and sold to the Investors 1.1 million shares of common stock and pre-funded warrants to purchase up to 40,000 shares of common stock, at a purchase price of $15.50 and $15.4999, respectively, for aggregate gross proceeds of $17.5 million, before deducting placement agent fees and other expenses. Each pre-funded warrant has an exercise price of $0.0001 per share, is exercisable immediately and will not expire until exercised in full. The purchase price per share and per pre-funded warrant includes $1.25 for the following accompanying common stock warrants:

Series A common stock warrants to purchase up to 1.1 million shares of common stock with an exercise price of $15.50 per share, for aggregate gross proceeds of up to approximately $17.5 million, exercisable immediately upon issuance for five years.
Series B common stock warrants to purchase up to 1.2 million shares of common stock with an exercise price of $14.25 per share, for aggregate gross proceeds of up to approximately $17.5 million, exercisable immediately upon issuance until the fifth trading day following the Company’s announcement that (i) it has completed the enrollment of at least 15 patients with a 30-day mortality rate less than 30% in the Company’s SZN-043 Phase 1b clinical trial for the treatment of severe alcohol-associated hepatitis, with no recommended changes by the safety review committee to the study design, including changes related to dose or schedule, and (ii) safety review committee approval for the Company to advance to a higher dose cohort.
Series C common stock warrants to purchase up to 4.4 million shares of common stock with an exercise price of $16.00 per share, for aggregate gross proceeds of up to approximately $70 million, exercisable for 30 days following the Company’s announcement of final data from the SZN-043 phase 1b clinical trial for the treatment of severe alcohol-associated hepatitis. The Series C common stock warrants will also become exercisable in the event of a fundamental transaction.
Series D common stock warrants to purchase up to 4.4 million shares of common stock with an exercise price of $16.00 per share, for aggregate gross proceeds of up to approximately $70 million, exercisable for 30 days following the Company’s announcement of the enrollment of at least 50 patients in the SZN-043 Phase 2/3 clinical trial for the treatment of severe alcohol-associated hepatitis. The Series D common stock warrants will also become exercisable in the event of a fundamental transaction.

 

Additionally, the Company issued and sold to members of management an additional 2,948 shares of common stock at a purchase price of $16.96 per share for aggregate gross proceeds of $0.1 million. The purchase price per share includes $1.25 for the following accompanying common stock warrants:

Series A common stock warrants to purchase up to 2,948 shares of common stock with an exercise price of $16.96 per share.
Series B common stock warrants to purchase up to 3,206 shares of common stock with an exercise price of $15.71 per share.
Series C common stock warrants to purchase up to 11,424 shares of common stock with an exercise purchase price of $16.00 per share.
Series D common stock warrants to purchase up to 11,424 shares of common stock with an exercise price of $16.00 per share.

 

 

15


 

Sublease

In April 2024, the Company entered into a related party transaction with Nura Bio, Inc. to sublease approximately 6,102 square feet of the Company’s office and laboratory space in South San Francisco, California. The sublease term is on a month-to-month basis and the monthly base rent is approximately $35,000, escalating at 3% per annum. Nura Bio, Inc. is also responsible for its share of real estate taxes, utilities and other operating expenses applicable to the subleased space. Please see “Part II, Item 5 – Other Information” for a further discussion of the sublease.

 

16


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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, and our consolidated financial statements and related notes thereto for the year ended December 31, 2023 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on April 10, 2024.

 

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 Quarterly Report, as well as those contained from time to time in our other filings with the SEC. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.

 

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-selective 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-selective 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.

 

SZN-043 is our candidate in development for severe alcohol-associated hepatitis, or severe AH. SZN-043, a hepatocyte-specific R-spondin mimetic bispecific fusion protein targeting ASGR1, is the first development candidate using Surrozen’s SWEETS technology which is designed to mimic the regenerative properties of the protein R-Spondin by enhancing Wnt signaling in a cell-targeted manner. In multiple preclinical animal models of liver injury and fibrosis, SZN-043 has been shown to selectively activate Wnt signaling in the liver, stimulate transient hepatocyte proliferation, improve liver function and reduce fibrosis. The Phase 1a study was completed in February 2024. SZN-043 demonstrated acceptable safety and tolerability in the planned Phase 1b dose range (0.5 mg/kg to 1.5 mg/kg), with evidence of target engagement, Wnt signal activation and effects on liver function. The observed safety, pharmacokinetics and pharmacodynamic activity were the basis for our previous announcement that we planned to initiate enrollment in the Phase 1b study in severe AH. We are actively initiating the aforementioned Phase 1b clinical trial and anticipate potential proof-of-concept data from the Phase 1b clinical trial in the first half of 2025.

 

SZN-413, a Fzd4 targeted bi-specific antibody, is being developed as a novel treatment for retinal vascular-associated diseases and utilizes our proprietary SWAP technology to activate Wnt signaling. Fzd4 mediated Wnt signaling is known to play a critical role in

 

17


 

retinal vascular integrity and function. Data generated in preclinical models of retinopathy demonstrated SZN-413 stimulated Wnt signaling and was able to induce normal retinal vessel regrowth while suppressing pathological vessel growth. In October 2022, we executed a Collaboration and Licensing Agreement, or CLA, with Boehringer Ingelheim International GmbH, or BI, to research, develop and commercialize Fzd4 bi-specific antibodies designed using our SWAP technology, including SZN-413. We anticipate the potential to nominate the lead Fzd-4 targeted Wnt agonist development candidate in 2024, which would trigger a $10.0 million milestone payment to us. See note 5 to the unaudited condensed consolidated financial statements for further information regarding our licensing and collaboration agreement with BI.

 

The chart below represents a summary of our wholly owned product candidates:

 

img200698715_0.jpg 

 

By leveraging our in house capabilities and scientific approach, we have identified multiple potential tissue types to explore. Our research efforts are currently focused on applications in the eye.

 

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 March 31, 2024 and 2023, we incurred net losses of $8.8 million and $14.3 million, respectively. As of March 31, 2024, we had an accumulated deficit of $230.5 million and cash and cash equivalents of $27.3 million.

 

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 clinical trials, the development and validation of our manufacturing processes, and other research and development activities.

Critical Accounting Policies, Significant Judgments and Use of Estimates

Our unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.

 

During the three months ended March 31, 2024, there were no material changes to our critical accounting policies or in the methodology used for estimates from those described under Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023.

 

18


 

 

Results of Operations

Comparison of the Three Months Ended March 31, 2024 and 2023

 

The following table summarizes results of operations for the periods presented (dollars in thousands):

 

 

 

Three Months Ended March 31,

 

 

$

 

 

%

 

 

 

2024