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What changed in Surrozen, Inc./DE's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Surrozen, Inc./DE's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+473 added−639 removedSource: 10-K (2024-04-10) vs 10-K (2023-03-31)

Top changes in Surrozen, Inc./DE's 2023 10-K

473 paragraphs added · 639 removed · 386 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

129 edited+37 added−123 removed227 unchanged
Biggest changeCongress enacted the Affordable Care Act, which included changes to the coverage and reimbursement of drug products under government healthcare programs such as: • increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program; • established a branded prescription drug fee that pharmaceutical manufacturers of certain branded prescription drugs must pay to the federal government; • expanded the list of covered entities eligible to participate in the 340B drug pricing program by adding new entities to the program; • established a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% (increased to 70%, effective as of 2019) point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; 38 • extended manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; • expanded eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability; • created a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for certain drugs and biologics, including our product candidates, that are inhaled, infused, instilled, implanted or injected; • established a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; • established a Center for Medicare and Medicaid Innovation at the CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending; and • created a licensure framework for follow-on biologic products.
Biggest changeAmong other things, the Affordable Care Act, among other things, increased the minimum level of Medicaid rebates payable by manufacturers of brand name drugs; required collection of rebates for drugs paid by Medicaid managed care organizations; required manufacturers to participate in a coverage gap discount program, under which they must agree to offer point-of-sale discounts (increased to 70 percent, effective as of January 1, 2019) off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; imposed a non-deductible annual fee on pharmaceutical manufacturers or importers who sell certain “branded prescription drugs” to specified federal government programs, implemented a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted, or injected expanded the types of entities eligible for the 340B drug discount program; expanded eligibility criteria for Medicaid programs; created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and established a Center for Medicare Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending. 29 There have been executive, judicial and congressional challenges to certain aspects of the Affordable Care Act.
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.
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.
Pediatric Information Under the Pediatric Research Equity Act (PREA), BLAs or supplements to BLAs must contain data to assess the safety and effectiveness of the biological product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the biological product is safe and effective.
Pediatric Information Under the Pediatric Research Equity Act, or PREA, BLAs or supplements to BLAs must contain data to assess the safety and effectiveness of the biological product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the biological product is safe and effective.
The Best Pharmaceuticals for Children Act (BPCA) provides a six-month extension of any exclusivity—patent or non-patent—for a biologic if certain conditions are met.
The Best Pharmaceuticals for Children Act, or BPCA, provides a six-month extension of any exclusivity—patent or non-patent—for a biologic if certain conditions are met.
For additional information on the competitive risks we face, please see the section of this Report titled “ Risk Factors—Risks Related to Our Business—We face competition from entities that have developed or may develop product candidates for the treatment of the diseases that we may target... ” Government Regulation Government authorities in the United States at the federal, state and local level and in other countries and jurisdictions including the European Union, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of biological products, such as our product candidates and any future product candidates.
For additional information on the competitive risks we face, please see the section of this Annual Report titled “ Risk Factors—Risks Related to Our Business—We face competition from entities that have developed or may develop product candidates for the treatment of the diseases that we may target... ” Government Regulation Government authorities in the United States at the federal, state and local level and in other countries and jurisdictions including the European Union, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of biological products, such as our product candidates and any future product candidates.
Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; • HIPAA, as amended by Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their implementing regulations, which impose privacy, security and breach reporting obligations with respect to individually identifiable health information upon entities subject to the law, such as health plans, healthcare clearinghouses and certain healthcare providers, known as covered entities, and their respective business associates that perform services for them that involve individually identifiable health information.
Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; • HIPAA, as amended by Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their implementing regulations, which impose privacy, security and breach reporting obligations with respect to individually identifiable health information upon entities subject to the law, such as health plans, healthcare clearinghouses and certain healthcare providers, known as covered entities, and their respective business associates and covered subcontractors that perform services for them that involve individually identifiable health information.
LGRs are widely expressed and result in R-spondins enhancing Wnt signaling in a broad variety of tissues. Based on preclinical studies, we have been able to eliminate the requirement for LGR binding through substitution of binding to different cell surface receptors; and 8 Targeting specific cell types. We have designed multiple antibodies targeted to several cell surface receptors.
LGRs are widely expressed and result in R-spondins enhancing Wnt signaling in a broad variety of tissues. Based on preclinical studies, we have been able to eliminate the requirement for LGR binding through substitution of binding to different cell surface receptors; and Targeting specific cell types. We have designed multiple antibodies targeted to several cell surface receptors.
The FDA is not bound by recommendations of an advisory committee, but it generally considers such recommendations carefully when making decisions on approval. 32 After the FDA evaluates a BLA and conducts inspections of manufacturing facilities where the investigational product is produced, it will issue either an approval letter or a Complete Response Letter, or CRL.
The FDA is not bound by recommendations of an advisory committee, but it generally considers such recommendations carefully when making decisions on approval. After the FDA evaluates a BLA and conducts inspections of manufacturing facilities where the investigational product is produced, it will issue either an approval letter or a Complete Response Letter, or CRL.
Based on preclinical studies, these antibodies have demonstrated specificity to multiple tissues and cell lineages. The engineered antibodies specifically upregulated Wnt-signaling with greater tissue specificity than non-targeted controls and stimulated proliferation Figure 2 below illustrates the effect of Fzd (and Lrp) stabilization on promoting Wnt signaling.
Based on preclinical studies, these antibodies have demonstrated specificity to multiple tissues and cell lineages. The engineered antibodies specifically upregulated Wnt-signaling with greater tissue specificity than non-targeted controls and stimulated proliferation 7 Figure 2 below illustrates the effect of Fzd (and Lrp) stabilization on promoting Wnt signaling.
Selectivity: Our antibody-based proteins are capable of selective binding to individual Fzd and Lrp receptor isoforms and selective isoform binding has the potential to confer tissue selectivity. 7 Manufacturability: Our antibody platform is designed to produce molecules with properties suitable for manufacturing and to overcome the challenges of Wnt protein derivates.
Selectivity: Our antibody-based proteins are capable of selective binding to individual Fzd and Lrp receptor isoforms and selective isoform binding has the potential to confer tissue selectivity. Manufacturability: Our antibody platform is designed to produce molecules with properties suitable for manufacturing and to overcome the challenges of Wnt protein derivates.
Overview Our mission is to transform the treatment of serious disease by fully exploiting the Wnt pathway. 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.
Our mission is to transform the treatment of serious disease by fully exploiting the Wnt pathway. 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.
For example, fast track designation may be granted for products that are intended to treat a serious or life-threatening disease or condition for which there is no effective treatment and where preclinical or clinical data demonstrate the potential to address unmet medical needs for the disease condition.
Fast track designation may be granted for products that are intended to treat a serious or life-threatening disease or condition for which there is no effective treatment and where preclinical or clinical data demonstrate the potential to address unmet medical needs for the disease condition.
The principal purposes of our equity incentive plans are to attract, retain and motivate selected employees, consultants and directors through the granting of stock-based compensation awards. 39 Strategic Talent and Culture Vision We are committed to being a great place to work for enterprising pioneers.
The principal purposes of our equity incentive plans are to attract, retain and motivate selected employees, consultants and directors through the granting of stock-based compensation awards. Strategic Talent and Culture Vision We are committed to being a great place to work for enterprising pioneers.
Generally, patents issued for regularly filed applications in the 28 United States are granted a term of 20 years from the earliest effective non-provisional filing date. In addition, in certain instances, a patent term can be extended to recapture a portion of the U.S.
Generally, patents issued for regularly filed applications in the United States are granted a term of 20 years from the earliest effective non-provisional filing date. In addition, in certain instances, a patent term can be extended to recapture a portion of the U.S.
The importance of the Wnt signaling pathway and the potential therapeutic applications of Wnt pathway mimetics are expected to provide us with an abundance of product 11 candidates. We believe this generates an exciting opportunity to enter into strategic alliances to accelerate product development and maximize commercial potential.
The importance of the Wnt signaling pathway and the potential therapeutic applications of Wnt pathway mimetics are expected to provide us with an abundance of product candidates. We believe this generates an exciting opportunity to enter into strategic alliances to accelerate product development and maximize commercial potential.
After a BLA is approved, the product may also be subject to official lot release as a condition of approval. As part of the 34 manufacturing process, the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution.
After a BLA is approved, the product may also be subject to official lot release as a condition of approval. As part of the manufacturing process, the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution.
One patent family has been allowed or granted in Australia, Europe, Japan and the United States and is pending in the United States, Australia, Canada, and Japan, and any patents that grant from this patent family are predicted to expire in 2035 absent any patent term adjustment or extension.
One patent family has been granted in Australia, Europe, Japan and the United States and is pending in the United States, Australia, Canada, and Japan, and any patents that grant from this patent family are predicted to expire in 2035 absent any patent term adjustment or extension.
Ankasa Regenerative Therapeutics, Inc. is developing a liposomal formulation of recombinant human 29 Wnt3A protein, that is applied ex vivo, to harvested autologous bone grafts (autograft) to enhance the osteogenic properties of the autograft prior to reimplantation in orthopedic surgeries.
Ankasa Regenerative Therapeutics, Inc. is developing a liposomal formulation of recombinant human Wnt3A protein, that is applied ex vivo, to harvested autologous bone grafts (autograft) to enhance the osteogenic properties of the autograft prior to reimplantation in orthopedic surgeries.
For five years after the effective date of the CLA, we are prohibited from preclinically and clinically developing 25 or commercializing Fzd4 bi-specific antibodies for any diseases of the eye, and BI is prohibited from clinically developing or commercializing licensed products for any purpose other than diseases of the eye.
For five years after the effective date of the CLA, we are prohibited from preclinically and clinically developing or commercializing Fzd4 bi-specific antibodies for any diseases of the eye, and BI is prohibited from clinically developing or commercializing licensed products for any purpose other than diseases of the eye.
Under the goals agreed to by the FDA under the PDUFA, the FDA has ten months, from the filing date, in which to complete its initial review of an original BLA and respond to the applicant, and six months from the filing date of an original BLA designated for priority review.
Under the goals agreed to by the FDA under the PDUFA, the FDA has ten months, from the filing date, in which 23 to complete its initial review of an original BLA and respond to the applicant, and six months from the filing date of an original BLA designated for priority review.
Regulatory Approval in the United States In the United States, biological products are subject to regulation under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act, or PHSA, and other federal, state, local and foreign statutes and regulations.
Regulatory Approval in the United States In the United States, biological products are subject to regulation under the Federal Food, Drug, and Cosmetic Act, the Public Health 21 Service Act, or PHSA, and other federal, state, local and foreign statutes and regulations.
Expedited Development and Review Programs The FDA offers a number of expedited development and review programs for qualifying product candidates intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition.
Expedited Development and Review Programs 24 The FDA offers a number of expedited development and review programs for qualifying product candidates intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition.
As with drugs, after approval of biologics, manufacturers must address any safety issues that arise, are subject to recalls or a halt in manufacturing, and are subject to periodic inspection after approval.
As with drugs, after approval of biologics, manufacturers must address any safety issues that arise, are subject to recalls or a halt in manufacturing, and are subject to 25 periodic inspection after approval.
However, multivalent antibodies that contained multiple binding domains, either two Fzd-binding domains with one Lrp binding domain (the blue line in Figure 7 below) or two of each binding domain (the light green line), led to activation of the Wnt signaling pathway at concentrations that were 100 times or lower than required for activation by Wnt3a (the dark green line), as can be observed in Figure 7.
However, multivalent antibodies that contained multiple binding domains, either two Fzd-binding domains with one Lrp binding domain (the blue line in Figure 6 below) or two of each binding domain (the light green line), led to activation of the Wnt signaling pathway at concentrations that were 100 times or lower than required for activation by Wnt3a (the dark green line), as can be observed in Figure 6.
The process required by the FDA before biologic product candidates may be marketed in the United States generally involves the following: • completion of extensive preclinical laboratory and animal studies in accordance with applicable regulations, including studies conducted in accordance with the FDA’s Good Laboratory Practice, or GLP, requirements; • submission to the FDA of an IND, which must become effective before human clinical trials may begin; • approval by an institutional review board, or IRB, or independent ethics committee at each clinical trial site before each clinical trial may be commenced; • performance of adequate and well-controlled human clinical trials in accordance with applicable IND regulations, Good Clinical Practice (GCP) requirements and other clinical trial-related regulations to establish the safety, purity and potency of the product candidate for each proposed indication; • preparation and submission to the FDA of a biologics license application, or BLA, after completion of all clinical trials; • payment of any user fees for FDA review of the BLA; • a determination by the FDA within 60 days of its receipt of a BLA to accept the application for review; • satisfactory completion of an FDA Advisory Committee review, if applicable; • satisfactory completion of one or more FDA pre-approval inspections of the manufacturing facility or facilities where the biologic, or components thereof, will be produced to assess compliance with current cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the biologic’s identity, strength, quality and purity; • satisfactory completion of any potential FDA audits of the clinical trial sites that generated the data in support of the BLA to assure compliance with GCPs and integrity of the clinical data; and • FDA review and approval of the BLA to permit commercial marketing of the product for particular indications for use in the United States. 30 Preclinical Studies Before testing any biological product candidates in humans, the product candidate must undergo rigorous preclinical testing.
The process required by the FDA before biologic product candidates may be marketed in the United States generally involves the following: • completion of extensive preclinical laboratory and animal studies in accordance with applicable regulations, including studies conducted in accordance with the FDA’s Good Laboratory Practice, or GLP, requirements; • submission to the FDA of an IND, which must become effective before human clinical trials may begin; • approval by an institutional review board, or IRB, or independent ethics committee at each clinical trial site before each clinical trial may be commenced; • performance of adequate and well-controlled human clinical trials in accordance with applicable IND regulations, Good Clinical Practice, or GCP, requirements and other clinical trial-related regulations to establish the safety, purity and potency of the product candidate for each proposed indication; • preparation and submission to the FDA of a biologics license application, or BLA, after completion of all clinical trials; • payment of any user fees for FDA review of the BLA; • a determination by the FDA within 60 days of its receipt of a BLA to accept the application for review; • satisfactory completion of an FDA Advisory Committee review, if applicable; • satisfactory completion of one or more FDA pre-approval inspections of the manufacturing facility or facilities where the biologic, or components thereof, will be produced to assess compliance with current cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the biologic’s identity, strength, quality and purity; • satisfactory completion of any potential FDA audits of the clinical trial sites that generated the data in support of the BLA to assure compliance with GCPs and integrity of the clinical data; and • FDA review and approval of the BLA to permit commercial marketing of the product for particular indications for use in the United States.
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 royalty payments 17 will be subject to reduction due to patent expiration, generic competition and payments made under certain licenses for third-party intellectual property.
Our 36 current and future operations are subject to regulation by various federal, state, and local authorities in addition to the FDA, including but not limited to CMS, HHS (including the Office of Inspector General, Office for Civil Rights and the Health Resources and Services Administration), the U.S. Department of Justice, or DOJ, and individual U.S.
Our current and future operations are subject to regulation by various federal, state, and local authorities in addition to the FDA, including 27 but not limited to CMS, HHS (including the Office of Inspector General, Office for Civil Rights and the Health Resources and Services Administration), the U.S. Department of Justice, or DOJ, and individual U.S.
We found that certain recombinant proteins containing these two antibody-binding domains were able to simultaneously bind both Fzd and Lrp, however, inducing the simple bimolecular interaction of one Fzd and one Lrp was, in most cases, insufficient to induce Wnt signaling, as can be observed in Figure 6.
We found that certain recombinant proteins containing these two antibody-binding domains were able to simultaneously bind both Fzd and Lrp, however, inducing the simple bimolecular interaction of one Fzd and one Lrp was, in most cases, insufficient to induce Wnt signaling, as can be observed in Figure 5.
In a similar 23 experiment, R-spondin at 10 mg/kg led to Wnt pathway activation in multiple tissues including liver, lung, stomach, intestines, and pancreas, as can be seen in Figure 18 below. Figure 18. R-spondin (R-spo2) significantly increased Axin2 expression in many tissues, whereas SZN-043 only increases Axin2 expression in the liver.
In a similar experiment, R-spondin at 10 mg/kg led to Wnt pathway activation in multiple tissues including liver, lung, stomach, intestines, and pancreas, as can be seen in Figure 10 below. Figure 10. R-spondin (R-spo2) significantly increased Axin2 expression in many tissues, whereas SZN-043 only increases Axin2 expression in the liver.
But when Wnt protein simultaneously binds to both receptors, this pair of interactions activates several intracellular signaling pathways, as can be seen in Figure 5 below. The two Wnt 12 receptors are called frizzled, or Fzd, and low-density lipoprotein receptor-related protein 5 or 6, or Lrp 5/6.
But when Wnt protein simultaneously binds to both receptors, this pair of interactions activates several intracellular signaling pathways, as can be seen in Figure 4 below. The two Wnt receptors are called frizzled, or Fzd, and low-density lipoprotein receptor-related protein 5 or 6, or Lrp 5/6.
This technology creates R-spondin mimetics that can be targeted to specific cells in the body that express the chosen cell surface protein, which is illustrated in the Figure 8 below. Figure 8. Our SWEETS technology leads to amplification of the Wnt signaling pathway by inhibition of Fzd degradation by the E3 ligase/proteasome pathway.
This technology creates R-spondin mimetics that can be targeted to specific cells in the body that express the chosen cell surface protein, which is illustrated in the Figure 7 below. Figure 7. Our SWEETS technology leads to amplification of the Wnt signaling pathway by inhibition of Fzd degradation by the E3 ligase/proteasome pathway.
These patent families are directed to compositions of matter and/or methods of use, and relate to Wnt mimetics that bind to both a FZD receptor and an LRP receptor, and binding domains and uses thereof. Any patents that issue from these patent families are predicted to expire between 2035 and 2042 absent any patent term adjustment or extension.
These patent families are directed to compositions of matter and/or methods of use, and relate to Wnt mimetics that bind to both a FZD receptor and an LRP receptor, and binding domains and uses thereof. Any patents that issue from these patent families are predicted to expire between 2035 and 2044 absent any patent term adjustment or extension.
For comparison, an antibody with a single Fzd binding domain (the red line) did not demonstrate significant activity. Figure 7. Multivalent antibodies with two Fzd binding domains (F3) and at least one Lrp binding domain (L2) led to more potent activation of the Wnt signaling pathway.
For comparison, an antibody with a single Fzd binding domain (the red line) did not demonstrate significant activity. Figure 6. Multivalent antibodies with two Fzd binding domains (F3) and at least one Lrp binding domain (L2) led to more potent activation of the Wnt signaling pathway.
Fzd is an integral membrane protein that binds to Wnt protein, in part, through the fatty acid posttranslational modification on the Wnt protein. The second receptor, Lrp 5/6, contains an intracellular domain that is chemically modified by Wnt-protein-induced receptor dimerization to initiate the Wnt signaling pathway cascade in cells. Figure 5.
Fzd is an integral membrane protein that binds to Wnt protein, in part, through the fatty acid posttranslational modification on the Wnt protein. The second receptor, 10 Lrp 5/6, contains an intracellular domain that is chemically modified by Wnt-protein-induced receptor dimerization to initiate the Wnt signaling pathway cascade in cells. Figure 4.
Evive has completed a Phase 1b study with F-652 a recombinant fusion protein containing human interleukin 22 (IL-22) in alcoholic hepatitis. With respect to our earlier stage research programs, we are aware of one FDA-approved treatment targeting the Wnt pathway. Evenity (romosozumab) is a humanized monoclonal antibody targeting sclerostin and currently marketed by Amgen Inc. and UCB for postmenopausal osteoporosis.
Evive has completed a Phase 1b study with F-652 a recombinant fusion protein containing human interleukin 22 (IL-22) in AH. With respect to our earlier stage research programs, we are aware of one FDA-approved treatment targeting the Wnt pathway. Evenity (romosozumab) is a humanized monoclonal antibody targeting sclerostin and currently marketed by Amgen Inc. and UCB for postmenopausal osteoporosis.
Treatment with SZN-043 led to an increased number of hepatocytes that express hepatocyte nuclear factor 4α, or HNF4α (red signal in Figure 19, below), a master regulator of hepatic differentiation that is critical to the regulation of liver differentiation and development.
Treatment with SZN-043 led to an increased number of hepatocytes that express hepatocyte nuclear factor 4α, or HNF4α (red signal in Figure 11, below), a master regulator of hepatic differentiation that is critical to the regulation of liver differentiation and development.
At similar concentrations, naturally-occurring Wnt (Wnt3a) (the green line) demonstrated pathway activation. Figure 6. A simple bivalent antibody containing a single Fzd binding domain (F1) and a single Lrp binding domain (L2) did not significantly induce the Wnt signaling pathway. At similar concentrations, naturally-occurring Wnt (Wnt3a) demonstrated pathway activation.
At similar concentrations, naturally-occurring Wnt (Wnt3a) (the green line) demonstrated pathway activation. Figure 5. A simple bivalent antibody containing a single Fzd binding domain (F1) and a single Lrp binding domain (L2) did not significantly induce the Wnt signaling pathway. At similar concentrations, naturally-occurring Wnt (Wnt3a) demonstrated pathway activation.
This recombinant antibody R-spondin construct (the red line in “Target Cell” in Figure 9 below) stimulated the Wnt signaling pathway in cells that expressed the cell surface protein and was inactive in cells lacking the cell surface protein (the red line in “Non-Target Cell”).
This recombinant antibody R-spondin construct (the red line in “Target Cell” in Figure 8 below) stimulated the Wnt signaling pathway in cells that expressed the cell surface protein and was inactive in cells lacking the cell surface protein (the red line in “Non-Target Cell”).
SZN-043 is our initial product candidate to utilize our SWEETS technology and is designed to selectively amplify the Wnt pathway in hepatocytes, the most abundant type of liver cell. R-spondin may be beneficial in adult tissue repair, particularly in situations where naturally occurring Wnt ligands are present but signaling is insufficient to repair tissue damage.
Our product candidate, SZN-043, utilizes our SWEETS technology and is designed to selectively amplify the Wnt pathway in hepatocytes, the most abundant type of liver cell. R-spondin may be beneficial in adult tissue repair, particularly in situations where naturally occurring Wnt ligands are present but signaling is insufficient to repair tissue damage.
In Figure 19, a yellow signal results from the merging of a green and red signal, indicating that the proliferating cells are hepatocytes. Figure 19. SZN-043 led to increased proliferation and differentiation of hepatocytes in mice.
In Figure 11, a yellow signal results from the merging of a green and red signal, indicating that the proliferating cells are hepatocytes. Figure 11. SZN-043 led to increased proliferation and differentiation of hepatocytes in mice.
(* p Hepatocyte Proliferation Mice treated with a single dose of SZN-043 had significantly increased proliferation of hepatocytes at 48 hours as measured by Ki-67 expression (green signal in Figure 19 below), a nuclear protein that is associated with, and used as, a cellular marker of proliferation.
(* p 15 Hepatocyte Proliferation Mice treated with a single dose of SZN-043 had significantly increased proliferation of hepatocytes at 48 hours as measured by Ki-67 expression (green signal in Figure 11 below), a nuclear protein that is associated with, and used as, a cellular marker of proliferation.
We anticipate conducting a clinical trial in patients with severe AH in 2024 with the primary endpoints of safety and pharmacokinetics and exploratory efficacy endpoints consisting of the Lille and MELD scores.
We anticipate conducting a Phase 1b clinical trial in patients with severe AH in 2024 with the primary endpoints of safety and pharmacokinetics and exploratory efficacy endpoints consisting of the Lille and MELD scores.
In Figure 6 below, in an assay measuring protein concentration (x-axis) against Wnt pathway activation (as measured by relative light units, or RLU, y-axis), we have demonstrated that a simple bivalent antibody containing a single Fzd binding domain (F1) (the blue 13 line) and a single Lrp binding domain (L2) (the red line) did not significantly induce the Wnt signaling pathway.
In Figure 5 below, in an assay measuring protein concentration (x-axis) against Wnt pathway activation (as measured by relative light units, or RLU, y-axis), we have demonstrated that a simple bivalent antibody containing a single Fzd binding domain (F1) (the blue 11 line) and a single Lrp binding domain (L2) (the red line) did not significantly induce the Wnt signaling pathway.
In addition, we are developing other product candidates, including for the potential treatment of ocular diseases. 14 Wnt Amplification: SWEETS We have designed our SWEETS technology for those diseases that are characterized by the presence of naturally occurring Wnt, yet with insufficient Wnt signaling for specific cells.
In addition, we are developing other product candidates for the potential treatment of ocular diseases. 12 Wnt Amplification: SWEETS We have designed our SWEETS technology for those diseases that are characterized by the presence of naturally occurring Wnt, yet with insufficient Wnt signaling for specific cells.
Other potential consequences include, among other things: • restrictions on the marketing or manufacturing of the product, suspension of the approval, complete withdrawal of the product from the market or product recalls; • fines, warning or other enforcement-related letters or holds on post-approval clinical studies; • refusal of the FDA to approve pending BLAs or supplements to approved BLAs, or suspension or revocation of product license approvals; • product seizure or detention, or refusal to permit the import or export of products; 35 • consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs; • mandated modification of promotional materials and labeling and the issuance of corrective information; • the issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or other safety information about the product; or • injunctions or the imposition of civil or criminal penalties.
Other potential consequences include, among other things: • restrictions on the marketing or manufacturing of the product, suspension of the approval, complete withdrawal of the product from the market or product recalls; • fines, warning or other enforcement-related letters or holds on post-approval clinical studies; • refusal of the FDA to approve pending BLAs or supplements to approved BLAs, or suspension or revocation of product license approvals; • product seizure or detention, or refusal to permit the import or export of products; • consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs; • mandated modification of promotional materials and labeling and the issuance of corrective information; • the issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or other safety information about the product; or • injunctions or the imposition of civil or criminal penalties. 26 The FDA closely regulates the marketing, labeling, advertising and promotion of biologics.
Wild-type R-spondin did not exhibit this selectivity and led to the Wnt signaling pathway amplification in both types of cells (the black lines in the figure below). A non-cell surface targeted molecule serving as a negative control (the blue lines in the figure below) did not demonstrate any activity. 15 Figure 9.
Wild-type R-spondin did not exhibit this selectivity and led to the Wnt signaling pathway amplification in both types of cells (the black lines in the figure below). A non-cell surface targeted molecule serving as a negative control (the blue lines in the figure below) did not demonstrate any activity. 13 Figure 8.
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.
Under the commercial license agreement, we 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 our and our sublicensees’ net sales of licensed products.
Item 1. Business. Corporate History and Background We are 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. We are located in South San Francisco, California.
Item 1. Business. Overview We are 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. We are located in South San Francisco, California.
One is filed in the United States, Australia, Canada, China, Europe, Hong Kong, India, and Japan, and any patents that grant from these patent families are predicted to expire in 2038 absent any patent term adjustment or extension.
One of these patent families is filed in the United States, Australia, Canada, China, Europe, Hong Kong, and Japan, and any patents that grant from this patent family are predicted to expire in 2038 absent any patent term adjustment or extension.
We have generated and validated a broad library of SWAPs that have successfully activated Wnt-signaling. Our product candidates, SZN-1326 and SZN-413, utilize our SWAP technology and are designed to activate the Wnt pathway in injured tissue where certain Fzd receptors are expressed and the natural Wnt ligand is disturbed.
We have generated and validated a broad library of SWAPs that have successfully activated Wnt-signaling. Our product candidate, SZN-413, utilizes our SWAP technology and is designed to activate the Wnt pathway in injured tissue where certain Fzd receptors are expressed and the natural Wnt ligand is disturbed.
In consideration for this license, we paid Stanford a nominal upfront fee and issued an aggregate of 42,451 shares of our common stock to Stanford, the University of Washington and two co-inventors of the licensed patents.
In consideration for this license, we paid Stanford a nominal upfront fee and issued nominal shares of our common stock to Stanford, the University of Washington and two co-inventors of the licensed patents.
Based on our estimates of the prevalence of severe AH, we are exploring whether SZN-043 may qualify for orphan drug designation or fast track designation or both, which may accelerate its path towards potential regulatory approval.
Based on the severity and our estimates of the prevalence of severe AH, we are exploring whether SZN-043 may qualify for breakthrough therapy designation, orphan drug designation and/or fast track designation, which may accelerate its path towards potential regulatory approval.
We have shown in preclinical models of liver injury that SZN-043 selectively and transiently stimulates hepatocyte proliferation, and restores liver function as measured by plasma ammonia. The selectivity of SZN-043 is achieved through the inclusion of an antibody binding domain selective for ASGR1 that is solely expressed on hepatocytes.
We have shown in preclinical models of liver injury that SZN-043 selectively and transiently stimulates hepatocyte proliferation, and restores liver function as measured by plasma ammonia. The selectivity of SZN-043 is achieved through the inclusion of an antibody binding domain selective for ASGR1 that is solely expressed on hepatocytes. The Phase 1a study was completed in February 2024.
The FDA closely regulates the marketing, labeling, advertising and promotion of biologics. A company can make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.
A company can make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.
Measurement of ammonia levels is a standard clinical test used to screen for liver function and follow progression of liver disease. 24 Elevated ammonia levels are also observed in a mouse model of AH. In this model, AH is induced by seven weeks of a binge ethanol diet.
Measurement of ammonia levels is a standard clinical test used to screen for liver function and follow progression of liver disease. Elevated ammonia levels are also observed in a mouse model of AH. In this model, AH is induced by seven weeks of a binge ethanol diet. After seven weeks, the ethanol diet is suspended, and liver injury is assessed.
In liver injury, SZN-043 amplifies the regenerative activity of endogenous Wnts by stabilizing their Fzd receptors on hepatocytes Selective Wnt Pathway Activation Similar to R-spondin, SZN-043 leads to an amplification of Wnt signaling by inhibiting internalization and degradation of Fzd.
Figure 9 below describes the proposed mechanism of action of SZN-043. Figure 9. In liver injury, SZN-043 amplifies the regenerative activity of endogenous Wnts by stabilizing their Fzd receptors on hepatocytes Selective Wnt Pathway Activation Similar to R-spondin, SZN-043 leads to an amplification of Wnt signaling by inhibiting internalization and degradation of Fzd.
These patent applications are directed to, for example, the SWAP and SWEETS platforms, the parental constructs of our two lead product candidate molecules, SZN-043 and SZN-1326, the recently out-licensed SZN-413, as well as methods of treating disorders of the liver, intestine, retina, cornea, and lacrimal gland. 27 SWAP Platform Technology As of December 31, 2022, we solely own or exclusively license 15 patent families related to our SWAP platform.
These patent applications are directed to, for example, the SWAP and SWEETS platforms, the parental constructs of our lead product candidate, SZN-043, the out-licensed SZN-413, as well as methods of treating disorders of the liver, intestine, retina, cornea, lacrimal gland, lung and kidney. 19 SWAP Platform Technology As of December 31, 2023, we solely own or exclusively license 15 patent families related to our SWAP platform.
We consider ourselves to be pioneers in the selective modulation of the Wnt signaling pathway and intend to utilize our proprietary insights into Wnt biology and our proprietary technologies to further advance our research and exploration of its therapeutic potential. • Developing SZN-1326 for the treatment of moderate to severe IBD .
We consider ourselves to be pioneers in the selective modulation of the Wnt signaling pathway and intend to utilize our proprietary insights into Wnt biology and our proprietary technologies to further advance our research and exploration of its therapeutic potential. • Developing SZN-043 for the treatment of liver disease.
Patents and Other Proprietary Rights As of December 31, 2022, our patent portfolio consisted of over 20 pending patent application families, including 15 families that have entered national phase in the United States and other countries, three families with pending Patent Cooperation Treaty, or PCT, applications, some of which have also been filed in certain non-PCT countries (e.g., Taiwan), and five families with pending U.S. provisional applications.
Patents and Other Proprietary Rights As of December 31, 2023, our patent portfolio consisted of over 20 pending patent application families, including 17 families that have entered national phase in the United States and/or other countries, four families with pending Patent Cooperation Treaty, or PCT, applications, one of which has also been filed in certain non-PCT countries (e.g., Taiwan), and four families with pending U.S. provisional applications.
Our corporate website address is www.surrozen.com. The contents of our websites are not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only. 41
Our corporate website address is www.surrozen.com. The contents of our website is not incorporated by reference into this Annual Report or in any other report or document we file with the SEC, and any references to our website is intended to be inactive textual references only. 32
We are advancing two of these candidates, SZN-1326 and SZN-043, into clinical development. Wnt Activation: SWAP The Wnt pathway is equipped with binding sites for two receptors found on the surface of cells that can be triggered by Wnt protein. Binding to just one of these two receptors does not cause activation of the Wnt pathway.
We have one candidate, SZN-043, in clinical development. Wnt Activation: SWAP The Wnt pathway is equipped with binding sites for two receptors found on the surface of cells that can be triggered by Wnt protein. Binding to just one of these two receptors does not cause activation of the Wnt pathway.
We and Distributed Bio may terminate the Distributed Bio Agreement for the other party’s material breach and failure to cure such breach within 60 days after notice of such breach.
We may terminate the Distributed Bio Agreement for convenience at any time by providing written notice to Distributed Bio. We and Distributed Bio may terminate the Distributed Bio Agreement for the other party’s material breach and failure to cure such breach within 60 days after notice of such breach.
Under each of the 2016 Stanford Agreement and the 2018 Stanford Agreement, or Stanford Agreements, we agreed to use commercially reasonable efforts to develop and commercialize licensed products and we agreed to achieve certain funding and development milestones by certain dates. Unless earlier terminated, each Stanford Agreement will continue until the expiration of the patents licensed under such Stanford Agreement.
Under each of the 2016 Stanford Agreement and the 2018 Stanford Agreement, or the Stanford Agreements, we agreed to use commercially reasonable efforts to develop and commercialize licensed products and we agreed to achieve certain funding and development milestones by certain dates.
An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical studies, among other things, to the FDA as part of an IND.
The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations for safety/toxicology studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical studies, among other things, to the FDA as part of an IND.
IDEA is committed to raising awareness, spotlighting cultural and heritage events, and celebrating all our multi-faceted backgrounds. 40 As of March 1, 2023, 47% of all employees were female, and 40% or our managerial employees were female.
IDEA is committed to raising awareness, spotlighting cultural and heritage events, and celebrating all our multi-faceted backgrounds. 31 As of March 31, 2024, 38% of all employees were female, and 33% or our managerial employees were female.
Biosimilars and Reference Product Exclusivity The Affordable Care Act, signed into law in 2010, includes a subtitle called The Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological products shown to be biosimilar to, or interchangeable with, an FDA-licensed reference biological product.
Biosimilars and Reference Product Exclusivity The Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological products shown to be biosimilar to, or interchangeable with, an FDA-licensed reference biological product.
We provide sick leave for any affected employee at 100% of their salary or average hourly wages. In general, we support a flexible workforce. We offer a variety of work arrangements including remote working, hybrid (virtual and on-site) and completely on-site. As an additional benefit for all employees, we provide flu shots for our employees and their families.
For any employee who contracts a virus, we provide sick leave for any affected employee at 100% of their salary or average hourly wages. In general, we support a flexible workforce. We offer a variety of work arrangements including remote working, hybrid (virtual and on-site) and completely on-site.
Durect Corp is investigating DUR-928 in a Phase 2/3 clinical trial in patients with severe AH, Intercept is investigating INT-787 in a Phase 2a clinical trial in subjects with severe AH and Akaza Bioscience is preparing to investigate resatorvid (TAK-242) in a Phase 2 clinical trial of subjects with grade 1 or 2 acute-on-chronic liver failure (ACLF).
Intercept, which was acquired by Alfasigma in November 2023, is investigating INT-787 in a Phase 2a clinical trial in subjects with severe AH and Akaza Bioscience is preparing to investigate resatorvid (TAK-242) in a Phase 2 clinical trial of subjects with grade 1 or 2 acute-on-chronic liver failure (ACLF).
UCSF License and Option Agreements In September and October 2016, we entered into two license and option agreements with UCSF, or the UCSF Agreements, pursuant to which we 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 our use of such library, or licensed products.
Stanford may terminate either Stanford Agreement if we breach certain provisions of that Stanford Agreement and fail to remedy such breach within 90 days after written notice of the breach by Stanford. 18 UCSF License and Option Agreements In September and October 2016, we entered into two license and option agreements with UCSF, or the UCSF Agreements, pursuant to which we 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 our use of such library, or licensed products.
Unlike our antibodies, Wnt proteins are highly hydrophobic, making them difficult to express, solubilize and purify. Dr. Christopher Garcia, a Howard Hughes Medical Institute Investigator and one of our founders, enabled our SWAP approach through the discovery of surrogate Wnt agonists. His surrogate ligands were water soluble, consisted of two domains and provided the building blocks for our SWAP technology.
Unlike our antibodies, Wnt proteins are highly hydrophobic, making them difficult to express, solubilize and purify. 6 Dr. Christopher Garcia, a Howard Hughes Medical Institute Investigator and one of our founders, enabled our SWAP approach through the discovery of surrogate Wnt agonists.
Our unique approach and platform technologies have led to the discovery and advancement of two lead product candidates. We initiated a Phase 1 clinical trial in the second 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.
SZN-1326 We initiated a Phase 1 clinical trial in the second quarter of 2022 for SZN-1326, our candidate previously in development for moderate to severe inflammatory bowel disease, or IBD, with ulcerative colitis, or UC, as our first proposed indication.
Cell specificity of R-spondin was altered by inactivating the LGR 4-6 binding site and adding an antigen-binding domain for a specific cell surface protein. SWEETS shown in red.
Cell specificity of R-spondin was altered by inactivating the LGR 4-6 binding site and adding an antigen-binding domain for a specific cell surface protein. SWEETS shown in red. SZN-043, a SWEETS product candidate for the treatment of severe liver diseases SZN-043 is our product candidate in development for severe AH.
Our commercial success will also depend in part on not infringing upon the proprietary rights of third parties. It is uncertain whether the issuance of any third-party patent would require us to alter our development or commercial strategies, or our product candidates or processes, obtain licenses, or cease certain activities.
It is uncertain whether the issuance of any third-party patent would require us to alter our development or commercial strategies, or our product candidates or processes, obtain licenses, or cease certain activities.
A designated orphan drug many not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation.
Competitors, however, may receive approval of either a different product for the same indication or the same product for a different indication. A designated orphan drug many not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation.
Through our genetic mapping, we have increased our understanding of Wnt biology in numerous diseases and Wnts’ involvement in diseases that had previously not been well-characterized.
We isolate RNA for gene expression to identify potential deficiencies in Wnt signaling in specific diseases. Through our genetic mapping, we have increased our understanding of Wnt biology in numerous diseases and Wnts’ involvement in diseases that had previously not been well-characterized.
The FDA, the IRB, or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including non-compliance with regulatory requirements or a finding that the patients are being exposed to an unacceptable health risk.
In most cases, the FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the biologic. The FDA, the IRB, or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including non-compliance with regulatory requirements or a finding that the patients are being exposed to an unacceptable health risk.
One application is filed in the United States, Australia, Canada, China, Europe, India, and Japan, and any patents that grant from this application is predicted to expire in 2039 absent any patent term adjustment or extension.
Another patent family is filed in the United States, and any patents that grant from this patent family are predicted to expire in 2039 absent any patent term adjustment or extension.
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. We completed enrollment in the second cohort of the SZN-043 Phase 1a single ascending dose clinical trial in 2022 in healthy volunteers.
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.
We anticipate initiating a Phase 1b clinical trial in patients with severe alcoholic hepatitis in 2024 and expect proof of concept data to be potentially available in the second half of 2024. 5 In the first quarter of 2022, we nominated SZN-413, a Fzd4 targeted bi-specific antibody, as a development candidate for the treatment of retinal vascular associated diseases.
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 In the first quarter of 2022, we nominated SZN-413, a Fzd4 targeted bi-specific antibody, as a development candidate for the treatment of retinal vascular associated diseases.
In October 2022, we executed a CLA with BI to research, develop and commercialize Fzd4 bi-specific antibodies designed using our SWAP technology, including SZN-413. We anticipate the potential to identify the lead Fzd-4-targeted Wnt agonist product candidate by the end of 2023.
In October 2022, we executed a CLA with 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. By leveraging our in house capabilities and scientific approach, we have identified multiple potential tissue types to explore.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAmong the provisions of the ACA, of greatest importance to the pharmaceutical and biotechnology industry are the following: • an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription drugs and biologic agents apportioned among these entities according to their market share in some government healthcare programs; • an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer price for most branded and generic drugs, respectively, and capped the total rebate amount for innovator drugs at 100% of the Average Manufacturer Price, or AMP; • a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for certain drugs and biologics that are inhaled, infused, instilled, implanted or injected; • extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; • expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability; • a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% (and 70% as of January 1, 2019) point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; • expansion of the entities eligible for discounts under the Public Health program; • a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; • establishment of a Center for Medicare Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending; and 77 • implementation of the federal physician payment transparency requirements, sometimes referred to as the “Physician Payments Sunshine Act.” There have been legal and political challenges to certain aspects of the ACA.
Biggest changeAmong the provisions of the ACA, of greatest importance to the pharmaceutical and biotechnology industry are increased the minimum level of Medicaid rebates payable by manufacturers of brand name drugs; required collection of rebates for drugs paid by Medicaid managed care organizations; required manufacturers to participate in a coverage gap discount program, under which they must agree to offer point-of-sale discounts (increased to 70 percent, effective as of January 1, 2019) off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; imposed a non-deductible annual fee on pharmaceutical manufacturers or importers who sell certain “branded prescription drugs” to specified federal government programs, implemented a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted, or injected expanded the types of entities eligible for the 340B drug discount program; expanded eligibility criteria for Medicaid programs; created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and established a Center for Medicare Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.
Such litigation or proceedings could materially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. Some of our competitors may be able to more effectively to sustain the costs of complex patent litigation because they have substantially greater resources.
Such litigation or proceedings could materially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. Some of our competitors may be able to more effectively sustain the costs of complex patent litigation because they have substantially greater resources.
If we are unable to successfully settle future claims on terms acceptable to us, we may be required to engage in or to continue costly, unpredictable and time-consuming litigation and may be prevented from or experience substantial delays in marketing our product candidates.
If we are unable to successfully settle future claims on terms acceptable to us, we may be required to engage in or to continue costly, unpredictable and time-consuming litigation and may be prevented from or experience substantial delays in marketing our product candidates.
Collaborations involving our product candidates, including our collaboration with BI, pose many risks to us, including that: • Collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations; • Collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborator’s strategic focus or available funding, or external factors such as an acquisition that diverts resources or creates competing priorities; • Collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing; • Collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates or products if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours; • A collaborator with marketing and distribution rights to one or more product candidates or products may not commit sufficient resources to the marketing and distribution of such drugs; • Collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our proprietary information or expose us to potential litigation; • Collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates; and • Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all.
Collaborations involving our product candidates, including our collaboration with BI, pose many risks to us, including that: • Collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations; • Collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborator’s strategic focus or available funding, or external factors such as an acquisition that diverts resources or creates competing priorities; 55 • Collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing; • Collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates or products if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours; • A collaborator with marketing and distribution rights to one or more product candidates or products may not commit sufficient resources to the marketing and distribution of such drugs; • Collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our proprietary information or expose us to potential litigation; • Collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates; and • Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all.
The timing and amount of our operating expenditures will depend largely on: • the timing and progress of preclinical and clinical development of SZN-1326, SZN-043, SZN-413 and other potential future product candidates; • the timing and progress of the development of our Wnt therapeutics platform; • the price and pricing structure that we are able to obtain from our third-party contract manufacturers to manufacture our preclinical study and clinical trial materials and supplies; • the extent to which prices for supplies and materials increase due to inflationary pressures and labor market constraints; • the number and scope of preclinical and clinical programs we decide to pursue; • our ability to maintain our current licenses, research and development programs and to establish new collaborations; • the progress of the development efforts of parties with whom we may in the future enter into collaboration and research and development agreements; • the costs involved in obtaining, maintaining, enforcing and defending patents and other intellectual property rights; • the impact of the health epidemics on our business; • the cost and timing of regulatory approvals; and • our efforts to enhance operational systems and hire additional personnel, including personnel to support development of our product candidates and satisfy our obligations as a public company.
The timing and amount of our operating expenditures will depend largely on: • the timing and progress of preclinical and clinical development of SZN-043, SZN-413 and other potential future product candidates; • the timing and progress of the development of our Wnt therapeutics platform; • the price and pricing structure that we are able to obtain from our third-party contract manufacturers to manufacture our preclinical study and clinical trial materials and supplies; • the extent to which prices for supplies and materials increase due to inflationary pressures and labor market constraints; • the number and scope of preclinical and clinical programs we decide to pursue; • our ability to maintain our current licenses, research and development programs and to establish new collaborations; • the progress of the development efforts of parties with whom we may in the future enter into collaboration and research and development agreements; • the costs involved in obtaining, maintaining, enforcing and defending patents and other intellectual property rights; • the impact of the health epidemics on our business; • the cost and timing of regulatory approvals; and • our efforts to enhance operational systems and hire additional personnel, including personnel to support development of our product candidates and satisfy our obligations as a public company.
In the event that any of our current or potential future product candidates receive regulatory approval and we or others identify undesirable side effects caused by one of these products, any of the following adverse events could occur, which could result in the loss of significant revenue to us and materially and adversely affect our results of operations and business: • regulatory authorities may withdraw their approval of the product or seize the product; • we may be required to recall the product or change the way the product is administered to patients; • additional restrictions may be imposed on the marketing of the particular product or the manufacturing processes for the product or any component thereof; • we may be subject to fines, injunctions or the imposition of civil or criminal penalties; • regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication; • regulatory authorities may require additional post-marketing safety studies or registries; • we may be required to create a Medication Guide outlining the risks of such side effects for distribution to patients; • we could be sued and held liable for harm caused to patients; • the product may become less competitive; and • our reputation may suffer.
In the event that any of our current or potential future product candidates receive regulatory approval and we or others identify undesirable side effects caused by one of these products, any of the following adverse events could occur, which could result in the loss of significant revenue to us and materially and adversely affect our results of operations and business: 39 • regulatory authorities may withdraw their approval of the product or seize the product; • we may be required to recall the product or change the way the product is administered to patients; • additional restrictions may be imposed on the marketing of the particular product or the manufacturing processes for the product or any component thereof; • we may be subject to fines, injunctions or the imposition of civil or criminal penalties; • regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication; • regulatory authorities may require additional post-marketing safety studies or registries; • we may be required to create a Medication Guide outlining the risks of such side effects for distribution to patients; • we could be sued and held liable for harm caused to patients; • the product may become less competitive; and • our reputation may suffer.
Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the 84 best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful; • we may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law; • we will be required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification; • we will not be obligated pursuant to our Bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification; • the rights conferred in the Bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons; and • we may not retroactively amend our Bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.
Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful; • we may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law; • we will be required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification; • we will not be obligated pursuant to our bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification; • the rights conferred in the bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons; and • we may not retroactively amend our bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.
Market acceptance of our current and potential future product candidates, if approved, will depend on, among other factors: • the timing of its receipt of any marketing and commercialization approvals; • the terms of any approvals and the countries in which approvals are obtained; • the safety and efficacy of our product candidates; • the prevalence and severity of any adverse side effects associated with our product candidates; • limitations or warnings contained in any labeling approved by the FDA or other regulatory authority; • relative convenience and ease of administration of our product candidates; • the success of its physician education programs; 46 • the availability of coverage and adequate government and third-party payor reimbursement; • the pricing of our products, particularly as compared to alternative treatments; and • availability of alternative effective treatments for the disease indications our product candidates are intended to treat and the relative risks, benefits and costs of those treatments.
Market acceptance of our current and potential future product candidates, if approved, will depend on, among other factors: • the timing of its receipt of any marketing and commercialization approvals; • the terms of any approvals and the countries in which approvals are obtained; • the safety and efficacy of our product candidates; • the prevalence and severity of any adverse side effects associated with our product candidates; • limitations or warnings contained in any labeling approved by the FDA or other regulatory authority; • relative convenience and ease of administration of our product candidates; • the success of its physician education programs; • the availability of coverage and adequate government and third-party payor reimbursement; • the pricing of our products, particularly as compared to alternative treatments; and • availability of alternative effective treatments for the disease indications our product candidates are intended to treat and the relative risks, benefits and costs of those treatments.
These provisions include: • a prohibition on actions by our stockholders by written consent; • a requirement that special meetings of stockholders, which our company is not obligated to call more than once per calendar year, be called only by the chairman of our board of directors, our chief executive officer, or our board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors; • advance notice requirements for election to our board of directors and for proposing matters that can be acted upon at stockholder meetings; 83 • division of our board of directors into three classes, serving staggered terms of three years each; and • the authority of the board of directors to issue preferred stock with such terms as the board of directors may determine.
These provisions include: • a prohibition on actions by our stockholders by written consent; • a requirement that special meetings of stockholders, which our company is not obligated to call more than once per calendar year, be called only by the chairman of our board of directors, our chief executive officer, or our board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors; • advance notice requirements for election to our board of directors and for proposing matters that can be acted upon at stockholder meetings; • division of our board of directors into three classes, serving staggered terms of three years each; and • the authority of our board of directors to issue preferred stock with such terms as our board of directors may determine.
Later discovery of previously unknown problems with a product candidate, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things: • restrictions on the marketing or manufacturing of the product candidate, withdrawal of the product candidate from the market or voluntary or mandatory product recalls; • fines, warning letters or holds on clinical trials; 76 • refusal by the FDA to approve pending applications or supplements to approved applications filed by us or our strategic collaborators; • suspension or revocation of product license approvals; • product seizure or detention or refusal to permit the import or export of products; and • injunctions or the imposition of civil or criminal penalties.
Later discovery of previously unknown problems with a product candidate, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things: • restrictions on the marketing or manufacturing of the product candidate, withdrawal of the product candidate from the market or voluntary or mandatory product recalls; • fines, warning letters or holds on clinical trials; • refusal by the FDA to approve pending applications or supplements to approved applications filed by us or our strategic collaborators; • suspension or revocation of product license approvals; • product seizure or detention or refusal to permit the import or export of products; and • injunctions or the imposition of civil or criminal penalties.
Restrictions under applicable federal and state healthcare laws and regulations in the United States and other countries, include the following: • the federal Anti-Kickback Statute, which prohibits, among other things, a person or entity from knowingly and willfully soliciting, offering, paying, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward 78 either the referral of an individual for, or the purchase, lease order, arranging for or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, by a federal healthcare program, such as Medicare or Medicaid.
Restrictions under applicable federal and state healthcare laws and regulations in the United States and other countries, include the following: • the federal Anti-Kickback Statute, which prohibits, among other things, a person or entity from knowingly and willfully soliciting, offering, paying, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease order, arranging for or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, by a federal healthcare program, such as Medicare or Medicaid.
We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of our Common Stock that is held by non-affiliates equals or exceeds $700 million as of the end of that year’s second fiscal quarter, (ii) the last day of the fiscal year in which we have total annual gross revenue of $1.235 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) December 31, 2025.
We will remain an emerging growth 78 company until the earliest of (i) the last day of the fiscal year in which the market value of our common stock that is held by non-affiliates equals or exceeds $700 million as of the end of that year’s second fiscal quarter, (ii) the last day of the fiscal year in which we have total annual gross revenue of $1.235 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) December 31, 2025.
The following examples are illustrative: • others may be able to make antibodies or portions of antibodies or formulations that are similar to our product candidates, but that are not covered by the claims of any patents that we own, license or control; • we or any strategic collaborators might not have been the first to make the inventions covered by the issued patents or pending patent applications that we own license or control; • we or our licensors might not have been the first to file patent applications covering certain of our owned and in-licensed inventions; • others may independently develop the same, similar, or alternative technologies without infringing, misappropriating or violating our owned or in-licensed intellectual property rights; • it is possible that our owned or in-licensed pending patent applications will not lead to issued patents; • issued patents that we own, in-licenses, or controls may not provide us with any competitive advantages, or may be narrowed or held invalid or unenforceable, including as a result of legal challenges; • our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where we do not have patent rights, and may then use the information learned from such activities to develop competitive products for sale in our major commercial markets; 73 • we may choose not to file a patent application in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent application covering such trade secrets or know-how; and • the patents of others may have an adverse effect on our business.
The following examples are illustrative: 66 • others may be able to make antibodies or portions of antibodies or formulations that are similar to our product candidates, but that are not covered by the claims of any patents that we own, license or control; • we or any strategic collaborators might not have been the first to make the inventions covered by the issued patents or pending patent applications that we own license or control; • we or our licensors might not have been the first to file patent applications covering certain of our owned and in-licensed inventions; • others may independently develop the same, similar, or alternative technologies without infringing, misappropriating or violating our owned or in-licensed intellectual property rights; • it is possible that our owned or in-licensed pending patent applications will not lead to issued patents; • issued patents that we own, in-licenses, or controls may not provide us with any competitive advantages, or may be narrowed or held invalid or unenforceable, including as a result of legal challenges; • our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where we do not have patent rights, and may then use the information learned from such activities to develop competitive products for sale in our major commercial markets; • we may choose not to file a patent application in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent application covering such trade secrets or know-how; and • the patents of others may have an adverse effect on our business.
In the event that any of our manufacturers fails to comply with such requirements or to perform their obligations to us in relation to quality, timing or otherwise, or if our supply of components or other materials becomes limited or interrupted for other reasons, we may be forced to manufacture the materials ourselves, for which we currently do not have the capabilities or resources, or enter into an agreement with another third party, which we may not be able to 54 do on reasonable terms, or at all.
In the event that any of our manufacturers fails to comply with such requirements or to perform their obligations to us in relation to quality, timing or otherwise, or if our supply of components or other materials becomes limited or interrupted for other reasons, we may be forced to manufacture the materials ourselves, for which we currently do not have the capabilities or resources, or enter into an agreement with another third party, which we may not be able to do on reasonable terms, or at all.
Even if we identify investigational medicines that initially show promise, we may fail to successfully develop and commercialize such products for many reasons, including the following: • the research methodology used may not be successful in identifying potential investigational medicines; • competitors may develop alternatives that render its investigational medicines obsolete; • investigational medicines it develops may nevertheless be covered by third parties’ patents or other exclusive rights; • an investigational medicine may, on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria; • it may take greater human and financial resources than we will possess to identify additional therapeutic opportunities for our product candidates or to develop suitable potential product candidates through internal research programs, thereby limiting its ability to develop, diversify and expand our product portfolio; • an investigational medicine may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and • an approved product may not be accepted as safe and effective by trial participants, the medical community or third-party payors.
Even if we identify investigational medicines that initially show promise, we may fail to successfully develop and commercialize such products for many reasons, including the following: • the research methodology used may not be successful in identifying potential investigational medicines; • competitors may develop alternatives that render its investigational medicines obsolete; • investigational medicines it develops may nevertheless be covered by third parties’ patents or other exclusive rights; • an investigational medicine may, on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria; • it may take greater human and financial resources than we will possess to identify additional therapeutic opportunities for our product candidates or to develop suitable potential product candidates through internal research programs, thereby limiting our ability to develop, diversify and expand our product portfolio; • an investigational medicine may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and • an approved product may not be accepted as safe and effective by trial patients, the medical community or third-party payors.
Before you make an investment decision with respect to our securities, in addition to the risks and uncertainties discussed above under “Cautionary Note Regarding Forward-Looking Statements,” you should carefully consider the risks and uncertainties described below together with all of the other information contained in this Report, including our consolidated financial statements and related notes included elsewhere in this Report and in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding to invest in our securities.
Before you make an investment decision with respect to our securities, in addition to the risks and uncertainties discussed above under “Cautionary Note Regarding Forward-Looking Statements,” you should carefully consider the risks and uncertainties described below together with all of the other information contained in this Annual Report, including our consolidated financial statements and related notes included elsewhere in this Annual Report and in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding to invest in our securities.
An adverse determination in any such submission, proceeding or litigation could prevent the issuance of, reduce the scope of, invalidate or render unenforceable our owned or in-licensed patent rights; result in the loss of exclusivity; limit our ability to stop others from using or commercializing similar or 64 identical platforms and product candidates; allow third parties to compete directly with us without payment to us; or result in our inability to manufacture or commercialize product candidates without infringing third-party patent rights.
An adverse determination in any such submission, proceeding or litigation could prevent the issuance of, reduce the scope of, invalidate or render unenforceable our owned or in-licensed patent rights; result in the loss of exclusivity; limit our ability to stop others from using or commercializing similar or identical platforms and product candidates; allow third parties to compete directly with us without payment to us; or result in our inability to manufacture or commercialize product candidates without infringing third-party patent rights.
Compliance with the GDPR and applicable laws and regulations relating to privacy and data protection of EU Member States and the UK will be a rigorous and time-intensive process that may increase our cost of doing business or require us to change its business practices, and despite those 60 efforts, there is a risk that We may be subject to fines and penalties, litigation, and reputational harm in connection with Our European activities.
Compliance with the GDPR and applicable laws and regulations relating to privacy and data protection of EU Member States and the UK will be a rigorous and time-intensive process that may increase our cost of doing business or require us to change its business practices, and despite those efforts, there is a risk that We may be subject to fines and penalties, litigation, and reputational harm in connection with Our European activities.
Any regulatory approvals that we or our current or potential future collaborators obtain for SZN-1326, SZN-043, SZN-413 or any potential future product candidate may also be subject to limitations on the approved indicated uses for which a product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including “Phase 4” clinical trials, and surveillance to monitor the safety and efficacy of such product candidate.
Any regulatory approvals that we or our current or potential future collaborators obtain for SZN-043, SZN-413 or any potential future product candidate may also be subject to limitations on the approved indicated uses for which a product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including “Phase 4” clinical trials, and surveillance to monitor the safety and efficacy of such product candidate.
Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; • HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, including the Final Omnibus Rule published in January 2013, which impose obligations on certain covered entity healthcare providers, health plans, and healthcare clearinghouses as well as their business associates and covered subcontractors that perform certain services involving the use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information, and require notification to affected individuals and regulatory authorities of certain breaches of security of individually identifiable health information; • the federal false statements statute, which prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; • the federal physician payment transparency requirements, sometimes referred to as the “Sunshine Act” under the Affordable Care Act, require certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report to the Centers for Medicare & Medicaid Services, or CMS, information related to transfers of value made to physicians (currently defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other healthcare professionals (such as physician assistants and nurse practitioners), and teaching hospitals, as well as ownership and investment interests of such physicians and their immediate family members; and • analogous local, state and foreign laws and regulations, such as state anti-kickback and false claims laws that may apply to healthcare items or services reimbursed by third party payors, including private insurers; local, state and foreign transparency laws that require manufacturers to report information related to payments and transfers of value to other healthcare providers and healthcare entities, marketing expenditures, or drug pricing; state laws that require pharmaceutical companies to register certain employees engaged in marketing activities in the location and comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; • HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, including the Final Omnibus Rule published in January 2013, which impose obligations on certain covered entity healthcare providers, health plans, and healthcare clearinghouses as well as their business associates and covered subcontractors that perform certain services involving the use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information, and require notification to affected individuals and regulatory authorities of certain breaches of security of individually identifiable health information; • the federal false statements statute, which prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; • the federal physician payment transparency requirements, sometimes referred to as the “Physician Payments Sunshine Act” under the Affordable Care Act, require certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report to the Centers for Medicare & Medicaid Services, or CMS, information related to transfers of value made to physicians (currently defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other healthcare professionals (such as physician assistants and nurse practitioners), and teaching hospitals, as well as ownership and investment interests of such physicians and their immediate family members; and 72 • analogous local, state and foreign laws and regulations, such as state anti-kickback and false claims laws that may apply to healthcare items or services reimbursed by third party payors, including private insurers; local, state and foreign transparency laws that require manufacturers to report information related to payments and transfers of value to other healthcare providers and healthcare entities, marketing expenditures, or drug pricing; state laws that require pharmaceutical companies to register certain employees engaged in marketing activities in the location and comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
If these companies develop therapeutics or product candidates more rapidly than we do, or if their therapeutics or product candidates are more effective or have fewer side effects, our ability to develop and successfully commercialize product candidates may be adversely affected. • If we are unable to maintain proper and effective internal controls over financial reporting, the accuracy and timeliness of our financial reporting and the market price of our common stock may be adversely affected. • Our future growth may depend, in part, on our ability to operate in foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties. 42 • Our business, operations and clinical development plans and timelines could be adversely affected by the effects of health epidemics, natural disasters and other events on the manufacturing, clinical trial and other business activities performed by us or by third parties with whom it conducts business, including contract manufacturers, CROs, shippers and others. • To the extent we enter into any other collaborations, we may depend on such collaborations for the development and commercialization of our product candidates.
If these companies develop therapeutics or product candidates more rapidly than we do, or if their therapeutics or product candidates are more effective or have fewer side effects, our ability to develop and successfully commercialize product candidates may be adversely affected. • If we are unable to maintain proper and effective internal controls over financial reporting, the accuracy and timeliness of our financial reporting and the market price of our common stock may be adversely affected. 33 • Our future growth may depend, in part, on our ability to operate in foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties. • Our business, operations and clinical development plans and timelines could be adversely affected by the effects of health epidemics, natural disasters and other events on the manufacturing, clinical trial and other business activities performed by us or by third parties with whom it conducts business, including contract manufacturers, CROs, shippers and others. • To the extent we enter into any other collaborations, we may depend on such collaborations for the development and commercialization of our product candidates.
In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in 49 our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product, product candidate or our business.
In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product, product candidate or our business.
We may also become involved in inventorship disputes relating to inventions and patents developed by our employees or 71 consultants under such agreements. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret, or securing title to an employee- or consultant-developed invention if a dispute arises, is difficult, expensive and time-consuming, and the outcome is unpredictable.
We may also become involved in inventorship disputes relating to inventions and patents developed by our employees or consultants under such agreements. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret, or securing title to an employee- or consultant-developed invention if a dispute arises, is difficult, expensive and time-consuming, and the outcome is unpredictable.
At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain 71 product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
In addition, achieving and sustaining compliance with applicable laws and regulations may be costly to us in terms of money, time and resources. 79 If we fail to comply with U.S. and foreign regulatory requirements, regulatory authorities could limit or withdraw any marketing or commercialization approvals we may receive and subject us to other penalties that could materially harm its business.
In addition, achieving and sustaining compliance with applicable laws and regulations may be costly to us in terms of money, time and resources. If we fail to comply with U.S. and foreign regulatory requirements, regulatory authorities could limit or withdraw any marketing or commercialization approvals we may receive and subject us to other penalties that could materially harm its business.
The market price for our common stock may be influenced by many factors, including the other risks described in this section of the Report titled “ Risk Factors ” and the following: • our ability, or the ability of our business partners, to advance SZN-1326, SZN-043, SZN-413 or potential future product candidates into the clinic; • results of preclinical studies for SZN-1326, SZN-043, SZN-413 or potential future product candidates, or those of our competitors or current and potential future collaborators; • the impact of health epidemic on our business; • regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to our future products; • the success of competitive products or technologies; • introductions and announcements of new products by us, our future commercialization collaborators, or our competitors, and the timing of these introductions or announcements; • actions taken by regulatory authorities with respect to our future products, clinical trials, manufacturing process or sales and marketing terms; • actual or anticipated variations in our financial results or those of companies that are perceived to be similar to us; 81 • the success of our efforts to acquire or in-license additional technologies, products or product candidates; • developments concerning any future collaborations, including, but not limited to, those with our sources of manufacturing supply and our commercialization collaborators; • market conditions in the pharmaceutical and biotechnology sectors; • announcements by us or our competitors of significant acquisitions, strategic alliances, joint ventures or capital commitments; • developments or disputes concerning patents or other proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our products; • our ability or inability to raise additional capital and the terms on which we raise it; • the recruitment or departure of key personnel; • changes in the structure of healthcare payment systems; • actual or anticipated changes in earnings estimates or changes in stock market analyst recommendations regarding our common stock, other comparable companies or our industry generally; • our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market; • fluctuations in the valuation of companies perceived by investors to be comparable to us; • announcement and expectation of additional financing efforts; • speculation in the press or investment community; • trading volume of our common stock; • sales of our common stock by us or our stockholders; • the concentrated ownership of our common stock; • changes in accounting principles; • terrorist acts, acts of war or periods of widespread civil unrest; • natural disasters, public health crises and other calamities; and • general economic, industry and market conditions.
The market price for our common stock may be influenced by many factors, including the other risks described in this section of this Annual Report titled “ Risk Factors ” and the following: • our ability, or the ability of our business partners, to advance SZN-043, SZN-413 or potential future product candidates into the clinic; • results of preclinical and clinical studies for SZN-043, SZN-413 or potential future product candidates, or those of our competitors or current and potential future collaborators; • the impact of health epidemic on our business; • regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to our future products; • the success of competitive products or technologies; • introductions and announcements of new products by us, our future commercialization collaborators, or our competitors, and the timing of these introductions or announcements; • actions taken by regulatory authorities with respect to our future products, clinical trials, manufacturing process or sales and marketing terms; • actual or anticipated variations in our financial results or those of companies that are perceived to be similar to us; • the success of our efforts to acquire or in-license additional technologies, products or product candidates; • developments concerning any future collaborations, including, but not limited to, those with our sources of manufacturing supply and our commercialization collaborators; • market conditions in the pharmaceutical and biotechnology sectors; • announcements by us or our competitors of significant acquisitions, strategic alliances, joint ventures or capital commitments; • developments or disputes concerning patents or other proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our products; • our ability or inability to raise additional capital and the terms on which we raise it; • the recruitment or departure of key personnel; • changes in the structure of healthcare payment systems; • actual or anticipated changes in earnings estimates or changes in stock market analyst recommendations regarding our common stock, other comparable companies or our industry generally; • our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market; • fluctuations in the valuation of companies perceived by investors to be comparable to us; • announcement and expectation of additional financing efforts; • speculation in the press or investment community; • trading volume of our common stock; • sales of our common stock by us or our stockholders; 75 • the concentrated ownership of our common stock; • changes in accounting principles; • terrorist acts, acts of war or periods of widespread civil unrest; • natural disasters, public health crises and other calamities; and • general economic, industry and market conditions.
If SZN-1326, SZN-043, SZN-413 or any of our potential future product candidates prove to be ineffective, unsafe or commercially unviable, our entire pipeline could have little, if any, value, which could require us to change our focus and approach to antibody-based discovery and development and materially and adversely affect our business, financial condition, results of operations and prospects.
If SZN-043, SZN-413 or any of our potential future product candidates prove to be ineffective, unsafe or commercially unviable, our entire pipeline could have little, if any, value, which could require us to change our focus and approach to antibody-based discovery and development and materially and adversely affect our business, financial condition, results of operations and prospects.
Even if our owned or in-licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. our competitors may be able to circumvent our patents by developing similar or alternative product candidates in a non-infringing manner.
Even if our owned or in-licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any 56 competitive advantage. our competitors may be able to circumvent our patents by developing similar or alternative product candidates in a non-infringing manner.
For example, we or our licensors may have inventorship disputes arise from conflicting obligations of employees, consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or our or our licensors’ ownership of our owned or in-licensed patents, trade secrets or other intellectual property.
For example, we or our licensors may have inventorship disputes that arise from conflicting obligations of employees, consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or our or our licensors’ ownership of our owned or in-licensed patents, trade secrets or other intellectual property.
Because we have limited financial and managerial resources, we intend to focus our efforts on specific research and development programs, including clinical development of SZN-1326, SZN-043 and SZN-413. As a result, we may forgo or delay pursuit of other opportunities, including with potential future product candidates that later prove to have greater commercial potential.
Because we have limited financial and managerial resources, we intend to focus our efforts on specific research and development programs, including clinical development of SZN-043 and SZN-413. As a result, we may forgo or delay pursuit of other opportunities, including with potential future product candidates that later prove to have greater commercial potential.
If we need to enter into alternative arrangements with, or replace or add any third parties, this would involve substantial cost and require 50 extensive management time and focus, or involve a transition period, and may delay our drug development activities, as well as materially impact our ability to meet our desired clinical development timelines.
If we need to enter into alternative arrangements with, or replace or add any third parties, this would involve substantial cost and require extensive management time and focus, or involve a transition period, and may delay our drug development activities, as well as materially impact our ability to meet our desired clinical development timelines.
Our understanding of the number of people who suffer from certain types of moderate to severe IBD, severe AH and retinal vascular associated diseases that SZN-1326, SZN-043 and SZN-413, respectively, may be able to treat are based on estimates. These estimates may prove to be incorrect, and new studies may reduce the estimated incidence or prevalence of these diseases.
Our understanding of the number of people who suffer from certain types of moderate to severe IBD, severe AH and retinal vascular associated diseases that SZN-043 and SZN-413, respectively, may be able to treat are based on estimates. These estimates may prove to be incorrect, and new studies may reduce the estimated incidence or prevalence of these diseases.
As a result, we or any current or future collaborators may be unable to obtain sufficient insurance at a reasonable cost to protect us against losses caused by product liability claims that could have a material and adverse effect on our business, financial condition, results of operations and prospects.
As a result, we or any current or future collaborators may be unable to obtain 51 sufficient insurance at a reasonable cost to protect us against losses caused by product liability claims that could have a material and adverse effect on our business, financial condition, results of operations and prospects.
It is not always possible to identify and deter misconduct, and the precautions we take to detect and prevent this activity may 59 not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.
It is not always possible to identify and deter misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.
There is no guarantee that any patents covering its discovery platform or product candidates will issue from the patent applications we own or in-licenses, or, if they do, that the issued claims will provide adequate protection for our discovery platform or product candidates, or any meaningful competitive advantage. The patent prosecution process is expensive, complex and time-consuming.
There is no guarantee that any patents covering our discovery platform or product candidates will issue from the patent applications we own or in-licenses, or, if they do, that the issued claims will provide adequate protection for our discovery platform or product candidates, or any meaningful competitive advantage. The patent prosecution process is expensive, complex and time-consuming.
Parties making claims against we may obtain injunctive or other equitable relief, which could effectively block its ability to further develop and commercialize our current or future product candidates. We could be forced, including by court order, to cease utilizing, developing, manufacturing and commercializing our discovery platform or product candidates deemed to be infringing.
Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block its ability to further develop and commercialize our current or future product candidates. We could be forced, including by court order, to cease utilizing, developing, manufacturing and commercializing our discovery platform or product candidates deemed to be infringing.
Intellectual property litigation may lead to unfavorable publicity that harms our reputation and causes the market price of our common stock to decline. 70 During the course of any intellectual property litigation, there could be public announcements of the initiation of the litigation as well as results of hearings, rulings on motions, and other interim proceedings or developments in the litigation.
Intellectual property litigation may lead to unfavorable publicity that harms our reputation and causes the market price of our common stock to decline. During the course of any intellectual property litigation, there could be public announcements of the initiation of the litigation as well as results of hearings, rulings on motions, and other interim proceedings or developments in the litigation.
In addition, if the FDA or any other regulatory authority approves SZN-1326, SZN-043, SZN-413 or any of our future product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, import, export, advertising, promotion and recordkeeping for such product will be subject to extensive and ongoing regulatory requirements.
In addition, if the FDA or any other regulatory authority approves SZN-043, SZN-413 or any of our future product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, import, export, advertising, promotion and recordkeeping for such product will be subject to extensive and ongoing regulatory requirements.
As a result, government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products.
As a result, government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, 73 third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products.
We may not be able to initiate, resume or continue clinical trials for our current or potential future product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or other regulatory 51 authorities.
We may not be able to initiate, resume or continue clinical trials for our current or potential future product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or other regulatory authorities.
Any claims of patent infringement asserted by third parties would be time consuming and could: • result in costly litigation that may cause negative publicity; • divert the time and attention of our technical personnel and management; • cause development delays; • prevent us from commercializing any of our product candidates until the asserted patent expires or is held finally invalid or not infringed in a court of law; • require us to develop non-infringing technology, which may not be possible on a cost-effective basis; 69 • subject us to significant liability to third parties; or • require us to enter into royalty or licensing agreements, which may not be available on commercially reasonable terms, or at all, or which might be non-exclusive, which could result in its competitors gaining access to the same technology.
Any claims of patent infringement asserted by third parties would be time consuming and could: 62 • result in costly litigation that may cause negative publicity; • divert the time and attention of our technical personnel and management; • cause development delays; • prevent us from commercializing any of our product candidates until the asserted patent expires or is held finally invalid or not infringed in a court of law; • require us to develop non-infringing technology, which may not be possible on a cost-effective basis; • subject us to significant liability to third parties; or • require us to enter into royalty or licensing agreements, which may not be available on commercially reasonable terms, or at all, or which might be non-exclusive, which could result in its competitors gaining access to the same technology.
If we are unable to successfully obtain rights to required third-party intellectual property rights or maintain the existing intellectual property rights we have, it may have to abandon development of the relevant program or product candidate, which could have a material adverse effect on its business, financial condition, results of operations, and prospects.
If we are unable to successfully obtain rights to required third-party intellectual property rights or maintain the existing intellectual property rights we have, it may have to 65 abandon development of the relevant program or product candidate, which could have a material adverse effect on its business, financial condition, results of operations, and prospects.
Any business interruption may have a material and adverse effect on our business, financial condition, results of operations and prospects. 55 Changes in methods of product candidate manufacturing or formulation may result in the need to perform new clinical trials, which would require additional costs and cause delay.
Any business interruption may have a material and adverse effect on our business, financial condition, results of operations and prospects. Changes in methods of product candidate manufacturing or formulation may result in the need to perform new clinical trials, which would require additional costs and cause delay.
For these reasons, we may not be able to utilize a material portion of the NOLs reflected on our balance sheet, even if we attain profitability, which could potentially result in increased future tax liability to us and could adversely affect our operating results and financial condition.
For these reasons, we may not be able to utilize a material portion of the NOLs reflected on our balance sheet, even if we attain profitability, which may result in increased future tax liability to us and could adversely affect our operating results and financial condition.
If we or our licensors were to initiate legal proceedings against a third party to enforce a patent covering one of our product candidates or our technology, the defendant could counterclaim that such patent is invalid or unenforceable. In patent litigation in the United States, 68 defendant counterclaims alleging invalidity or unenforceability are commonplace.
If we or our licensors were to initiate legal proceedings against a third party to enforce a patent covering one of our product candidates or our technology, the defendant could counterclaim that such patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace.
Because we have limited financial and human resources, we intend to initially focus on research programs and product candidates for a limited set of indications. As a result, we may forgo or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential or a greater likelihood of success.
Because we have limited financial and human resources, we intend to initially focus on research programs and product candidates for a limited set of indications. As a result, we may forgo or delay pursuit of opportunities with other product candidates or for other 38 indications that later prove to have greater commercial potential or a greater likelihood of success.
Even if one of our product candidates receives orphan 53 exclusivity, the FDA can still approve other drugs that have a different active ingredient for use in treating the same indication or disease. Furthermore, the FDA can waive orphan exclusivity if we are unable to manufacture sufficient supply of our product.
Even if one of our product candidates receives orphan exclusivity, the FDA can still approve other drugs that have a different active ingredient for use in treating the same indication or disease. Furthermore, the FDA can waive orphan exclusivity if we are unable to manufacture sufficient supply of our product.
We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Furthermore, it is too early to estimate our cost of goods sold.
We may also have to take inventory 45 write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Furthermore, it is too early to estimate our cost of goods sold.
If we are unable to maintain proper and effective internal controls over financial reporting, the accuracy and timeliness of our financial reporting and the market price of our common stock may be adversely affected. 56 Effective internal controls are necessary for us to provide reliable financial reports and to protect from fraudulent, illegal or unauthorized transactions.
If we are unable to maintain proper and effective internal controls over financial reporting, the accuracy and timeliness of our financial reporting and the market price of our common stock may be adversely affected. Effective internal controls are necessary for us to provide reliable financial reports and to protect from fraudulent, illegal or unauthorized transactions.
As we conduct preclinical studies and clinical trials of SZN-1326, SZN-043, SZN-413 and other potential future product candidates, we are and will be exposed to significant product liability risks inherent in the development, testing, manufacturing and marketing of these product candidates. Product liability claims could delay or prevent completion of development programs.
As we conduct preclinical studies and clinical trials of SZN-043, SZN-413 and other potential future product candidates, we are and will be exposed to significant product liability risks inherent in the development, testing, manufacturing and marketing of these product candidates. Product liability claims could delay or prevent completion of development programs.
We may be unable to prevent competitors from entering the market with a product that is similar or identical to SZN-1326, SZN-043, SZN-413 or any future product candidates. The filing of a patent application or the issuance of a patent is not conclusive as to its ownership, inventorship, scope, patentability, validity or enforceability.
We may be unable to prevent competitors from entering the market with a product that is similar or identical to SZN-043, SZN-413 or any future product candidates. The filing of a patent application or the issuance of a patent is not conclusive as to its ownership, inventorship, scope, patentability, validity or enforceability.
Conducting clinical trials outside the United States also exposes us to additional risks, including risks associated with: • additional foreign regulatory requirements; • foreign exchange fluctuations; • compliance with foreign manufacturing, customs, shipment and storage requirements; • cultural differences in medical practice and clinical research; and • diminished protection of intellectual property in some countries.
Conducting clinical trials outside the United States also exposes us to additional risks, including risks associated with: • additional foreign regulatory requirements; 69 • foreign exchange fluctuations; • compliance with foreign manufacturing, customs, shipment and storage requirements; • cultural differences in medical practice and clinical research; and • diminished protection of intellectual property in some countries.
Our business involves significant risks that may have a material adverse effect on our business, financial condition, results of operations, prospects and stock price. These risks are more fully described below and include, among others: • We are an clinical-stage biopharmaceutical company with a history of losses.
Our business involves significant risks that may have a material adverse effect on our business, financial condition, results of operations, prospects and stock price. These risks are more fully described below and include, among others: • We are a clinical stage biopharmaceutical company with a history of losses.
Furthermore, if we or any current or future collaborator succeed in developing any products, we anticipate marketing them in the European Union, or EU, and other jurisdictions in addition to the United States. If approved, we or any future collaborator may hire sales representatives and conduct physician and patient association outreach activities outside of the United States.
Furthermore, if we or any current or future collaborator succeed in developing any products, we anticipate marketing them in the European Union, or EU, and other jurisdictions in addition to the United States. If approved, we or any 50 future collaborator may hire sales representatives and conduct physician and patient association outreach activities outside of the United States.
We depend on sophisticated information technology systems and data processing to operate our business. If we experience security or data privacy breaches or other unauthorized or improper access to, use of, or destruction of its proprietary or confidential data, employee data or personal data, we may face costs, significant liabilities, harm to its brand and business disruption.
We depend on sophisticated information technology systems and data processing to operate our business. If we experience security or data privacy breaches or other unauthorized or improper access to, use of, or destruction of our proprietary or confidential data, employee data or personal data, we may face costs, significant liabilities, harm to our brand and business disruption.
SZN-1326, SZN-043, SZN-413 and any potential future product candidates are subject to extensive governmental regulations relating to, among other things, research, testing, development, manufacturing, safety, efficacy, approval, recordkeeping, reporting, labeling, storage, packaging, advertising and promotion, pricing, marketing and distribution of therapeutic biologics.
SZN-043, SZN-413 and any potential future product candidates are subject to extensive governmental regulations relating to, among other things, research, testing, development, manufacturing, safety, efficacy, approval, recordkeeping, reporting, labeling, storage, packaging, advertising and promotion, pricing, marketing and distribution of therapeutic biologics.
Substantially all of our losses have resulted from expenses incurred in connection with its research and development programs and from general and administrative costs associated with our operations. To date, we have not generated any revenue from product sales, and have not sought or obtained regulatory approval for any product candidate.
Substantially all of our losses have resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations. To date, we have not generated any revenue from product sales, and have not sought or obtained regulatory approval for any product candidate.
Undesirable side effects caused by SZN-1326, SZN-043, SZN-413 or any potential future product candidate could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other regulatory authorities.
Undesirable side effects caused by SZN-043, SZN-413 or any potential future product candidate could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other regulatory authorities.
Any of these occurrences or failure to resolve the findings related to SZN-1326 and SZN-043 may materially and adversely affect our business and financial condition and impair our ability to generate revenues. Further, clinical trials by their nature use a sample of the potential patient population.
Any of these occurrences or failure to resolve the findings related to SZN-043 may materially and adversely affect our business and financial condition and impair our ability to generate revenues. Further, clinical trials by their nature use a sample of the potential patient population.
Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and possibly other state and national anti-bribery and anti-money 80 laundering laws in countries in which we conduct activities.
Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and possibly other state and national anti-bribery and anti-money laundering laws in countries in which we conduct activities.
In addition, we may redeem your Public Warrants after they become exercisable for a number of shares of Common Stock determined based on the redemption date and the fair market value of our Common Stock. Any such redemption may have similar consequences to a cash redemption described above.
In addition, we may redeem public warrants after they become exercisable for a number of shares of common stock determined based on the redemption date and the fair market value of our common stock. Any such redemption may have similar consequences to a cash redemption described above.
We may not be able to receive any or all of the funds from Lincoln Park because of the limitations, restrictions, requirements, events of default and other provisions contained in the purchase agreement that could limit our ability to cause Lincoln Park to purchase our common stock.
We may not be able to receive any or all of the funds from Lincoln Park because of the limitations, restrictions, 35 requirements, events of default and other provisions contained in the purchase agreement that could limit our ability to cause Lincoln Park to purchase our common stock.
In order to conduct clinical trials for SZN-1326 and SZN-043 as well as any potential future product candidates or commercialize, we will need to manufacture large quantities of these product candidates. We may continue to and currently expect to use third parties for our manufacturing needs.
In order to conduct clinical trials for SZN-043 as well as any potential future product candidates or commercialize, we will need to manufacture large quantities of these product candidates. We may continue to and currently expect to use third parties for our manufacturing needs.
In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, such announcements could have a material adverse effect on the price of our common stock.
In addition, there could be public announcements of the results of hearings, motions or other interim 61 proceedings or developments and if securities analysts or investors perceive these results to be negative, such announcements could have a material adverse effect on the price of our common stock.
In addition, any delays in completing our clinical trials will increase our costs, slow our product development and approval process and jeopardize our ability to commence product sales and generate revenue. Any of these occurrences may materially and adversely affect our business, 74 financial condition, results of operations and prospects.
In addition, any delays in completing our clinical trials will increase our costs, slow our product development and approval process and jeopardize our ability to commence product sales and generate revenue. Any of these occurrences may materially and adversely affect our business, financial condition, results of operations and prospects.
Similarly, the Swiss Federal Data Protection and Information Commissioner has opined that the Swiss-U.S. Privacy Shield is inadequate for transfers of data from Switzerland to the U.S. The United Kingdom, or UK, whose data protection laws are similar to those of the EU, may similarly determine that the EU-U.S.
Similarly, the Swiss Federal Data Protection and Information Commissioner has opined that the Swiss-U.S. Privacy Shield is inadequate for transfers of data from Switzerland to the U.S. The United Kingdom, or UK, whose data protection laws are similar to those of the EU, may similarly 52 determine that the EU-U.S.
Our ability to achieve or sustain profitability, if ever, will depend on, among other things, successfully developing product candidates, resuming clinical trials for SZN-1326, continuing clinical trials for SZN-043, successful development and testing of SZN-413 through our partnership with Boehringer Ingelheim International GmbH, or BI, obtaining regulatory approvals to market and commercialize product candidates, manufacturing any approved products on commercially reasonable terms, entering into potential future alliances, establishing a sales and marketing organization or suitable third-party alternatives for any approved product and raising sufficient funds to finance business activities.
Our ability to achieve or sustain profitability, if ever, will depend on, among other things, successfully developing product candidates, continuing clinical trials for SZN-043, successful development and testing of SZN-413 through our partnership with Boehringer Ingelheim International GmbH, or BI, obtaining regulatory approvals to market and commercialize product candidates, manufacturing any approved products on commercially reasonable terms, entering into potential future alliances, establishing a sales and marketing organization or suitable third-party alternatives for any approved product and raising sufficient funds to finance business activities.
In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist in formulating research and development and commercialization strategies. Our consultants and advisors may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.
In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist in formulating research and development and commercialization strategies. Our consultants and advisors 49 may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.
The foreign regulatory approval process varies among countries and may include all of the risks associated with FDA approval described above as well as risks attributable to the satisfaction of local regulations in foreign jurisdictions. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.
The foreign regulatory approval process varies 68 among countries and may include all of the risks associated with FDA approval described above as well as risks attributable to the satisfaction of local regulations in foreign jurisdictions. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.
We have the ability to redeem outstanding Public Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per Public Warrant, provided that the last reported sales price of our Common Stock equals or exceeds $18 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date on which we give proper notice of such redemption and provided certain other conditions are met.
We have the ability to redeem outstanding public warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per public warrant, provided that the last reported sales price of our common stock equals or exceeds $270 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date on which we give proper notice of such redemption and provided certain other conditions are met.
Although our research and development efforts to date have resulted in the discovery and development of SZN-1326, SZN-043, SZN-413 and other potential product candidates, our current product candidates may not be safe or effective therapeutics and we may not be able to develop any successful product candidates.
Although our research and development efforts to date have resulted in the discovery and development of SZN-043, SZN-413 and other potential product candidates, our current product candidates may not be safe or effective therapeutics and we may not be able to develop any successful product candidates.
It is possible that defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, for example with respect to proper priority claims, inventorship, claim scope, or requests for patent term adjustments.
It is possible that defects of form in the preparation or filing of our patents or patent applications may 58 exist, or may arise in the future, for example with respect to proper priority claims, inventorship, claim scope, or requests for patent term adjustments.
In such an event, potential competitors might be able to enter the 72 market with similar or identical product candidates or platforms, which could have a material adverse effect on our business prospects and financial condition.
In such an event, potential competitors might be able to enter the market with similar or identical product candidates or platforms, which could have a material adverse effect on our business prospects and financial condition.
Moreover, disputes may arise regarding intellectual property subject to a licensing agreement, including: 66 • the scope of rights granted under the license agreement and other interpretation-related issues; • the extent to which product candidates, technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; • the sublicensing of patent and other rights under our collaborative development relationships; • our diligence obligations under the license agreement and what activities satisfy those diligence obligations; • the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our collaborators; and • the priority of invention of patented technology.
Moreover, disputes may arise regarding intellectual property subject to a licensing agreement, including: • the scope of rights granted under the license agreement and other interpretation-related issues; • the extent to which product candidates, technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; 59 • the sublicensing of patent and other rights under our collaborative development relationships; • our diligence obligations under the license agreement and what activities satisfy those diligence obligations; • the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our collaborators; and • the priority of invention of patented technology.
To raise capital, we may sell 82 common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities, investors may be materially diluted by subsequent sales.
To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities, investors may be materially diluted by subsequent sales.
The enrollment of patients depends on many factors, including: • the severity of the disease under investigation; • the patient eligibility criteria defined in the clinical trial protocol; • the size of the patient population required for analysis of the trial’s primary endpoints; • the proximity and availability of clinical trial sites for prospective patients; • willingness of physicians to refer their patients to our clinical trials; • our ability to recruit clinical trial investigators with the appropriate competencies and experience; • clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating; • our ability to obtain and maintain patient consents; • the risk that patients enrolled in clinical trials will drop out of the trials before completion; and • factors we cannot control that may limit patients, principal investigators or staff or clinical site available, including restrictions related to the COVID-19 pandemic and the conflict between Russia and Ukraine.
The enrollment of patients depends on many factors, including: • the severity of the disease under investigation; • the patient eligibility criteria defined in the clinical trial protocol; • the size of the patient population required for analysis of the trial’s primary endpoints; • the proximity and availability of clinical trial sites for prospective patients; • willingness of physicians to refer their patients to our clinical trials; • our ability to recruit clinical trial investigators with the appropriate competencies and experience; • clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating; • our ability to obtain and maintain patient consents; • the risk that patients enrolled in clinical trials will drop out of the trials before completion; and • factors we cannot control that may limit patients, principal investigators or staff or clinical site available, including restrictions related to the conflict between Russia and Ukraine.
We also are, or may be asserted to be, subject to the terms of our external and internal privacy and security policies, representations, certifications, publications and frameworks and contractual obligations to third parties related to privacy, data protection, information security and processing.
We also are, or may be asserted to be, subject to the terms of our external and internal privacy and security policies, representations, certifications, publications and frameworks and contractual obligations to third parties related to privacy, data protection, information 53 security and processing.
If SZN-1326, SZN-043 or potential future product candidates advance through preclinical studies and clinical trials, we will need substantial additional funds to expand our development, regulatory, manufacturing, marketing and sales capabilities.
If SZN-043 or potential future product candidates advance through preclinical studies and clinical trials, we will need substantial additional funds to expand our development, regulatory, manufacturing, marketing and sales capabilities.
Healthcare legislative reform measures may have a material adverse effect on our business and results of operations. In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs.
Healthcare legislative reform measures may have a material adverse effect on our business and results of operations. 70 In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs.
For example, over the last several years, the U.S. government has shut down several times, and certain regulatory authorities, such as the FDA and the SEC, have had to furlough critical employees and stop critical activities.
For example, over the last several years, the U.S. government has shut down several times, and certain regulatory authorities, such as the FDA and the SEC, have had to furlough critical 74 employees and stop critical activities.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties. Our principal executive offices are located in South San Francisco, California, pursuant to a lease that expires in 2025. We believe that our current facilities are adequate to meet our ongoing needs and, if we require additional space, we will be able to obtain additional facilities on commercially reasonable terms.
Biggest changeItem 2. Properties. Our principal executive office is located in South San Francisco, California, pursuant to a lease that expires in April 2025. We believe that our current facility is adequate to meet our ongoing needs and, if we require additional space, we will be able to obtain additional facilities on commercially reasonable terms.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. From time to time, we may be subject to legal proceedings. We are not currently a party to or aware of any proceedings that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations.
Biggest changeItem 3. Legal Proceedings. 80 From time to time, we may be subject to legal proceedings. We are not currently a party to or aware of any proceedings that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations.
Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors. Item 4. Mine Safety Disclosures. Not applicable. 87 PART II
Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors. Item 4. Mine Safety Disclosures. Not applicable. 81 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+1 added−4 removed2 unchanged
Biggest changeThese amounts do not include stockholders for whom shares are held in street name by banks, brokers and other nominees. Securities Authorized for Issuance under Equity Compensation Plans The information required by this item regarding our equity compensation plans is hereby incorporated by reference from Part III, Item 12.
Biggest changeSecurities Authorized for Issuance under Equity Compensation Plans The information required by this item regarding our equity compensation plans is hereby incorporated by reference from Part III, Item 12. “ Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters-Equity Compensation Plan Information ” of this Annual Report.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our Common Stock and Public Warrants are currently listed on Nasdaq under the symbols “SRZN” and “SRZNW”, respectively.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock and public warrants are currently listed on the Nasdaq Capital Market under the symbols “SRZN” and “SRZNW”, respectively.
Recent Sales of Unregistered Equity Securities There were no sales of unregistered securities during the period covered by this Report other than those previously reported in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.
Recent Sales of Unregistered Equity Securities There were no sales of unregistered securities during the period covered by this Annual Report other than those previously reported in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K. Issuer Purchases of Equity Securities Not applicable. Item 6. [Reserved] 82
“ Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters-Equity Compensation Plan Information ” of this Report. Dividends We have never declared or paid, and do not anticipate declaring or paying, any cash dividends on any of our capital stock.
Dividends We have never declared or paid, and do not anticipate declaring or paying, any cash dividends on any of our capital stock.
Removed
Prior to the consummation of the Business Combination, Consonance’s Class A ordinary shares, units and warrants were listed on Nasdaq under the symbols “CHFW,” “CHFW.U” and “CHFW.W,” respectively. Holders As of March 1, 2023, there were 73 holders of record of our shares of Common Stock and 26 holders of record of our Public Warrants.
Added
Holders As of March 31, 2024, there were 56 holders of record of our shares of common stock and 15 holders of record of our public warrants. These amounts do not include stockholders for whom shares are held in street name by banks, brokers and other nominees.
Removed
Issuer Purchases of Equity Securities The following table sets forth information with respect to shares of our common stock and warrants purchased by the Company during each of the three fiscal months in our fourth quarter ended December 31, 2022: Period Total Number of Shares (or Units) Purchased (1) Average Price Paid per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs October 1, 2022 through October 31, 2022 — $ — — — November 1, 2022 through November 30, 2022 — — — — December 1, 2022 through December 31, 2022 6,692,995 0.4 — — Total 6,692,995 $ 0.4 — — (1) On December 12, 2022, Surrozen, Inc. entered into a securities purchase agreement with entities affiliated with Consonance Capital Management LP, collectively the Consonance Entities.
Removed
Pursuant to the agreement, on December 15, 2022, we repurchased an aggregate of 5,382,499 shares of our common stock and warrants to purchase an aggregate 1,310,496 shares of our common stock from the Consonance Entities for an aggregate purchase price of approximately $2.7 million.
Removed
The shares of common stock were returned to authorized and unissued status and the warrants were cancelled. Following the repurchase, the Consonance Entities no longer hold any shares of Surrozen common stock or warrants to purchase Surrozen common stock. Item 6. [Reserved] 88

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations Comparison of the years ended December 31, 2022 and 2021 The following table summarizes results of operations for the periods presented (in thousands): Year Ended December 31, $ % 2022 2021 Change Change Collaboration and license revenue $ 12,500 $ — $ 12,500 * Operating expenses: Research and development 37,013 40,177 (3,164 ) -8 % General and administrative 19,826 14,214 5,612 39 % Total operating expenses 56,839 54,391 2,448 5 % Loss from operations (44,339 ) (54,391 ) 10,052 -18 % Interest income 781 72 709 * Other income (expense), net 7,554 (329 ) 7,883 * Net loss $ (36,004 ) $ (54,648 ) $ 18,644 -34 % * Percentage is not meaningful Research and Development Expenses The following table summarizes research and development expenses for the periods presented (in thousands): Year Ended December 31, $ % 2022 2021 Change Change SZN-1326 $ 8,827 $ 14,483 $ (5,656 ) -39 % SZN-043 11,702 11,271 431 4 % Discovery and preclinical stage programs 16,484 14,423 2,061 14 % Total research and development expenses $ 37,013 $ 40,177 $ (3,164 ) -8 % The decrease of $5.7 million, or 39%, in SZN-1326 program expenses for the year ended December 31, 2022, compared to the year ended December 31, 2021, is primarily due to the completion of manufacturing drug substance.
Biggest changeOther Income, Net Other income, net primarily consists of the gain on the change in fair value of warrant liabilities. 86 Results of Operations Comparison of the Years Ended December 31, 2023 and 2022 The following table summarizes results of operations for the periods presented (dollars in thousands): Year Ended December 31, $ % 2023 2022 Change Change Collaboration and license revenue $ — $ 12,500 $ (12,500 ) -100 % Operating expenses: Research and development 27,230 37,013 (9,783 ) -26 % General and administrative 15,798 19,826 (4,028 ) -20 % Restructuring 2,752 — 2,752 * Total operating expenses 45,780 56,839 (11,059 ) -19 % Loss from operations (45,780 ) (44,339 ) (1,441 ) 3 % Interest income 2,340 781 1,559 200 % Other income, net 398 7,554 (7,156 ) -95 % Net loss $ (43,042 ) $ (36,004 ) $ (7,038 ) 20 % * Percentage is not meaningful Research and Development Expenses The following table summarizes research and development expenses for the periods presented (dollars in thousands): Year Ended December 31, $ % 2023 2022 Change Change SZN-043 $ 11,240 $ 11,702 $ (462 ) -4 % SZN-1326 5,913 8,827 (2,914 ) -33 % Discovery and preclinical stage programs 10,077 16,484 (6,407 ) -39 % Total research and development expenses $ 27,230 $ 37,013 $ (9,783 ) -26 % The decrease of $0.5 million, or 4%, in SZN-043 program expenses for 2023, compared to 2022, is primarily due to the workforce reductions effective in 2023.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K, or this Report. This discussion includes both historical information and forward-looking statements that involve risks, uncertainties and assumptions.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K, or this Annual Report. This discussion includes both historical information and forward-looking statements that involve risks, uncertainties and assumptions.
Subject to certain conditions set forth in the JOBS Act, if, as an EGC, we intend to rely on such exemptions, we are not required to, among other things: (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act; (iii) comply with any requirement that may be adopted by the 100 Public Company Accounting Oversight Board; and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.
Subject to certain conditions set forth in the JOBS Act, if, as an EGC, we intend to rely on such exemptions, we are not required to, among other things: (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act; (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board; and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.
Under the terms of the CLA, BI paid a non-refundable upfront payment of $12.5 million less applicable withholding tax, and we are eligible to receive success-based milestone payments up to $587.0 million and mid-single digit to low-double digit royalties on net sales of the licensed products should any reach commercialization.
Under the terms of the CLA, BI paid us a non-refundable upfront payment of $12.5 million less applicable withholding tax, and we are eligible to receive success-based milestone payments up to $587.0 million and mid-single digit to low-double digit royalties on net sales of the licensed products should any reach commercialization.
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; 91 • costs of laboratory supplies and acquiring, developing and manufacturing drug candidate materials; and • license and sublicense costs under our license agreements made for intellectual property used in research and development activities.
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 and sublicense costs under our license agreements made for intellectual property used in research and development activities.
Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those discussed in the sections titled “Item 1A. Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Report.
Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those discussed in the sections titled “Item 1A. Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Annual Report.
We expect that our research and development expenses will increase for the foreseeable future as we identify and develop product candidates, in particular as we seek to continue clinical trials and pursue regulatory approval and commercialization for SZN-1326 and SZN-043. The successful development of our product candidates is highly uncertain.
We expect that our research and development expenses will increase for the foreseeable future as we identify and develop product candidates, in particular as we seek to continue clinical trials and pursue regulatory approval and commercialization for SZN-043. The successful development of our product candidates is highly uncertain.
If we are unable to obtain additional funding from these or other sources when needed, it may be necessary to significantly reduce expenses through reductions in staff and delaying, scaling back operations, or stopping certain research and development programs.
If we are unable to obtain additional funding from these or other sources when needed, we may be necessary to significantly reduce expenses through reductions in staff and delaying, scaling back operations, or stopping certain research and development programs.
GAAP. The preparation of these 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 consolidated financial statements, as well as the reported expenses incurred during the reporting periods.
The preparation of these 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 consolidated financial statements, as well as the reported expenses incurred during the reporting periods.
While our significant accounting policies are described in the notes to our consolidated financial statements included elsewhere in this Report, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.
While our significant accounting policies are described in the notes to our consolidated financial statements included elsewhere in this Annual Report, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.
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 94 development activities, engaging in strategic transactions, establishing and enhancing our intellectual property portfolio, and providing general and administrative support for these operations.
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 83 intellectual property portfolio, and providing general and administrative support for these operations.
At this time, we cannot reasonably estimate the nature, timing or costs required to complete the remaining development of SZN-1326, SZN-043 or any future product candidates.
At this time, we cannot reasonably estimate the nature, timing or costs required to complete the remaining development of SZN-043 or any future product candidates.
Given that the amount and timing related to such payments are uncertain, they are not considered to be contractual obligations. As of December 31, 2022, we had not accrued for any termination or cancellation charges as these were not considered probable.
Given that the amount and timing related to such payments are uncertain, they are not considered to be contractual obligations. As of December 31, 2023, we had not accrued for any termination or cancellation charges as these were not considered probable.
The payment obligations under the license agreements are contingent upon future events, such as our achievement of specified milestones or generating product sales. As of December 31, 2022, we were unable to estimate the timing or likelihood of achieving these milestones or generating future product sales.
The payment obligations under the license agreements are contingent upon future events, such as our achievement of specified milestones or generating product sales. As of December 31, 2023, we were unable to estimate the timing or likelihood of achieving these milestones or generating future product sales.
We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date the Company (i) is no longer an EGC or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.
We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an EGC or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.
The incremental costs of obtaining a customer contract are expensed as and when incurred if the amortization period of the asset that would have been recognized is one year or less. Research and Development Expense Research and development costs are expensed as incurred.
The incremental costs of obtaining a customer contract are expensed as and when incurred if the amortization period of the asset that would have been recognized is one year or less. Research and Development Expenses Research and development costs are expensed as incurred.
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 and clinical studies, in particular our current ongoing clinical studies of SZN-1326 and SZN-043; • the outcome, costs, and timing involved in obtaining regulatory approvals for our lead product candidates or our other product candidates; • the achievement of milestones that trigger payments to us and the timing, receipt and amount of royalties under the CLA and any collaboration and license agreement we may enter in the future; • 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, SZN-043 and any other 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 U.S. and worldwide from the conflict between Russia and Ukraine and the COVID-19 pandemic.
Our future funding requirements will depend on many factors, including, but not limited to: 88 • the scope, rate of progress, results and costs of researching and developing our lead product candidates or any future product candidates, conducting preclinical and clinical studies, in particular our current ongoing clinical study of SZN-043; • the outcome, costs, and timing involved in obtaining regulatory approvals for our product candidates; • the achievement of milestones that trigger payments to us and the timing, receipt and amount of royalties under the CLA and any collaboration and license agreement we may enter in the future; • 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-043 and any other 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 U.S. and worldwide.
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 availability of alternate treatments and the limited pool of eligible patients in certain disease areas; • 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 current and future business partners, if any; • 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 Russia and Ukraine and the current COVID-19 pandemic environment; • the impact of inflation on our expenses; • launching commercial sales of our drug candidates, if approved, whether alone or in collaboration with others; 92 • 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.
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; 85 • 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, the availability of alternate treatments and the limited pool of eligible patients in certain disease areas; • 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 current and future business partners, if any; • 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; • the impact of inflation on our expenses; • 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.
We do not expect to generate any revenue from the sale of our products unless and until we obtain regulatory clearance or approval. Operating Expenses We classify operating expenses into two main categories: (i) research and development expenses and (ii) general and administrative expenses.
We do not expect to generate any revenue from the sale of our products unless and until we obtain regulatory clearance or approval. Operating Expenses We classify operating expenses into three main categories: (i) research and development expenses, (ii) general and administrative expenses and (iii) restructuring expenses.
Contractual Obligations and Commitments As of December 31, 2022, we have lease obligations primarily consisting of one operating lease for our facility. The lease expires in April 2025. Under the terms of our operating leases, we had lease obligations consisting of $6.2 million in payments through 2025 as of December 31, 2022.
Contractual Obligations and Commitments As of December 31, 2023, we have lease obligations primarily consisting of one operating lease for our facility. The lease expires in April 2025. Under the terms of our operating leases, we had lease obligations of $3.6 million in payments through 2025 as of December 31, 2023.
Cash (Used in) Provided by Financing Activities Cash used in financing activities of $2.6 million for the year ended December 31, 2022 consisted primarily of $2.7 million of cash used for the repurchase of common stock and warrants, partially offset by $0.1 million of proceeds from the issuance of common stock under the employee stock purchase plan.
Cash used in financing activities of $2.6 million for 2022 consisted primarily of $2.7 million of cash used for the repurchase of common stock and warrants, partially offset by $0.1 million of proceeds from the issuance of common stock under the employee stock purchase plan.
The net change in our operating assets and liabilities was primarily due to an increase in accounts receivable and a net decrease in accounts payable and accrued and other liabilities.
The net change in our operating assets and liabilities was primarily due to a net decrease in accounts payable and accrued and other liabilities.
Cash Provided by (Used in) Investing Activities Cash provided by investing activities of $38.3 million for the year ended December 31, 2022 consisted primarily of $68.6 million of proceeds from the maturities of marketable securities, partially offset by $29.6 million of cash used for the purchase of marketable securities and $0.8 million of cash used for the purchase of property and equipment.
Cash provided by investing activities of $38.3 million for 2022 consisted primarily of $68.6 million of proceeds from the maturities of marketable securities, partially offset by $29.6 million of cash used for the purchase of marketable securities and $0.8 million of cash used for the purchase of property and equipment.
Recent Accounting Pronouncements See Note 2 to our consolidated financial statements included in this Report for more information about recent accounting pronouncements, the timing of their adoption and our assessment, to the extent they have been made, of their potential impact on our financial condition and results of operations and cash flows.
Recent Accounting Pronouncements See Note 2 to our consolidated financial statements included in this Annual Report for more information about recent accounting pronouncements, the timing of their adoption and our assessment, to the extent they have been made, of their potential impact on our consolidated financial statements.
General and administrative expenses also include legal, audit, tax and other consulting fees, 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 SEC and Nasdaq.
General and administrative expenses also include legal, audit, tax and other consulting fees, 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 SEC and Nasdaq. Restructuring Expenses Restructuring expenses include costs in connection with the workforce reductions implemented in 2023.
We received $10.5 million of the upfront payment from BI in November 2022 and expect to receive the refund of the associated withholding tax of $2.0 million in 2023. The non-refundable upfront payment of $12.5 million was recognized as collaboration and license revenue for the year ended December 31, 2022.
We received $10.5 million of the upfront payment from BI in November 2022 and expect to receive the refund of the associated withholding tax of $2.2 million in 2024. The non-refundable upfront payment of $12.5 million was recognized as collaboration and license revenue in 2022.
Inflation generally affects us by increasing our labor costs, research and clinical trial costs. While we do not believe that inflation has had a material effect on our financial condition and results of operations during the periods presented, it may result in increased costs in the foreseeable future and adversely affect our 90 business and financial condition.
While we do not believe that inflation has had a material effect on our financial condition and results of operations during the periods presented, it may result in increased costs in the foreseeable future and adversely affect our business and financial condition.
We entered into an at-the-market sales agreement with Guggenheim Securities, LLC, in connection with a shelf registration statement on Form S-3 filed in December 2022, under which we may issue and sell up to $23.0 million of our common stock. To date we have not sold any shares of common stock under the sales agreement.
To date we have not sold any shares of common stock under the purchase agreement. Guggenheim “At-the-Market” Program We entered into an at-the-market sales agreement with Guggenheim Securities, LLC, in December 2022, under which we may issue and sell up to $23.0 million shares of our common stock.
Liquidity and Capital Resources Since inception, we have only generated collaboration and license revenue under the CLA with BI. We incurred significant net operating losses and negative cash flows from operations. Historically, we have financed our operations primarily through the sales of our equity securities and the payment received under our collaboration and license agreement.
We incurred significant net operating losses and negative cash flows from operations. Historically, we have financed our operations primarily through the sales of our equity securities and the payment received under our collaboration and license agreement.
We also have entered into patent and research license arrangements with third-parties, as described in Note 8 of the footnotes to the financial statements of this Report. The license agreements require milestone payments upon the achievement of certain regulatory and developmental stages. In addition, we will be required to pay royalties on sales of certain licensed products.
We also have entered into patent and research license arrangements with third-parties. The license agreements require milestone payments upon the achievement of certain regulatory and developmental stages. In addition, we will be required to pay royalties on sales of certain licensed products. As of December 31, 2023, we have incurred nominal fees and milestone payments under our license agreements.
We have incurred net losses since inception. For the years ended December 31, 2022 and 2021, we incurred net losses of $36.0 million and $54.6 million. As of December 31, 2022, we had an accumulated deficit of $178.7 million and cash, cash equivalents and marketable securities of $75.8 million.
We have incurred net losses since inception. For the years ended December 31, 2023 and 2022, we incurred net losses of $43.0 million and $36.0 million, respectively. As of December 31, 2023, we had an accumulated deficit of $221.7 million and cash and cash equivalents of $36.0 million.
Cash used in operating activities of $48.8 million for the year ended December 31, 2021 was primarily due to the use of funds in our operations and the resulting net loss of $54.6 million and a net change of $0.2 million in our net operating assets and liabilities, partially offset by $6.0 million in non-cash charges.
Cash used in operating activities of $44.1 million for 2022 was primarily due to the use of funds in our operations and the resulting net loss of $36.0 million and a net change of $8.4 million in our net operating assets and liabilities, partially offset by $0.3 million in non-cash charges.
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.
Unless otherwise indicated, the terms “Surrozen,” “we,” “us,” or “our” refer to Surrozen, Inc., a Delaware corporation. 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.
As of December 31, 2022, we have incurred nominal fees and milestone payments under our license agreements. Upon the achievement of further regulatory and developmental milestones and the sale of licensed products, we may incur significant fees and royalties under these licenses.
Upon the achievement of further regulatory and developmental milestones and the sale of licensed products, we may incur significant fees and royalties under these licenses.
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 Lincoln Park or under the at-the-market offering with Guggenheim and revenue derived from the CLA to be sufficient to provide all necessary financing until we are able to generate revenue on our own.
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 until we are able to generate revenue on our own.
We only apply the five-step model to contracts when it is probable that we will collect the consideration that we are entitled to in exchange for the goods or services transferred to the customer.
We only apply the five-step model to contracts when it is probable that we will collect the consideration that we are entitled to in exchange for the goods or services transferred to the customer. 90 At contract inception, we assess the goods or services promised within the contract, determine those that are performance obligations, and assess whether each promised good or service is distinct.
Payments made to third parties under these arrangements in advance of the performance of the related services are recorded as prepaid expenses until the services are rendered. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust accrued expenses or prepaid expenses accordingly, which impacts research and development expenses.
If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust accrued expenses or prepaid expenses accordingly, which impacts research and development expenses.
In January 2023, we implemented a restructuring plan approved by the Board of Directors to reduce our overall workforce by approximately 25%. We expect to substantially complete the workforce reduction by the end of first quarter of 2023 and estimate to incur one-time restructuring charges of approximately $1.2 million, including employee severance, benefits and related costs.
We completed the workforce reduction in the first quarter of 2023 and incurred one-time restructuring charges of approximately $1.2 million, including employee severance and other termination benefits. In July 2023, we adopted and executed another restructuring plan approved by our board of directors to further reduce our overall workforce by approximately 38%.
We entered into a purchase agreement and a registration rights agreement with Lincoln Park in February 2022, pursuant to which Lincoln Park is obligated to purchase up to $50.0 million of our common stock from time to time at our sole discretion over a 36-month period commencing on April 27, 2022.
Lincoln Park Equity Line of Credit We entered into a purchase agreement and a registration rights agreement with Lincoln Park in February 2022, pursuant to which Lincoln Park is obligated to purchase up to $50.0 million shares of our common stock, subject to the terms of the purchase agreement.
We constrain the estimate of the transaction price up to the amount (the variable consideration constraint) that a significant reversal of recognized revenue is not probable. We record accounts receivable for amounts billed to the customer for which we have an unconditional right to consideration. We assess accounts receivable for impairment and, to date, no impairment losses have been recorded.
We record accounts receivable for amounts billed to the customer for which we have an unconditional right to consideration. We assess accounts receivable for impairment and, to date, no impairment losses have been recorded.
We may also be required to sell or license to others our rights to any of our current or future product candidates or discovery programs in certain territories or indications that we would prefer to develop and commercialize ourselves. 95 Summary of Cash Flows The following table sets forth the primary sources and uses of cash, cash equivalents and restricted cash for the periods presented below (in thousands): Year Ended December 31, 2022 2021 Net cash used in operating activities $ (44,145 ) $ (48,813 ) Net cash provided by (used in) investing activities 38,309 (77,708 ) Net cash (used in) provided by financing activities (2,565 ) 124,630 Net decrease in cash, cash equivalents and restricted cash $ (8,401 ) $ (1,891 ) Cash Used in Operating Activities Cash used in operating activities of $44.1 million for the year ended December 31, 2022 was primarily due to the use of funds in our operations and the resulting net loss of $36.0 million and a net change of $8.4 million in our net operating assets and liabilities, partially offset by $0.3 million in non-cash charges.
Summary of Cash Flows The following table sets forth the primary sources and uses of cash, cash equivalents and restricted cash for the periods presented below (in thousands): Year Ended December 31, 2023 2022 Net cash used in operating activities $ (40,363 ) $ (44,145 ) Net cash provided by investing activities 51,723 38,309 Net cash provided (used in) by financing activities 276 (2,565 ) Net increase (decrease) in cash, cash equivalents and restricted cash $ 11,636 $ (8,401 ) Cash Used in Operating Activities Cash used in operating activities of $40.4 million for 2023 was primarily due to the use of funds in our operations and the resulting net loss of $43.0 million and a net change of $3.9 million in our net operating assets and liabilities, partially offset by $6.6 million in non-cash charges.
In addition, any future financing through sales of equity securities, including sales of common stock to Lincoln Park and under the at-the-market offering with Guggenheim, will cause our stockholders to experience dilution.
In addition, any future financing through sales of equity securities will cause our stockholders to experience dilution.
Components of Results of Operations Collaboration and License Revenue We had not generated any revenue prior to the execution of the CLA in October 2022.
Please see “ Part I, Item I – Business – Intellectual Property - Collaboration and Licensing Arrangements ” for a further discussion of our collaboration and licensing arrangements. 84 Components of Results of Operations Collaboration and License Revenue We had not generated any revenue prior to the execution of the CLA in October 2022.
Specifically, in the near term we expect to incur substantial expenses relating to our Phase 1 clinical trials, the development and validation of our manufacturing processes, and other research and development activities. Impact of Inflation Inflation has increased and is expected to continue to increase for the near future.
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. Please see Note 8 “ Restructuring ” to our consolidated financial statements for further discussion of our restructuring activities.
Funding Requirements To date, we have only generated revenue from our partnership with BI in connection with the CLA executed in October 2022.
All of the warrants issued in the private placement are outstanding as of the filing of this Annual Report. Funding Requirements To date, we have only generated revenue from our partnership with BI in connection with the CLA.
In February 2023, we cancelled certain studies with our contract manufacturing organization and incurred a cancellation fee equal to 50% of the contract price of the studies plus any raw materials and handling fees that have been incurred. 96 Critical Accounting Policies, Significant Judgments and Use of Estimates Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S.
Critical Accounting Policies, Significant Judgments and Use of Estimates Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP.
Interest Income The increase of $0.7 million in interest income for the year ended December 31, 2022, compared to the year ended December 31, 2021, is due to the increase in interest rates on our money market funds and marketable securities.
Restructuring The increase of $2.8 million in restructuring charges for 2023, compared to 2022, is attributable to workforce reductions implemented in 2023. Interest Income The increase of $1.6 million, or 200%, in interest income for 2023, compared to 2022, is due to the increase in market interest rates on our money market funds and marketable securities.
We estimate the amounts incurred in each period based on the information available and our knowledge of the nature of the contractual activities generating such costs. Clinical trial contract expenses are accrued based on units of activity.
We estimate the amounts incurred in each period based on the information available and our knowledge of the nature of the contractual activities generating such costs. Payments made to third parties under these arrangements in advance of the performance of the related services are recorded as prepaid expenses until the services are rendered.
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 89 bi-specific antibodies designed using our SWAP technology, including SZN-413.
Licensing Arrangements In October 2022, we executed the CLA with BI to research, develop and commercialize Fzd4 bi-specific antibodies designed using the our SWAP technology, including SZN-413. We and BI are conducting partnership research focused on SZN-413 during a one-year period, which BI extended for an additional six-month period.
If these conditions worsen or do not improve, our ability to raise capital and our shareholders' ability to sell their shares will be adversely affected.
In addition, inflation may cause us to experience greater uncertainty in general economic conditions and additional volatility in the market price of our common stock. If these conditions worsen or do not improve, our ability to raise capital and our stockholders’ ability to sell their shares will be adversely affected.
As of December 31, 2022, we had cash, cash equivalents and marketable securities of $75.8 million and accumulated deficit of $178.7 million. 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.
We believe, based on our current operating plan, that our existing cash, cash equivalents and the gross proceeds of approximately $17.6 million received in April 2024 from the closing of the private placement, before deducting placement agent fees and other expenses, will be sufficient to fund our operations for at least the next 12 months from the date of this Annual Report.
There can be no assurance that sufficient funds will be available to us at all or on attractive terms when needed from these sources.
Our ability to continue as a going concern in the long-term is dependent upon our ability to successfully secure sources of financing and ultimately achieve profitable operations. There can be no assurance that sufficient funds will be available to us at all or on attractive terms when needed from these sources.
Other Income (Expense), Net The increase of $7.9 million in other income (expense), net, for the year ended December 31, 2022, compared to the year ended December 31, 2021, is primarily attributable to a $7.8 million increase in gain on the change in fair value of warrant liabilities and a $0.4 million decrease in expense related to the warrant liabilities issued in connection with the Business Combination consummated in August 2011, offset by a $0.3 million increase in expenses related to the commitment shares issued to Lincoln Park under the Equity Purchase Agreement in February 2022.
Other Income, Net The decrease of $7.2 million, or 95%, in other income, net, for 2023, compared to 2022, is primarily attributable to a $7.7 million decrease in gain on the change in fair value of warrant liabilities, offset by a $0.3 million increase in expenses related to the commitment shares issued to Lincoln Park under the Equity Purchase Agreement in February 2022 and a $0.2 million increase in income related to the foreign currency remeasurement on the refund of the withholding tax associated with the upfront payment from BI. 87 Liquidity and Capital Resources Since inception, we have only generated collaboration and license revenue under the CLA with BI.
Accrued Research and Development Expense We record accruals for estimated costs of research, preclinical, clinical and manufacturing development, within accrued expenses which are significant components of research and development expenses. A substantial portion of our ongoing research and development activities is conducted by third-party service providers. We accrue the costs under agreements with these third parties as incurred.
A substantial portion of our preclinical studies, clinical trials and contract manufacturing activities is conducted by third-party service providers. We accrue for estimated costs of research and development activities conducted by third-party service providers based upon the estimated services provided but not yet invoiced, and we include these costs in accrued and other liabilities within the consolidated balance sheets.
At contract inception, we assess the goods or services promised within the contract, determine those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize revenue for the amount of the transaction price that is allocated to the respective performance obligations when or as the performance obligations are satisfied.
We then recognize revenue for the amount of the transaction price that is allocated to the respective performance obligations when or as the performance obligations are satisfied. We constrain the estimate of the transaction price up to the amount (the variable consideration constraint) that a significant reversal of recognized revenue is not probable.
The increase of $2.1 million, or 14% in discovery and preclinical stage program expenses for the year ended December 31, 2022, compared to the year ended December 31, 2021, is primarily due to the increase in personnel-related expenses as a result of a higher headcount.
The decrease of $6.4 million, or 39%, in discovery and preclinical stage program expenses for 2023, compared to 2022, is primarily due to the workforce reductions implemented in 2023 to focus our resources on our clinical stage programs.
Cash used in investing activities of $77.7 million for the year ended December 31, 2021 consisted primarily of $91.7 million of cash used for the purchase of marketable securities and $1.3 million of cash used for the purchase of property and equipment, partially offset by $15.3 million of proceeds from the sale and maturities of marketable securities.
The net change in our operating assets and liabilities was primarily due to an increase in accounts receivable and a net decrease in accounts payable and accrued and other liabilities. 89 Cash Provided by Investing Activities Cash provided by investing activities of $51.7 million for 2023 consisted primarily of $80.2 million of proceeds from the maturities of marketable securities, partially offset by $28.0 million of cash used for the purchases of marketable securities and $0.4 million of cash used for the purchases of property and equipment.
Removed
Unless otherwise indicated, the terms “Surrozen,” “we,” “us,” or “our” refer to Surrozen Operating, Inc., or Legacy Surrozen, prior to its Business Combination with Consonance-HFW Acquisition Corp. and Surrozen, Inc., formerly known as Consonance-HFW Acquisition Corp., together with its consolidated subsidiaries after giving effect to the Business Combination.
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Our unique approach and platform technologies have led to the discovery and advancement of two lead product candidates. The chart below represents a summary of our wholly owned product candidates: Please see “ Part I, Item I – Business ” for a further discussion of our product candidates and clinical development programs.
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Our unique approach and platform technologies have led to the discovery and advancement of two lead product candidates. We initiated a Phase 1 clinical trial in the second 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.
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Restructuring In January 2023, we implemented a restructuring plan approved by our board of directors to prioritize and focus our resources on key clinical and discovery programs. The plan included a reduction of our overall workforce by approximately 25%.
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SZN-1326, a Fzd5 targeted bi-specific antibody, is the first development candidate designed using Surrozen’s SWAP technology and targets the Wnt-signaling pathway in the intestinal epithelium. In preclinical animal models of acute and chronic colitis, SZN-1326 has been shown to transiently activate Wnt signaling in the diseased intestine, stimulate intestinal epithelial regeneration, reduce inflammation and reduce disease activity.
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We believe that the restructuring plan will enable us to better align our workforce with our business needs and focus more of our capital resources on our clinical stage programs.
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In November 2022, we announced that we voluntarily paused enrollment in the single ascending dose, or SAD, portion of our Phase 1 clinical trial evaluating SZN-1326 in healthy volunteers.
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We substantially completed the workforce reduction by the end of 2023, and incurred one-time restructuring charges of approximately $1.6 million, including employee severance and other termination benefits, to be recognized ratably over the requisite service period.
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Following the evaluation of the clinical data and further preclinical work, we will be re-initiating the Phase 1a clinical trial in healthy volunteers by mid-2023 based on the minimum anticipated biologically effective level (MABEL) and anticipate safety data by the end of 2023.
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Reverse Stock Split On December 13, 2023, we filed a certificate of amendment to our certificate of incorporation to effect a 1-for-15 reverse stock split of our issued and outstanding common stock, or the Reverse Stock Split.
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We anticipate initiating a Phase 1b clinical trial in ulcerative colitis patients in 2024 and expect proof of concept data to be potentially available in the second half of 2024. We initiated a Phase 1 clinical trial in the second quarter of 2022 for SZN-043, our candidate in development for severe alcoholic hepatitis, or AH.
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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.
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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.
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The Reverse Stock Split affected all shares of our 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 our equity incentive plans and employee stock purchase plan.
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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. We completed enrollment in the second cohort of the SZN-043 Phase 1a single ascending dose clinical trial in healthy volunteers in 2022.
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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.
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We opened enrollment for the Phase 1a clinical trial in chronic liver disease and enrolled the first patient in the first quarter of 2023. We anticipate initiating a Phase 1b clinical trial in 2024 in patients with severe alcoholic hepatitis with proof of concept data expected to be potentially available in the second half of 2024.
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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. Impact of Inflation Inflation has increased and is expected to continue to increase for the near future. Inflation generally affects us by increasing our labor costs, research and clinical trial costs.
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In the first quarter of 2022, we nominated SZN-413, a Fzd4 targeted bi-specific antibody, as a development candidate for the treatment of retinal vascular associated diseases. Fzd4 mediated Wnt signaling is known to play a critical role in retinal vascular integrity and function.
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These costs consist of employee severance and other termination benefits. Interest Income Interest income consists primarily of interest earned on our cash equivalents and marketable securities.
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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.
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The decrease of $2.9 million, or 33%, in SZN-1326 program expenses for 2023, compared to 2022, is primarily due to the completion of manufacturing drug substance and the workforce reductions effective in 2023.
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We anticipate the potential to identify the lead Fzd-4-targeted Wnt agonist product candidate by the end of 2023, which would trigger a $10.0 million milestone payment. The chart below represents a summary of our wholly owned product candidates: By leveraging our scientific capabilities and approach, we have identified multiple potential tissue types to explore.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk. We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information otherwise required under this item. 101
Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk. We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information otherwise required under this item. 92

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